Weak laws for corporates

Aarthi Sivanandh | Updated on March 12, 2018 Published on September 23, 2011

It is particularly hard to piece the corporate veil in India and proceed against companies. The International Commission of Jurists (ICJ), a non-governmental organisation headquartered in Geneva, is of the view that the inherent lacunae in the Indian legal system permits corporations to shirk their responsibilities.

In its recent report, Access to Justice: Human Rights Abuses Involving Corporations, ICJ states that India has generally been slow to react to developments in fixing the criminal liability of corporations.


The Companies Act in India is focused on the operational nuances of corporations and only threatens criminal prosecution of its officers on their failure to file reports, conduct meetings and distribute timely profits and so on. The Act fails to address the fact that there can be stakeholders in corporations other than shareholders. In the case of the Bhopal gas disaster, where the stakeholders are numerous and the corporation is a foreign parent with the chief officer residing abroad, the stakeholders are still fighting for justice. Such corporations are protected from prosecution in India, thanks to the virtual impossibility of India seeking extradition (Warren Anderson of Union Carbide being a prime example). The process that aims at gaining access to a company's internal documents is a tedious one in India, unlike in countries such as the US.

Further, piercing the corporate veil has always been a challenge, as the basis of corporate law is that the company is a separate legal entity. If the veil is pierced, it happens only with the supporting evidence that behind an entity or a maze of entities there is really only one beneficiary, or if the purpose has been tax evasion. Evasion of welfare legislations or human rights responsibilities hasn't been reason enough for courts to test the corporate veil theory.The enterprise principle, advanced in some countries, recognises that a parent company together with its subsidiaries will be considered one enterprise, especially when the subsidiaries are incapable of making amends for gross violation of human rights. India has been slow in subscribing to this theory.

The Companies Bill 2009 (that seeks to resurrect the expired Bill of 2008, which in turn was an ambitious attempt at changing the 1956 Act) if and when enacted, will hopefully address the human rights responsibilities of companies. It seeks to bring within its scope the establishment of a stakeholders' committee and reaches beyond caring only for shareholders.


Class actions, as a concept, have been a colossal failure, and we are complete strangers to mass tort law. In the case of the Bhopal Gas Leak disaster, the paltry settlement reached (US$470 million after 26 years) is largely because, unlike other countries, our tort (civil wrong) law isn't codified and is developed through case precedents.

The evolving role of the state as a contracting party in public-private partnerships, and in the privatisation of formerly public actions such as in the arena of medical care, poses unique challenges in an undeveloped system of attaching criminal liability to corporate actions. We seek to bring corporations to book by leaning on our Criminal Code, Constitution, environmental laws and welfare legislations. However, the case for a strong corporate law fabric that mandates responsible behaviour is overwhelming.

(The author is Partner, Vichar Partners, a Chennai-based firm of advocates.)

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Published on September 23, 2011
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