TORTIOUS LIABILITY OF COMPANIES: JURISPRUDENTIAL ISSUES

Author: Vrinda Bhandarkar, 4th year SDM Law College, Mangalore

  1. INTRODUCTION

Winfield opined that tortious liability arises from a breach of duty which is primarily fixed by law and is redressable by an action for unliquidated damages.[1] In the course of business, companies commit several forms of torts such as passing off, misrepresentation, fraud and negligence. Therefore, attaching liability for tortious acts becomes essential, but is made complicated due to the complex structural intricacies that are abundant in large corporations. In such cases, meticulous analysis of each case through a judicial lens for application of time tested principles and formulation of novel principles becomes inevitable. In order to throw light on this conundrum, the present article succinctly analyses the evolution of corporate tort jurisprudence globally as well as in India with special reference to the integral principles which has been evolved by the judiciary for facilitation of justice delivery system. Additionally, certain relevant novel concepts of tortious interference, cross border disputes, mass torts and future possibilities in this realm have been briefly discussed along with the conclusions derived out of the present analysis.

  • EVOLUTION

The modern tort jurisprudence emerged with the advent of industrial revolution due to increase in occurrences and severity of accidents as a result of employment of machinery, chemicals and technology. In the 19th century, the concept of allocating accountability to the shareholders, directors and employees arose in case of tortious acts undertaken by the corporation on the basis of vicarious liability. In the 1970s, the doctrine of ultra vires was formulated and imbibed on a case to case basis to attach liability when the authorities acted beyond the powers assigned to them as per the memorandum and articles of association. However, with the advent of greater ground for torts through phenomenal technological advancements, constant evolution is in progress in the realm of tort law in order to accomplish the spirit imbibed in ‘ubi jus ibi remedium.’[2]

  • GLOBAL APPROACH

International law attributes individual liability to several crimes regardless of State action.[3] In the early 1789, the US Congress adopted the Alien Tort Claims Act which granted competence to the District Courts to hear tort claims from non-Americans who have been a victim of a violation of law of nations to which the U.S has ratified without considering the place where the violation has occurred. Accordingly, it was applied in Wiwa v. Royal Dutch Petroleum,[4] wherein Nigerian Ogoni tribe alleged complicity by the Royal Dutch Shell companies which included forced occupation of their land as well as inflicting serious environmental damage. Further, it was also applied against Coca Cola for its deployment of paramilitary troops against members of trade unions at Columbia.[5] It has emerged as a harbinger of justice and righteousness despite its passiveness for over 200 years in the past.[6] On the other hand, the German legal system considers awarding of compensation in cases of contractual and statutory liability. It adjudicates by following the catalogue of torts which has been envisaged in the German Civil Code and several such other legislations rather than following a standardised set of elements of Tort.[7] In France, Article 1382 to 1386 proclaims the principle of Torts in the French Civil Code of 1804. Additionally, several supplemental legislations in addition to judicial decisions constitute the French Tort law.[8]

  • INDIAN POSITION

The existing tort law jurisprudence which is evolved through a catena of judicial decisions has also been strengthened by relevant legislative framework inter alia including the Indian Penal Code, 1860, Bureau of Indian Standards Act, 1986, Drugs and Cosmetics Act, 1945, Public Liability Insurance Act, 1991, Human Rights Protection Act, 1993. However, the Tort jurisprudence in India still lacks codification despite recommendations and efforts for preparation of the ‘Indian Civil Wrongs Bill’ in 1886 by Sir F. Pollock at the instance of the Indian Government. The juristic view which unfolded in relation to the conundrum of corporate tortious liability can be gauged from a plethora of cases in which the court has carved out several novel approaches including inter alia recognition of Government tort by employees of the government, for violation of human rights, environmental torts, congenital torts and toxic torts.[9]

