Company can face criminal trial even if guilty employee is not identified: Supreme Court

The Supreme Court on Monday held that a company can face criminal prosecution even if the investigating agency has not identified or arraigned the particular employee or official through whom the concerned company acted [Sanofi India Ltd. Vs CBI].

A Bench of Justices JB Pardiwala and Manoj Misra made the ruling while dismissing an appeal by Sanofi India Ltd against the Karnataka High Court’s refusal to quash criminal proceedings arising from a CBI case.

The Court said that at the stage of considering a petition to quash criminal proceedings under Section 482 of the Code of Criminal Procedure, the prosecution is not required in every case to identify the specific natural person through whom the company allegedly acted.

“What the chargesheet must disclose, on its face, is that the corporation itself has committed the offence, not that it has also identified the particular individual through whom it did so,” the Court said.

It added that a company’s role could be disclosed through allegations concerning its own conduct, decisions and dealings, even without naming the individual who carried them out.

Pertinently, the Court also laid down a three-stage framework to determine when an individual’s acts and guilty mind can be attributed to a company.

The case arose from medicines supplied by Sanofi for the Rare Materials Project of the Bhabha Atomic Research Centre (BARC).

The CBI alleged that BARC Scientific Officer Dr. P Anand had conspired with pharmaceutical companies to procure medicines at inflated rates and in quantities exceeding requirements. In Sanofi’s case, the prosecution alleged a wrongful loss of ₹3.53 lakh to BARC.

It also alleged that Anand received illegal gratification of ₹42,750 from Sanofi. No Sanofi employee or official, however, was arraigned as an accused in the chargesheet.

Sanofi argued that a company could not be prosecuted for an offence involving mens rea, or guilty intent, unless the prosecution identified the individual who represented the company’s “directing mind” or alter ego.

Senior Advocate Siddharth Luthra, appearing for Sanofi, contended that in the absence of identification and arraignment of such a person, there was no basis to attribute either the alleged criminal act or the requisite guilty mind to the company.

The Supreme Court rejected the argument.

“It would, no doubt, assist matters if the natural persons concerned, and their specific acts, are identified and averred. But this goes to the strength of the case, not to whether the allegations disclose an offence at all,” the Court said.

The Bench said attribution of an individual’s guilty mind to the company is ultimately a matter to be examined at trial.

The Court also warned that insisting on identification at the threshold could stifle legitimate prosecutions.

“A complainant filing an FIR against a corporation often only knows that someone within the corporation committed the act in question, without any means of knowing who,” the judgment observed.

It then proceeded to lay down a three-stage framework for deciding when an individual’s acts and mens rea can be attributed to a company.

It noted that earlier Supreme Court rulings had established that corporations can possess mens rea, but had not answered how, or through whom, such guilty intent should be attributed.

The Court described the new framework as “hierarchical and sequential”.

At the first stage, courts must examine whether the company’s constitutional documents or a rule implied by company law vest the person concerned with the power to carry out the act in question.

If attribution cannot be established there, the second stage requires courts to examine whether that power was expressly or impliedly delegated to the person with sufficient discretion and independence.

At the third stage, courts must look at the purpose of the criminal statute involved. Depending on whether the statutory purpose is narrow or broad, the court may have to fashion a special rule of attribution and then decide whether the person concerned falls within it.

The Court clarified that this exercise is transaction-specific and is not aimed at identifying one permanent “directing mind” of a company for all purposes. The framework generally applies to offences framed with natural persons in mind and requiring proof of mens rea.

At the same time, the Bench made it clear that companies can still seek quashing of case where the allegations do not disclose an offence or are merely bald assertions unsupported by material.

Luthra was assisted by advocates Aditya Vikram Bhat, Anind Thomas, Priyank Ladoia, Raghav Seth, Nivedita Mukhija, Ayush Agarwal, Karl P Rustomkhan and Suhail Ahmed with Mayank Pandey .

CBI was represented by Additional Solicitor General SV Raju assisted by advocates Mukesh Kumar Maroria, Sachin Sharma, Ritwiz Rishabh and Harish Pandey.

[Read Judgment]