In a recent ruling in DBS Bank India Ltd. v. State NCT of Delhi & OrsReligare Finvest Ltd v. State of NCT of Delhi, the Supreme Court of India emphasized the concept of criminal responsibility of a company, particularly when such liability can be attributed to the actions of individual employees, directors, or officials within the company. This judicial stance aligns with previous legal precedents and cases, setting a significant legal benchmark for corporate criminal liability in India.

The Supreme Court’s pronouncement is crucial as it clarifies the circumstances under which a transferee company can be held liable for the actions of a transferor company following an amalgamation. This ruling establishes a balance between protecting a company’s interests during the merger and ensuring accountability for any criminal acts committed before or after amalgamation.

The Court emphasized several key aspects regarding the criminal liability of companies:

1. **Attribution to Individual Acts**: The Court reiterated that a company’s criminal liability is recognized when it can be attributed to the individual acts of employees, directors, or officials of the company or juristic persons. This principle aligns with previous legal precedents established in cases such as Tesco, Meridian Global Funds, Standard Chartered Bank, and Iridium, where corporate criminal liability was recognized based on the actions of individuals within the company.

2. **Conviction and Imprisonment**: The Court clarified that a company’s criminal liability is recognized even if its conviction results in a term of imprisonment. This reaffirms that companies can face significant legal consequences for their actions.

3. **Non-Transferability of Criminal Liability**: Importantly, the Court established that criminal liability cannot be transferred ipso facto (automatically) from one company to another, except when it is in the nature of penaltyproceedings. This principle was further reinforced by referring to the McLeod Russel case, which emphasized that criminal liability remains firmly attached to the actual perpetrator and cannot be transferred through any agreement or statute.

4. **Legal Effect of Amalgamation**: The Court clarified that the legal effect of the amalgamation of two companies is the destruction of the corporate existence of the transferor company; it ceases to exist. This is a pivotal point, as it underscores that the amalgamation process fundamentally changes the legal status of the transferor company.

5. **Succession of Legal Proceedings**: In cases of amalgamation, only defined legal proceedings are succeeded to by the transferee company. This means that while certain legal obligations may pass to the successor company, criminal liability is not automatically transferred.

The case before the Supreme Court involved an appeal against a judgment of the Delhi High Court, where the appellant, DBS Bank, sought to quash supplementary chargesheets against it. The criminal proceedings against DBS Bank’s directors stemmed from the actions of Laxmi Vilas Bank (LVB). To safeguard the interests of customers, depositors, creditors, and employees of LVB, the Government of India had invoked Section 45 of the Banking Regulations Act, 1949, in November 2020, ordering the non-voluntary amalgamation of DBS Bank with LVB due to LVB’s precarious financial situation.

In delivering this landmark judgment, the Supreme Court referred to various legal principles and precedents that support its stance on corporate criminal liability. It quoted Lord Diplock in Tesco Supermarkets Ltd. v. Nattrass (1971), who stated that identifying the natural persons responsible for acts done in the course of a company’s business is crucial. These individuals may be determined based on the company’s memorandum and articles of association, actions taken by directors, or resolutions passed during general meetings.

Additionally, the Court cited the ruling in Meridian Global Funds Management Asia Ltd v. Securities Commission (1995), where it was established that a company’s liability for its actions extends to situations where not every decision requires board approval or unanimous shareholder agreement. Instead, companies rely on principles of agency, appointing individuals as servants and agents whose actions are attributed to the company itself.

The Court emphasized that companies, like individuals, follow general rules of attribution and use principles of agency in their actions. It cited Iridium India Telecom v. Motorola Inc (2010), emphasizing that the critical factor in determining corporate criminal liability is whether the offense is committed in connection with the corporation’s business and whether it is controlled by certain individuals or a body of persons within the company. This implies that a corporation can be said to “think and act” through these controlling individuals or bodies.

Furthermore, the Court referred to the Constitution Bench ruling in Standard Chartered Bank v. Directorate of Enforcement, highlighting the legislative intent to prosecute corporate bodies for offenses committed by them.

In conclusion, the Supreme Court’s ruling has far-reaching implications for corporate criminal liability in India, particularly in cases of amalgamation. It underscores that criminal liability cannot be automatically transferred to the successor company and remains attached to the actual perpetrators. This landmark judgment provides clarity and legal guidance on the attribution of criminal liability to companies, ensuring a fair balance between protecting corporate interests and upholding accountability for criminal acts.

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