  • DIRECTORS AND SHAREHOLDER’S LIABILITY

Attaching personal liability on directors and shareholders for the acts of the corporation can threaten the corporate of veil conferred upon a corporation. However, directors and shareholders cannot be shielded from tort liability by claiming that the actions were done in the name of the corporation.[10] In this regard, the Companies Act, 1956 as well as its subsequent amendment of 2013 has imbibed a comprehensive set of liabilities on the actions of directors as well as shareholders.[11] Therefore, even in case of authorities of a limited liability company, they can be held liable for their personal participation in tortious or criminal conduct.[12] Accordingly, in Francis T. v. Village Green Owners Association,[13] the individual members of the association were held personally liable for negligence relating to a criminal break-in and attack suffered by the plaintiff.[14] But, the court has maintained in the case of Iridium India Telecom Ltd. v. Motorola,[15] that the company will be made liable for sale of technology to Iridium based on misrepresentation regarding warranties. Similarly, while deciding upon the matter of irregularities committed in the case of Sunil Bharti Mittal v. CBI,[16] the court held that any director cannot be held liable for the criminal acts committed by the company.[17]

  • STRICT LIABILITY

The genesis of the rule of strict liability was in the case of Rylands v. Fletchers[18]wherein defendants were held strictly liable for the escape of water due to negligence of independent contractors while constructing a reservoir. In this Blackburn J. observed that when the very nature of the activity that is sought to be undertaken is prone to inherent danger, the undertaker of such activity will be held liable without any fault on his own part. As a matter of mundane work requirement, several corporations work with hazardous materials which inevitably endanger life, property and the environment. In such cases, the three condition test is applied for attribution of liability:

  1. Dangerous substance which is capable of causing harm on escape.
  2. Escape of such substance from the place of occupation and control of the defendant[19]
  3. The defendant must have undertaken a non-natural use of the land which entails putting the land to a special use which results in increasing danger to others owing to the usage.[20]

In this realm, product liability principle is considered widely applicable. It was developed by the courts after the failure of warranty and negligence by the manufacturer failed to protect the interests of the consumers. Accordingly, it has also found prominence in the provisions of the Consumer Protection Act, 2019.[21] Moreover the e-commerce guidelines framed under the Consumer Protection Act, 2019 emphasise on transparency of product information and endorsement of product liability constructed by e-commerce entities.

However, the strict liability rule operates with certain exceptions which make it less severe:

  1. Act of God as has been applied in the famous case of Nicholas v. Marsland[22] where the defendant was absolved from liability for the devastation of reservoirs caused by an unusual and unforeseeable rainfall.
  2. Wrongful act of a third party such as overflow of reservoir caused due to the act of a third party.[23]
  3. When the harm has been brought about by the plaintiff’s own default.[24]
  4. Artificial work maintained for the common benefit of plaintiff and defendant[25] or with the consent of the plaintiff.[26]
  5. When the harm brought about is a consequence of an act performed under the authority of a statute.[27]
  6. ABSOLUTE LIABILITY

While the Rule of strict liability was applied in a catena of cases,[28] The dynamic paradigm shift owing to rapid industrialisation, technological advancements and the resultant economic and social divide necessitated a highly protectionist outlook. Meanwhile, the possibility of exploitation of the exceptions to the rule of strict liability especially by opulent corporations came to the notice of the court in the case of M.C.Mehta v. Union of India [29]wherein Shriram Food and Fertilisers Industries was held absolutely liable for the harm caused by the escape of Oleum gas from one of its units. Thereby, the Supreme Court took away the shield of defence of reasonable care and absence of negligence along with the exceptions envisaged to the rule of strict liability. Its application imbibes the following canons:

  1. Assumption that permission to carry on an inherently hazardous activity is conditional on the absorption of overhead costs involved in compensation of possible harms.
  2. The enterprise is the sole entity which possesses the resources required to discover and guard against hazards and provide warning appropriately.[30]

Therefore, the departure of Indian courts from western jurisprudence in attributing liability of companies was accepted in a myriad of subsequent cases including Indian Council for Enviro Legal Action v. Union of India[31]wherein hazardous chemical industries were held liable for releasing untreated toxic substances resulting in damage. It has also been invoked in the infamous Bhopal gas tragedy[32], where a gas leak from a pesticide plant of the Union Carbide Corporation of USA caused several deaths and permanent injuries. Consequently, the Bhopal Gas Leak Disaster (Processing of Claims) Act, 1985 empowered the Indian government to settle the claims. However, wide criticism exists regarding the quandary that resulted due to the haphazard settlement by the government.[33] A more recent instance in this regard is the Vizag Gas leak where strict liability was invoked against the defendant when Styrene gas leaked from a chemical plant owned by LG Polymers India Pvt. Ltd.[34]

  • MASS TORTS

Industrialisation aims at bolstering profits through efficacious production techniques, often at the cost of sacrificing social and ethical interests. More often than not, the perpetrators are large corporations and the victims are indigent and illiterate, thus, making legal recourse next to impossible. Further, the consequences of the corporate activity may be severe and prolonged resulting in suffering of persons for generations together. In such cases, mass torts seek to provide remedies when the defendant’s actions cause harm which impacts a large section of the society simultaneously. Its application can be useful in several cases as observed in the most unfortunate Endosulfan case,[35] where aerial spraying of Endosulfan pesticide resulted in extreme physical and mental disorders even in the newborn infants in the vicinity.

