Corporate immunity and Mens rea

Prosecution of Officers of the company

The persons managing the affairs of such company cannot use the juristic entity and corporate personality of the company as a shield to evade themselves from prosecution for offences under the Penal Code, if it is established that primary object of the incorporation and existence of the company is to defraud public. But, at the same time, while taking cognizance of alleged offences in connection with the registration, issuance of prospectus, collection of moneys from the investors and the misappropriation of the fund collected from the share holders which constitute one offence or other under the Penal Code, Court must be satisfied that prima facie an offence under the Penal Code has been disclosed on the materials produced before the Court.  For framing charges in respect of those acts and omissions, in many cases, mens rea is not an essential ingredient; the concerned statute imposes a duty on those who are in charge of the management, to follow the statutory provisions and once there is a breach or contravention, such persons become liable to punished. But for framing a charge for an offence under the Penal Code, the traditional rule of existence of mens rea is to be followed. The prosecution has to prove that the appellant as promoters or directors, had dishonest intention since very beginning while collecting the moneys from the applicants for the shares and debentures or that having collected such moneys they dishonestly misappropriated the same. The ingredients of the different offences under the Penal Code need not be proved only by direct evidence, they can be shown from the circumstances of a particular case that the intention of the promoters or the directors was dishonest since very inception or that they developed such intention at some stage, for their wrongful gain and causing wrongful loss to the investors.

Radhey Shyam Khemka v. State of Bihar, 1993 CrLJ 2888 : 1993 CrLR (SC) 358 : 1993(1) Crimes 1132 : 1993(3) SCC 54.