While general Indian criminal law incorporates no presumption that a director of a company is responsible for the offences committed by it, it is an almost accepted truth that if a company is found to be involved in an offence, its directors must be held liable for the same. There is something in the collective consciousness these days which demands instant retribution for any allegation of financial malfeasance.
In most countries, defaulting on a loan does not lead to criminal proceedings. It certainly leads to legal proceedings for recovery and, if necessary, for bankruptcy. In India, however, news of a default is followed closely by hysterical demands for prosecutions and arrest.
The reason for this is complex. It shows a deep mistrust in the legal system. The fear is that people, especially the rich and powerful, will be able to manipulate the system. Prosecution and arrest are expected to be a way to pressurise people into repaying their loans or perform any other obligation, for that matter.
A cathartic process
Apart from this, there is clearly a cathartic element to this demand as well. Nobody likes a show-off. In a country where the rich routinely flaunt their wealth, public shaming and the expectation of being put in jail seems to be an appropriate payback to many people. Popular sentiment has its own place in a democracy. When such sentiment, however, starts dictating how the law operates, it becomes a rather dangerous thing.
There are many arguments to be made against the current banking and financial system. It does grant privileged access to finance to a select clique.
It is much harsher on the little guy and much easier in its approach towards the already well-financed. This needs an urgent overhaul.
Having said that, considering a system to be unfair and declaring it to be criminal are two very different things.
There may be acts that this system indulges in, which might actually be criminal offences. For instance, if the allegations that Nirav Modi’s officers were authorising bank transactions by using bank officials’ log-ins are true, it would amount to a criminal offence.
However, the simple act of being unable to repay a loan, no matter how large, cannot be considered such an offence. In our current rush to accommodate and support the prevailing public sentiment, the assumption that is being made is to equate impecunity with malice and criminality.
Subsequent to this assumption is a second one, which is perhaps more dangerous to individual liberty. While a company under our laws is held guilty for offences committed, and it is trite to point out that a company can only be fined, and not imprisoned for its crimes, the prevailing trend in our system, which is to include directors and officers of the company as accused without proof of their involvement in anything criminal, is a rather worrying one.
One of the classic fears about the over-reach of criminal law is that of the innocent man being punished. It is better to let 10 guilty men go free than to let one innocent suffer, said 18th century English jurist William Blackstone.
Punishing the innocent?
In our current haste to allocate blame and extract satisfaction, this principle is being turned on its head. Even if one leaves out the big corporate cases, almost every commercial transaction or understanding that goes sour these days, becomes the subject of criminal proceedings. Money disputes, property disputes or simply a business deal gone sour; the ease with which complaints are made, and entertained, not only against the company but against everyone who runs it has made it a most effective means of grievance redressal. While a civil suit may take years to decide, the prevailing wisdom is that there is no better way to make a person cough up money than an FIR and a threat of arrest. Lawyers come up with creative ways to interpret these complaints so that they amount to the more serious offences under the Indian Penal Code.
This is an extremely disturbing trend, especially for people running companies who, often, may not have done anything wrong to be implicated in a criminal case. In a legal system where the process itself is punishment, an eventual acquittal would give scarce relief. Lives have been ruined for people falsely implicated. A criminal prosecution takes its toll on a person in many ways.
Of course, this expansion of criminal law into the boardroom is only an extension of a larger malaise in our system where we are eager to popularly allocate guilt, without any pressing reason to do so. If there is a crime, a criminal must be found. For a theft in a house, the servant is picked up, for a robbery on the road; the police routinely pick up the same ‘bad characters’ regardless of actual evidence. This happens in so many cases. Caution is required before declaring somebody a criminal. Investigation is required before assuming that they did something wrong.
About three years ago, the Supreme Court discharged Sunil Mittal from the 2G case, stating that the principle of vicarious liability cannot be so loosely applied in criminal law. Loosely applied criminal laws lead to a police state, to the vagaries of chance and of bias. They cannot be the foundation for a stable system of justice. It is better to be careful and a lot more wary before assuming guilt. It’s good law and also good economics.
The author is a Delhi-based lawyer