  • TORTIOUS INTERFERENCE

Tortious Interference is a gradually evolving economic tort dealing with the breach of contractual obligations between the parties due to intentional or negligent interference by a third party which jeopardises economic interests of either party to the contract. Its early genesis is owed to the rampant practice of poaching star employees from rival organisations. Accordingly, the toll taken by cut-throat competition on competition was observed in The Daily Newspapers Lts. v. Gardner & Ors.,[36] wherein cutting off margins to wholesalers and retailers was considered as an attempt to injure the trade of Daily Mirror in contravention to the Antitrust laws. Similarly, the Delhi High Court held in Amway India Enterprises Pvt. Ltd. & Ors. v. 1MG Technologies Pvt. Ltd. & Ors.[37], malicious tampering, display and sale of plaintiff’s goods by the defendant was held to be a classic case of tortious interference. However, the difficulty in proving the allegations made by a business against another were seen in Pepsi Foods Ltd. & Ors. v. Bharat Coca-Cola Holdings Pvt. Ltd.,[38] when the court denied relief to the plaintiffas unethical and illegal poaching of plaintiff’s employees by the defendant could not be sufficiently established.[39]

  1. CROSS BORDER TORT DISPUTES

Globalisation of the commercial world has erased territorial differences facilitating corporations to acquire brand loyalty and amass wealth. However, it has also given rise greater exposure to cross-border torts. The primary challenge in cases of cross border torts is discerning the conundrum of the law that becomes applicable based on an analysis of the legal issues that have been put forth. The foreign element added due to cross-border torts paints two practical scenarios:

  1. When the act is committed in one country but the proceedings are brought forth in another country or
  2. When the act is committed in one country but its effect is experienced in another country.

When confronted with such scenarios, Private International Law contemplates three significant theories:

  1. Lex Fori wherein the law of the forum where the claim has been brought is applied without considering the country where the tort has actually occurred.
  2. Lex Loci Delicti where the law of the country of occurrence of tort is considered.[40]
  3. Proper law or Social Environment Theory advocates that the law which has most significant connections with the facts and circumstances of the case must be applied.[41]

In order to overcome the prevailing legal uncertainty, England evolved the Rule of Double Accountability which empowered England to punish a tort if two conditions are established:

  1. The act must be actionable as a Tort in England.
  2. The act must be non-justifiable by the law of the place where it was committed.[42]

The Indian cross border jurisprudence is largely evolving based on the English legal system and has previously applied the Double Accountability Rule in a defamation case where the Raja of Cochin communicated excommunication of the plaintiff and later on sent the same to British India and was held to be protected under the exception of communication to a subordinate.[43] Further, it has also been applied to a case of inter-state negligent and rash driving when the governing States were both independent Princely States.[44]

  1. FUTURE PROSPECTS

With the fast transforming technological world, inevitable transitions have affected consumption patterns and thereby, businesses. The 21st century has brought with it, the efficiency and scepticism of big data technologies and artificial intelligence. Thus, the torts that can be committed in the present times include inter alia severe misrepresentation, defamation, passing off especially through virtual platforms. Besides, with the advancement in technology, the repercussions of such Torts can be far more severe. The situation is aggravated due to lack of efficient legislative structure.

  1. CONCLUSION

Upon considering the history and development of Tort law in India as well as globally, its dynamism and constant adaptation to the changing needs of the society is crystal clear. Besides, development of novel areas of tort including mass torts, tortious interference and effective resolution of cross border torts in the light of technological advancements functions as a supplementary support system to the already existing structure developed astutely by the judiciary. Legislative contributions in relation to certain abundantly encountered forms of torts would be appreciated as a welcome move and can be further developed on the basis of needs and international legal regime in this regard.


