Companies Can Be Prosecuted Even Without Naming Individual Officers : Supreme Court

The Supreme Court on Monday (September 7) held that a company can face criminal prosecution for an offence requiring mens rea even if the individual employee or officer through whom the alleged offence was committed has not been identified or arraigned as an accused.

A Bench of Justice J.B. Pardiwala and Justice Manoj Misra held that the absence of an identification and arraignment of a natural person, by itself, is not a ground to quash criminal proceedings against a corporation at the threshold stage under Section 482 of the Code of Criminal Procedure.

“Non-identification of the natural person does not, by itself, render the allegations incapable of disclosing the corporation's role in the offence… where the surrounding facts and circumstances, taken as a whole, disclose the possibility that the corporation acted with the requisite mens rea, that disclosure is not defeated merely because no particular individual has been identified as its source… All that is being said is that neither identification nor arraignment of a natural person can be read in as a prerequisite, such that their absence alone would justify quashing in every case.”, the Court said.

While identification and arraignment of a natural person is not necessary, the Court said that the allegations must, at least prima facie, reveal that:

"(i) some natural person or persons acted on behalf of the corporation,

(ii) such action is referable to the offence in question, and

(iii) the surrounding circumstances of such actions do not render the existence of mens rea patently absurd or inherently improbable."

“Where the allegations do not reveal these things, the proceedings would remain liable to be quashed. It bears emphasising that the inquiry at this stage is not detailed or microscopic. It is broad, and confined to examining whether the allegations disclose actions undertaken on behalf of the corporation, and whether the context in which such actions were undertaken discloses the possibility that the requisite mens rea was present.”, the Court added.

In a nutshell, the Court said that the prosecution need not conclusively establish the identity and role of a natural person before the proceedings can continue. The identity and precise role of the relevant individual may emerge during investigation or trial.

Three-Stage framework to attribute the individual's conduct and mens rea to the company

The Court also laid down a three-stage framework for attributing the conduct and mental state of individuals to corporations, making it clear that every criminal act committed by an employee does not automatically makes the company criminally liable.

The prosecution must ultimately establish the necessary connection between the individual's conduct, mental state and the corporation.

The three-stage framework is intended to determine when that connection is legally sufficient to attribute the individual's conduct and mens rea to the company.

First stage

The court must first examine the company's constitutional documents, including its memorandum and articles of association, along with applicable company-law principles.

The question is whether the relevant authority was vested in the person whose conduct is sought to be attributed to the company.

For instance, if the company's structure gives a Managing Director authority to enter a particular transaction and the Managing Director acts dishonestly while exercising that authority, his conduct and mental state may be attributed to the company.

Second stage

If attribution cannot be established from the company's constitutional structure, the court must examine whether the relevant power was expressly or impliedly delegated to the individual.

Such delegation must provide the person with sufficient discretion and independence to take the particular decision.

The Court made clear that simply being an employee or participating in negotiations would not, by itself, establish attribution.

Third stage

If attribution cannot be established through either of the first two stages, the court may consider whether the purpose of the statute creating the offence requires a special rule of attribution.

In simple terms, the court asks whether refusing to attribute the person's conduct to the company would defeat the purpose of the particular criminal provision.

The Court treated this as an exercise of statutory interpretation, rather than an unrestricted judicial power to expand corporate criminal liability.

Clarification with Respect to three-stage framework

According to the Court, first identify who had authority over the particular transaction, second, examine whether that authority was properly delegated, and third, if neither provides the answer, consider whether the purpose of the particular statute requires another rule of attribution.

But even after one of these stages is satisfied, attribution is not automatic. The court must still consider the circumstances of the particular case, keeping in mind the following aspects:

1. Even if the company's constitutional documents give a person the relevant authority, or that authority was properly delegated to them, the corporation can still argue that the person's particular act should not be attributed to the company because of the circumstances. 

2. The three-stage test does not require courts to identify a person who generally controls or runs the company. The question is narrower: whose act, in relation to the particular transaction or matter, should legally be treated as the company's own act? Thus, simply being a director or senior executive does not mean that all of that person's acts are automatically attributable to the corporation.

3. The three-stage framework need not be used where the statute itself provides the rule of attribution. It is also unnecessary where:

• the statute creates vicarious liability for the acts of officers;

• the offence imposes strict or absolute liability; or

• the statute or judicial interpretation already treats the employee's act as the corporation's own act.

Therefore, the framework principally operates where an offence is framed around natural persons and requires proof of mens rea, and the prosecution seeks to attribute that person's conduct and mental state to the corporation.

4. The framework determines whether the natural person's conduct or mens rea can be attributed to the corporation. It does not determine whether the corporation's conduct or mental state can be attributed back to that individual. The individual's criminal liability continues to be decided under ordinary criminal-law principles.

5. The Court emphasised that the three stages, corporate authority to delegated authority to statutory-purpose rule, are broad principles for determining when attribution may occur. They do not resolve every possible question concerning corporate criminal liability.

Background

The case arose from the supply of pharmaceutical products by the Appellant-Sanofi India Ltd. to the Rare Materials Project of the Bhabha Atomic Research Centre (BARC).

The CBI alleged that BARC scientific officer Dr. P. Anand conspired with pharmaceutical companies to procure medicines at inflated prices and in quantities exceeding the requirement.

According to the prosecution, Sanofi was favoured despite lower bids from other companies. The CBI also alleged that Dr. Anand received illegal gratification of ₹42,750 from Sanofi, while the alleged wrongful loss to BARC was ₹3,53,361.

Sanofi approached the Karnataka High Court seeking quashing of the proceedings, principally contending that no employee or officer of the company had been arraigned as an accused.

Aggrieved by the High Court's decision refusing to quash the proceedings, Sanofi moved to the Supreme Court.

In light of the aforesaid law, the judgment authored by Justice Pardiwala, however, found sufficient prima facie material indicating that natural persons had acted on behalf of Sanofi in connection with the transactions and that the surrounding circumstances did not make the requisite mens rea inherently improbable, justifying the High Court's decision refusing to quash the case against the Appellant-Sanofi.

“On a prima facie reading of the chargesheet and the material on record, it is evident that natural persons acted on behalf of the Appellant in relation to the offences in question, and that the surrounding circumstances give rise, at least prima facie, to the possibility that these acts were undertaken with the requisite mens rea. This is sufficient at this stage, and nothing further needs to be examined. Consequently, on this basis too, it cannot be said that the High Court ought to have quashed the proceedings against the Appellant.”, the Court said.

The appeal was dismissed.

Cause Title: SANOFI INDIA LTD. VERSUS CENTRAL BUREAU OF INVESTIGATION

Citation : 2026 LiveLaw (SC) 904

Click here to download judgment

Appearance:

For Petitioner(s) Mr. Sidharth Luthra, Sr. Adv. Mr. Aditya Vikram Bhat, Adv. Mr. Anind Thomas, Adv. Mr. Priyank Ladoia, Adv. Mr. Mayank Pandey, AOR Mr. Raghav Seth, Adv. Ms. Nivedita Mukhija, Adv. Mr. Ayush Agarwal, Adv. Mr. Karl P Rustomkhan, Adv. Mr. Suhail Ahmed, Adv.

For Respondent(s) Mr. S.V. Raju, A.S.G.   Mr. Mukesh Kumar Maroria, AOR (Not Present Mr. Sachin Sharma, Adv.  Mr. Ritwiz Rishabh, Adv. Mr. Harish Pandey, Adv.