LIABILITY FOR CORPORATE CRIMES

In recent years, the liability for crimes committed by companies has been a matter of intense scrutiny in many jurisdictions. However, the matter has relatively rarely been explored in our legal system. Eusof Babu and Ors v State and Others (LEX/BDAD/0092/2013) is one such rare case. In this case, the fundamental question was whether a prosecution for the dishonour of cheques drawn by companies for the insufficiency of funds in the respective bank accounts against the managing directors, directors, secretary, or other officers of the company could be maintainable even when the companies themselves are not included as accused parties.

The trial court held that such a prosecution is not maintainable because the primary offender, the company, is not prosecuted. The High Court Division (HCD) reversed that decision finding that even in the absence of the company as accused, the prosecution would be maintainable against directors, managers, or other officers who acted on behalf of the company. The Appellate Division (AD) by a 3-1 majority endorsed the HCD's judgement.

According to the majority judgment, under section 138 of the Negotiable Instruments Act, 1881 (NI Act) three categories of persons can be prosecuted for the dishonouring of cheques, namely: (i) the company which has committed the offence, (ii) every person who has been in-charge of the company and responsible for the business of the company at the time of the commission of offence; and (iii) director, manager, secretary or other officer of the company, due to whose connivance or neglect, the company has committed the offence. When the offence is committed by the company, the company alone in exclusion of other two categories of persons can be prosecuted and punished.

However, a prosecution would not fail in the absence of the company as an accused party, if it can be established that though the offence has been committed by the company, these persons have been responsible for the company's affairs or that the offence has been committed with their consent or neglect. The majority judgment found no such explicit bar in the NI Act.

The minority judgment emphasised on the separate entity of companies. The judgment found that the persons related to the company are indicted for the offence of aiding and abetting the company in the commission of an offence, not for doing anything separately on their own. Interestingly, it asked the question that if the company and other persons envisaged in section 138 of the NI Act have been prosecuted together, whether the natural persons working for the company can then be convicted when the company itself was not convicted. It answered in the negative. The minority judgement explains: If for any reason, prosecution against the company founders, it is unthinkable that those others could be convicted, because their cheques had not been bounced they are liable, only because they are “in-charge of and were responsible to the company, for the conduct of the business of the company,” at the time the offence was committed. Their indictment and possible conviction is inseparably and indivisibly dependent on these of the company for whose offence they face prosecution as the materialiser of the company's acts. (Para 119). 

According to the minority judgement, if sections 138 and 140 of the NI Act are read together, when a cheque issued by a company is dishonoured for the insufficiency of fund, it is the cheque issuing company which is the principal offender as it is such company's cheque that has been dishonoured. Those connected with the company and have acted to help the company to commit the crime, can only be liable for aiding and abetting the company in the commission of the crime. Thus, the minority judgment concluded that the HCD had erred in thinking that the cheques were issued by the directors concerned when at law the fact is that they were issued by the company, which is the owner of those cheques. It is difficult to disagree with the finding of the minority judgement that “[t]he directors only signed the company's cheques and thereby acted as the fuel injectors in the Company's commission of the offence. Section 140 of the Act made them vicariously liable…” (para 157).

It has to be said that the majority decision has observed that when a case for the dishonour of a cheque issued in the name of a company is filed against the company alone, excluding the person who was responsible for the affairs of the company, the prosecution would be valid (para 8). Again, in this particular case, the majority decision in its final order also left the option of the respondent to include the company as a party open (para 19) and thus, no practically unjust consequence may have ensued.

However, it would be respectfully submitted here that the majority decision has set a precedent that even when the company is liable for committing corporate crimes, only the directors and other persons in the high in the hierarchy could be prosecuted which in some cases, may create problems. For instance, in some cases, some persons in this category may not have the financial capacity to pay a large amount of fine that may be imposed in a criminal case, which could have been averted if the company, as the principal offender, is included as a necessary party.

In short, insisting on prosecuting the company as well as the top executives and management of the company for crimes committed by the company could have paved the way for ensuring greater liability of the companies.

The writer is an Associate Professor at School of Law, BRAC University.