Saturday, March 19, 2016

Long Armed Laws - Summoning Alien Accused Companies

Consider this. The police, after completing investigation, file a Final Report alleging that X, an Indian company, and its directors be summoned for offences under Section 420 IPC. It also alleges that Y, the American holding company of X, be summoned as a co-accused. The Indian company is a wholly-owned subsidiary of the foreign company. Today, can a Magistrate in India summon the foreign company by serving the summons on its wholly-owned Indian subsidiary? If you think this is an innocuous question, you're mistaken. These problems are coming to the fore as more companies are prosecuted for the various strict liability offences on the Indian statute book. The issue shot to prominence last year in the U.S.A., when a District Court upheld service of summons on the American wholly-owned subsidiary of a Chinese company, in a trial with counts of espionage [See, here, here and here].

The question: 'Summoning' Persons/Companies Abroad
States across the world contain something or the other on summoning corporations in their criminal procedure laws. The U.S.A. has Rule 4 of the Federal Rules of Criminal Procedure explaining this process. India has Section 63 of the Cr.P.C. which says that service may be effected on a corporation by either (i) serving it on the secretary, local manager or other principal officer of the corporation, or (ii) by letter sent by registered post, addressed to the chief officer of the corporation in India. Section 65 may also be attracted to serving summons on a company, for it applies when service cannot be effected as per the method under Section 63 (and Sections 62 and 64). The officer may affix one of the duplicates of the summons to some conspicuous part of the house or homestead in which the person summoned ordinarily resides.

Section 105 Cr.P.C. tells us what the Court must do whenever it desires to issue a summons/warrant for any person residing in any country/place outside India. The Court is required to send the summons to the authority in the foreign country notified by the Central Government in this behalf. This notification usually occurs through a Mutual Legal Assistance Treaty [MLAT] that India may enter into with a State. This authority, upon receiving the summons/warrant, is then responsible for its execution within its territory. Can it be argued that a foreign company is not in any country or place outside India if that company has a wholly-owned Indian subsidiary? Serving summons of the parent upon its subsidiaries and agents is permitted in civil proceedings in certain situations [Order V, Rules 12-14 Civil Procedure Code 1908]. If permitted in criminal cases, the Government can effect service on that Indian subsidiary for the foreign parent through Section 63 without having to resort to the rigmarole of Section 105 Cr.P.C. Since the latter is a cumbersome process involving two governments and many authorities, allowing service of summons in the ordinary course would undoubtedly hasten the legal proceedings.

Unearthing Rationale - Summons and Corporate Veil
To answer these questions, we need to understand the rationale behind 'summons'. To me, it serves at least two objectives. One: giving notice to the person of there being a set of allegations against her which is the basic premise of a fair trial. Two: through summons, a court assumes jurisdiction over the person/company and can thus ensure appearance of the accused. Service of summons creates a link between the person and Court; the presumption of knowledge so created allows a Court to take coercive steps to ensure participation in proceedings. Think about Proclaimed Offender proceedings under Section 82/83 Cr.P.C. - a Court only moves to that measure on the basis that an accused is knowingly evading the process of law. Along with these two objectives is the underlying difference between allegations in civil and criminal cases, which makes personal service of summons important rather than being always satisfied with a presumption of knowledge. Criminal liability is necessarily personal, only extraordinarily vicarious, and a trial and conviction entails stigma. Thus, only as a last resort are we permitted to derogate from having to make the accused personally aware, Remember, though, that knowledge can be deemed [the proclaimed offender example], and that today there are several strict liability offences which test the generalisations about criminal law.

If you agree with my perfunctory analysis, let us reconsider the initial question. Would the accused foreign parent company get personal notice of allegations upon service of summons to its co-accused Indian wholly-owned subsidiary? In arguing this, the Government seeks to pierce the veil of incorporation and suggest they are the same legal entity. This would in theory mean personal service is effected on the foreign parent by serving summons on the officers of the domestic subsidiary under Section 63 Cr.P.C. Taking this path is problematic. Piercing the corporate veil by its very definition would require appreciating evidence and facts; would it be proper for a Court to engage in that analysis at this primary stage of proceedings? Perhaps not. But allowing this analysis carries strong policy benefits, so even if summons are treated as served cannot the foreign company challenge that exercise of jurisdiction? On principle, one might say it is finely balanced. Looking at practice in the USA, it seems a different yardstick is applied while dealing with civil/tort liability where piercing for jurisdictional purposes is common, and criminal liability where it is not so. Importantly though, American Courts have not held piercing of corporate veil to be impermissible at this stage.

Consequences of Irregularly Exercising Jurisdiction
Assume in our case a Court issued summons to co-accused wholly-owned domestic subsidiary under Section 63 Cr.P.C. for the accused foreign parent as well, and found that service is properly effected. Today if the foreign company chooses to appear - either at the outset or after it is convicted - and raise a jurisdictional challenge, will it succeed?

The company would argue this piercing of corporate veil is improper at the outset for it relies upon an analysis of evidence. Such a technique would amount to subverting the clear process of law, as laid out in Section 105 Cr.P.C. The rationale behind that provision would be found in International Law. While International Law permits domestic statutes to have extraterritorial jurisdiction, it prohibits States from enforcing this jurisdiction extraterritorially. For example: International Law permits the IPC to criminalise offences committed abroad, and the IPC does so through Section 4. While the IPC does then apply to a murder committed by an Indian in California, this does not enable the CBI/police to fly out to California and arrest the accused. Summons are effected through police officers, and thus are no different. The company would argue that these limits are recognised in the Cr.P.C. beyond Section 105 as well. Section 77 Cr.P.C. provides a warrant of arrest may be executed at any place in India. Similarly, Section 60 Cr.P.C. ordains an officer may pursue and arrest persons in any place in India. The extraterritorial enforcement of laws is barred for good reasons too. Imagine a situation where every state's laws apply globally, and every state can enforce these laws globally through its officers. Persons across the world would be subject to multiple sets of laws while having the remotest links to that legal system. There would be no sanctity of international borders left, and states would be at the mercy of wanton external interference in handling its domestic affairs.

The problem is this. States haven't always been willing to set aside proceedings on the basis of an irregular exercise of jurisdiction. For this, I rely upon the practice of states as seen in cases where accused persons were illegally arrested abroad and brought to face trial in domestic courts. We discussed this earlier on the blog and I highlighted a divergence in practice. One view considers the illegal arrest as one circumstance to be relied upon for arguing the unfairness of trial. The other view considers the circumstances of arrest inconsequential to determining the fairness or legality of the subsequent trial. India follows the latter view. In Om Hemrajani the Supreme Court observed: "How the accused gets there [to court] is immaterial. It does not matter whether he comes voluntarily or in answer to summons or under illegal arrest." If the individual can be brought to face trial after an illegal arrest, why would a company be treated any differently if it is brought to court through illegal summons?

With the ever-burgeoning scope of strict liability offences and corruption trials in India, we may find a thorough judicial discussion of this issue soon. As this post suggests, the judiciary is bound to have its hands full. To put in my two cents, I would argue that the position in Om Hemrajani must be revised to make illegal arrests important for determining the validity of subsequent trial. Flowing from this, a strict interpretation of Section 105 Cr.P.C. should be adopted requiring that procedure to be followed for every company located abroad, regardless of its domestic presence.

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