The Supreme Court has held that criminal proceedings against a company cannot be quashed merely because the investigating agency failed to identify or arraign an employee, director or other natural person alongside the corporate entity.
The bench of Justice J.B. Pardiwala and Justice Manoj Misra ruled that the absence of an individually named corporate officer does not, by itself, prevent allegations from disclosing the company’s involvement or the requisite guilty intention.
The Court formulated a three-stage framework for determining when the acts and state of mind of a natural person can be attributed to a corporation. It noted that neither the Indian Penal Code nor the Bharatiya Nyaya Sanhita, 2023 provides comparable guidance on how corporate mens rea is to be determined.
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Allegations Relating to BARC Medicine Procurement
Sanofi India is a public limited company primarily engaged in manufacturing pharmaceutical products. The company supplied medicines for the Rare Materials Project of the Bhabha Atomic Research Centre during different financial years.
The CBI alleged that Dr. P. Anand, a Scientific Officer (Medical) at BARC, entered into a criminal conspiracy with the pharmaceutical company concerning the procurement of medicines and drugs.
According to the prosecution, medicines were procured from the company by allegedly misclassifying certain products as proprietary, excluding competing bidders from the tender process or declining to place orders with the lowest bidder after quotations had been received.
The CBI claimed that these transactions caused a wrongful loss of ₹3,53,361 to BARC and resulted in corresponding wrongful gain to the accused.
It was further alleged that Dr. Anand received illegal gratification of ₹42,750 from the company under different pretexts and without consideration. The company was accused of abetting the alleged offence.
The chargesheet invoked Section 120B read with Section 420 of the Indian Penal Code and Sections 11, 12 and 13 of the Prevention of Corruption Act, 1988.
However, no employee, director or official of Sanofi India was named as an accused in the chargesheet.
Karnataka High Court Refused to Quash Proceedings
After the trial court took cognisance and issued process, Sanofi India approached the Karnataka High Court under Section 482 of the Code of Criminal Procedure seeking quashing of the criminal proceedings.
The company argued that a corporate entity could not independently enter into a criminal conspiracy. Since a company acts only through natural persons, it contended that the prosecution was required to identify and prosecute the employee or official whose conduct and state of mind were sought to be attributed to it.
The Karnataka High Court rejected the contention and held that criminal prosecution against a corporate entity could be maintained even without arraigning its directors or persons responsible for its affairs.
The High Court observed that the chargesheet contained specific allegations that the company had received preferential treatment even though it was not the lowest bidder. It concluded that the relevant quotations and other materials had to be examined during the trial.
Sanofi India consequently challenged the High Court’s decision before the Supreme Court.
Company Relied on ‘Directing Mind and Will’ Principle
Before the Supreme Court, the company argued that offences such as cheating and criminal conspiracy required proof of mens rea.
It relied upon the identification principle, under which the acts and mental state of individuals representing the “directing mind and will” of a company may be attributed to the corporate entity.
Sanofi submitted that the CBI had neither identified nor arraigned any person who could be regarded as its alter ego or governing mind. In the absence of such identification, it argued, there was no legal basis for attributing a guilty mind or any overt act of conspiracy to the company.
The CBI opposed the appeal and contended that Supreme Court precedents permitted prosecution of a company without separately prosecuting its employees. It also claimed that oral and documentary evidence prima facie showed that the company had received undue favours and paid a bribe in return.
Companies Can Be Prosecuted for Offences Requiring Mens Rea
The Supreme Court reaffirmed that a company may be prosecuted for offences requiring proof of a guilty mind.
It explained that criminal offences ordinarily contain two elements: the offending conduct or actus reus and the guilty mind or mens rea. Although a corporation is an artificial legal person without a physical body or mind of its own, it necessarily acts through natural persons.
The acts and mental state of those persons may, in appropriate circumstances, be treated as the acts and mental state of the corporation itself.
The Court clarified that its earlier ruling in Iridium India Telecom Ltd. v. Motorola Inc. conclusively established that companies could possess mens rea for criminal-law purposes. However, that decision did not comprehensively explain how, or through whom, the guilty intention of a natural person should be attributed to a corporation.
The present judgment sought to fill that gap.
Supreme Court Lays Down Three-Stage Attribution Framework
Drawing guidance from English corporate criminal jurisprudence, the Supreme Court formulated a sequential and hierarchical three-stage test.
Under the first stage, a court must examine whether the company’s constitutional documents, including its memorandum and articles of association, or a rule implied by company law, vested the concerned individual with the power to perform the act in question.
If attribution cannot be established at the first stage, the second stage requires the court to determine whether that power was expressly or impliedly delegated to the individual.
The delegation must provide sufficient discretion and independence in performing the relevant act. Merely authorising a person to carry out a mechanical or ministerial function would not necessarily make that person’s conduct and mental state attributable to the company.
If the first two stages do not provide an answer, the third stage requires consideration of the purpose of the statute involved.
Where the statutory purpose is narrow, the court must determine whether that purpose, considered in the abstract, requires the creation of a special attribution rule. Where the statutory purpose is broad, the court must consider the statutory purpose along with the facts and circumstances of the particular case.
