However, the above filing failed to capture the salience of the underlying order: the SC, in a landmark order, held that a company can face criminal prosecution for offences requiring mens rea even if the chargesheet did not identify any specific personnel.
The case that the CBI had framed against the company was that an officer of BARC had allegedly received a bribe to facilitate the supply of medicines by the Company at a price higher than the rate prescribed for the specific category.
The charges were framed under both the Indian Penal Code (IPC) and the Prevention of Corruption Act against Sanofi India and the officer responsible for procurement in BARC. No employee of Sanofi India was charged.
The Company, initially, approached the Karnataka High Court (HC) for quashing the charges under section 482 of the Code of Criminal Procedure (CrPC). It appealed to the SC in 2019 when the HC dismissed its petition.
The principal plank of the Company’s case before the SC was that in the absence of any employee of the Company being charged for the alleged offence, the standalone charges against the Company could not subsist.
A corporation, being a non-biological entity with no mind or will of its own, requires a natural person to carry out any action. Thus, the person acting for the company is inseparable in action from the company on whose behalf the action is carried out.
In rendering this judgement, the Court reiterated the settled jurisprudence that a corporation can be charged for an offence requiring mens rea as an ingredient only if a human agency acting on its behalf wilfully committed the act.
The Court set out a three-stage process of attributing an act committed by a person to a corporation.
The first level of attribution is where the person acting on behalf of the corporation is one so authorised under the charter documents, the memorandum of association (MOA), and the articles of association (AOA).
For example, a managing or a whole-time director committing a fraud in the course of performing an activity would ipso facto be attributable to the corporation.
The second is the case of delegated authority- persons who are authorised validly by the board of directors to represent the company. Companies have a practice of board authorisation for executives to bind the company by their actions.
The third category is statutory attribution. For example, the Factories Act or similar laws may treat a factory manager as the person responsible for any offence committed while operating a factory.
The principle of attribution deems the action of an individual as that of the corporation itself and renders it responsible for the consequences. In this approach, the person acting embodies the company rather than merely representing it as an agent or servant.
Where a person embodies the corporation, the state of mind of that individual—the mens rea—becomes that of the company.
Drawing on English law precedents, the judgement holds that the court must first consider whether the relevant statute intended the criminal consequence to extend to a corporate entity and not merely to natural persons. If that intention is clear, the company may be held liable once it is established that the individual acted with the requisite guilty mind.
The other form of attributing an action of one person to another is to hold one vicariously liable for the action of another. This form of attribution has limited application in criminal law, where a person’s guilt cannot be transposed to another.
The company did press its arguments by citing precedents where, in a reverse case, an employee was sought to be punished for an offence like a cheque dishonour, and the court struck it down, as the concerned company was not charged simultaneously.
While the decision under consideration is of significance to all advising or managing companies, the aspect this article seeks to highlight is whether Sanofi India adequately brought this subject to the attention of its investors.
Even if the initial CBI chargesheet was not disclosed, being considered quite premature, one would think that in 2019, when the High Court dismissed the case of the Company, some disclosure was called for. With whatever effort one could make to find this out, there appears to be none made in a conspicuous way.
The annual reports seen from calendar year 2020 onwards refer to a whistle-blower mechanism and an anti-bribery policy but do not specifically mention this CBI case.
Other than noting the SC’s dismissal and stating that the company is ‘assessing the judgement and formulating the next litigation strategy’, with no penalty, conviction, or operational restriction at this stage, there is limited detail on any internal review or compliance response tied to this matter.
No imputation of fraud is intended in writing this article. Guilt or innocence will be ultimately determined by the courts.
The point under consideration is that, in a case involving serious corruption allegations, investors would, at a minimum, look for clearer communication on what the board has done to assess the implications of this episode under litigation, as well as longer-term measures to prevent such controversies from arising.
This is precisely where one would expect the independent directors to play a more proactive role, particularly if the executive management is reluctant to make disclosures that uphold transparency and effective investor communication.
Recent controversies in corporate governance have demonstrated how delayed or opaque disclosure around allegations of misconduct can ultimately undermine the credibility of a board.
(Ranganathan V is a CA and CS. He has over 45 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
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