Explain the Liability of a legal persons.


Q.17 (e). Explain the Liability of a legal persons. 

Ans. Liability of Corporation Corporations are legal persons. It means that they have rights and liabilities.

(I) Liability of corporations in contract

(2) Liability of corporations in torts.

(3) Liability of corporations for criminal acts.

1. Liability of Corporations in Contract: Limited power to enter into a contract; Now comprehensive memorandum.—For entering into a contract two things are of vital importance, i.e., the form of the contract and the capacity of the parties. A corporation has no material existence, therefore, it always acts through its agents. It signifies its assent through its seal. Therefore, the presence of the seal is considered as the evidence of the assent of the body corporate. Subject to certain exceptions this is the general rule. The form of the contract is same in every case whether the parties are the natural persons or one or both parties are corporations. So far as the capacity of a corporation to enter into a contract is concerned. The power of a corporation, created by a statute to enter into a contract is limited to what the statute grants. “Thus a company incorporated under the Companies Act is limited in its capacity to the objects set out in its memorandum of association. Any contract made beyond memorandum is ultra vires and void, although it is agreed upon by all the members unanimously. Such act (contract) is incapable of ratification. Such a limitation upon a corporations” power to contract has been criticised by the jurists. However, in modern times, the rule is not working as a great impediment upon corporation’s power be-cause memorandum is drafted very comprehensively. In India, there is no common law, therefore, the power of corporation to enter into a contract depends upon the statute.

2. Liability of Corporations in Torts:–A corporation acts always through its agents. Therefore, liability of a corporation for the torts is based on the principle of vicarious liability. A corporation is liable for the acts of its servants done in course of employment. But this rule applies only for those acts which are intra vires the corporation. The difficulty arises in determining the liability for the acts which are ultra vires. As far as the acts done without any authority from the corporation are con-cerned, the corporation is not liable for these acts. About the liability for acts done with the authority of the corporation, there is a difference of opinion, Goodhart’s view is that the corporation is liable.

3. Liability of Corporation for Criminal Acts:–
Impossibility of mens rea Made criminally liable.—The earlier view was that a corporation cannot be made liable for a crime. There are theoretical as well as procedural difficulties. How mens rea can be attributed to a body corporate? and how it can be punished? were the questions which created difficulties in holding a corporation liable for criminal acts. In England, the procedural difficulties have been removed by statutes and theoretical difficulties have been overcome partly by statutes and partly by court decisions on the point. Now, in recent years, corporations have been held criminally liable for the criminal acts done by the persons acting on behalf of the corporation. In any case, there is no difficulty in holding them liable for the offences for which a fine is an alternative punishment.

In India, in statutes containing penal provisions specific provisions have been made with respect to offences by the companies.

For example, Section 140 of the Customs Act provides as follows :

Offences by companies.— (1) Every person who, at the time the offence was committed was in charge of and was responsible to the com-pany for the conduct of business of the company, as well as the company shall be deemed to be guilty of the offence and shall be liable to be pro-ceeded against and punished accordingly :If he proves thai the offence was committed without his knowledge or that the exercised all due dili-gence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1) where an offence under this Chapter has been committed by a company and it is proved that the offence has been committed with the consent or conniv-ance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, such director, man-age, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accord-ingly.

Explanation.—For the purposes of this section,—

(a) “company” means a body coiporate and includes a firm or other association of individuals; and

(b) “director’, in relation to firm, means a partner in the firm.

Suit or complaint by Corporation: 

There is no doubt about the capacity of a juristic person to file a civil suit. This can be filed by a person authorized by it. So far as the question of filing criminal complaint by a juristic (corporation) person is concerned the Supreme Court has stated that complainant must be a corporeal person who is capable of making physical presence in the court. Its corollary is thai even if a complaint is made in the name of an incorpo-real person (like company or corporation) it is necessary that a natural person presents such juristic person in the court and it is that natural person who is locked upon, for all practical purposes, to be the complain-ant in the case. In other words, when the complainant is a body corporate it is the de jure complainant, and it must necessarily associate a human being as be facto complainant to represent the former in court proceed-ings uniformity, certainty.