If such a special rule is necessary, the court must then determine whether the concerned individual falls within its scope.
Corporate Position Alone Is Not Conclusive
The Supreme Court clarified that a person’s designation or formal position in a company is not, by itself, sufficient to attribute that person’s acts and state of mind to the corporation.
The attribution exercise is transaction-specific. Courts must determine who possessed authority, discretion and independence concerning the particular transaction rather than identifying the company’s directing mind in the abstract.
However, a person’s status within the corporate hierarchy may still be an important consideration at the third stage because seniority may provide substantial capacity to influence the company’s affairs.
The Court also clarified that the framework ordinarily applies to offences drafted with natural persons in mind and requiring proof of mens rea. It does not govern every instance of corporate criminal liability.
Attribution operates only from the natural person to the corporation. It does not determine the natural person’s individual criminal liability, which continues to be governed by ordinary principles of criminal law.
Identification of Employee Not Mandatory at Quashing Stage
Turning to the exercise of inherent jurisdiction under Section 482 CrPC, the Supreme Court held that identifying a particular natural person is not a mandatory prerequisite for allegations against a company to disclose an offence.
A corporation’s role may be revealed through allegations concerning its conduct, business decisions and dealings even if the individual who performed those actions has not been named.
Likewise, mens rea may be inferred prima facie from surrounding circumstances and conduct without immediately connecting it to a specifically identified employee.
The Court observed that identifying the concerned individuals and specifying their acts would undoubtedly strengthen the prosecution’s case. However, that concerns the strength and eventual proof of the case, rather than whether the allegations disclose an offence at the threshold.
Whether the conduct and state of mind of a particular individual should ultimately be attributed to the company involves an intricate factual inquiry that ordinarily must be undertaken during trial.
Insisting on identification at the quashing stage, the Court cautioned, could stifle legitimate corporate prosecutions where a complainant knows that somebody within the company committed the relevant act but does not have access to the corporation’s internal decision-making structure.
Arraignment of Natural Person Also Not a Universal Requirement
The Supreme Court rejected the contention that prosecution of a company necessarily requires a natural person to be arraigned alongside it.
It distinguished the rule laid down in Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd., where the Court held that a company must be arraigned for prosecution of its officers under Section 141 of the Negotiable Instruments Act.
The Court explained that Section 141 creates statutory vicarious liability. An officer’s liability under that provision is derivative of the company’s commission of the offence, making arraignment of the company imperative.
That principle cannot be reversed to create a general rule that prosecution of a company invariably requires prosecution of an employee or officer.
In Sanofi’s case, the prosecution sought to impose direct liability upon the company by attributing the relevant acts and state of mind to it. It was not a case involving statutory vicarious liability dependent on the prosecution of another person.
Conditions for Continuing Prosecution Against Company
The Court nevertheless clarified that corporate prosecutions cannot be permitted to continue on the basis of bald and unsupported allegations.
At the threshold, allegations must prima facie reveal that:
- One or more natural persons acted on behalf of the corporation;
- Their actions were connected with the alleged offence; and
- The surrounding circumstances did not make the existence of the requisite mens rea patently absurd or inherently improbable.
The inquiry at the quashing stage should remain broad. A High Court is not expected to undertake a detailed examination of the evidence or conduct a mini-trial.
If the allegations fail to disclose actions undertaken on behalf of the corporation or do not indicate even the possibility of the requisite mens rea, the proceedings may still be quashed.
Chargesheet Disclosed Prima Facie Case Against Sanofi
Applying these principles, the Supreme Court found that the chargesheet and the material on record prima facie indicated that natural persons had acted on Sanofi India’s behalf in connection with the alleged offences.
The surrounding circumstances also raised, at least at the preliminary stage, the possibility that those acts had been undertaken with the necessary guilty intention.
The Court held that this was sufficient at the stage of considering a quashing petition. The High Court was therefore justified in refusing to terminate the prosecution.
The Bench clarified that it had examined identification and arraignment only in the context of the High Court’s powers under Section 482 CrPC. It did not decide as a universal proposition whether identification or arraignment may become necessary at a later stage of the proceedings.
Court Calls for Systematic Study of Corporate Liability
The Supreme Court also called for greater legislative and institutional attention to corporate criminal liability in India.
It observed that if the law is to make it easier to hold companies responsible for offences requiring mens rea, the matter must be addressed by Parliament rather than through judicial expansion.
The legislature may specify the categories of persons whose conduct and state of mind will be attributed to a company or introduce “failure to prevent” offences. Section 9 of the Prevention of Corruption Act, dealing with bribery by commercial organisations, was cited as an example of the latter approach.
The Court recommended a systematic study of corporate criminal liability to clarify the prevailing framework and identify the way forward.
It also urged investigating agencies to develop the skills necessary to investigate and prosecute corporate offences involving mens rea. Courts, for their part, must properly trace corporate hierarchies, understand how authority was delegated and evaluate the roles performed by the individuals concerned.
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