[1]Anubhav Pandey, Tortious Liability of Companies, IPLEADERS (Aug. 23, 2017),https://blog.ipleaders.in/tortiousliabilitiesofcompanies/#:~:text=The%20definition%20of%20tortious%20liability,unliquidated%20damages.%E2%80%9D%20As%20per%20W.V.%20H.

[2] Muhammad Saleem & Ashraf Ali, The Law of Torts and its Impact on Corporations, 3 (3) MAGNT RESEARCH REPORT 239-244 (2015).

[3] Kodiac v. Karadzic, 70 F. 3d 232.

[4] Ken Wiwa v. Dutch Petroleum Company, (2002 U.S Sist. Lexis 3293).

[5]BBC, Coke sued over death squad claims, BBC NEWS (July 20, 2001), http://news.bbc.co.uk/1/hi/business/1448962.stm.

[6] Jan Wouters, Tort Claims against Multi- National Companies for Foreign Human Rights Violations Committed Abroad: Lessons from the Alien Tort Claims Act? WORKING PAPER NO. 46   INSTITUTE FOR INTERNATIONAL LAW, (Nov., 2003).

[7] T.Tremml, Key Aspects of German Business Law, SPRINGERLINK 95-105 (2008).

[8] Edward A. Tomlinson, Tort Liability in France for the Act of Things: A Study of Judicial Lawmaking, 48 (6) LOUISIANA LAW REVIEW 1300- 1315(1988).

[9]Shodhganga, Tortious Liability of Multinational Corporations in India, 3(8) SHODHGANGA.

[10] Heronemous v. Ulrick, 1997 WL 524127.

[11] Siddhant Maken, India: Note on Vicarious Liability of Directors and Shareholders, MONDAQ (Mar. 29, 2018), https://www.mondaq.com/india/shareholders/687872/note-on-vicarious-liability-of-directors-and-shareholders.

[12] People v. Pacific Landmark, LLC, 29 Cal.Rptr. 3d 193.

[13] Francis T. v. Village Green Owners Association, 42 Cal. 3d 490 (1986).

[14] Shannon Kathleen et al., Personal Liability of Directors and Officers in Tort: Searching for Coherence and Accountability, 22 (1) UNIVERSITY OF PENNSYLVANIA JOURNAL OF BUSINESS LAW 81- 108 (2019).

[15] Iridium India Telecom Ltd. v. CBI, AIR 2011 SC 20.

[16] Sunil Bharti Mittal v. CBI, AIR 2015 SC 923.

[17]LexisNexis, Liability of Directors in India, LEXISNEXIS, https://lexisnexisindia.wordpress.com/2020/01/02/liability-of-directors-in-india/.

[18] Rylands v. Fletchers, (1868) LR 3 HL 330.

[19] Read v. Lyons & Co., (1947) AC 156 (HL).

[20] Richards v. Lothian, (1913) AC 263.

[21] Anindya Ghosh & Nabarun Chandra Roy, Product Liability in India: An Evolution, MONDAQ (Aug. 07, 2020), https://www.mondaq.com/india/dodd-frank-consumer-protection-act/974270/productliabilitylawinindiaanevolution#:~:text=As%20the%20pleas%20of%20warranty,proprietary%20loss%20or%20personal%20injury.

[22] Nicholas v. Marsland, (1875) LR 10 Ex 255.

[23] Box v. Jubb (1879) 4 Ex D 76.

[24] Holgate v. Bleazard, (1917) 1 KB 443.

[25] Carstairs v. Taylor, (1871) LR Ex 217.

[26] Anderson v. Oppenheimer, (1880) 5 QBD 602.

[27] Transco plc. V. Stockport, (2003) 3 WLR 1467 (HL) (India).

[28] Darshan Ram v. Nazar Ram, AIR 1989 P&H 253 (India).

[29] M.C. Mehta & Anr. v. UOI, 1987 AIR 1086 (India).

[30] RATANLAL & DHIRAJLAL, THE LAW OF TORTS 488-505 (27th ed., LexisNexis, 2016).

[31] Indian Council for Enviro Legal Action v. Union of India, AIR 1990 SC 1480 (India).

[32] Union Carbide Corporation v. Union of India, 1990 AIR 273 (India).

[33] Wasim Beg et al, Bhopal to Vizag – A jurisprudential analysis of the Tortious Liability for Companies, SCC ONLINE (Jun. 15, 2020),https://www.scconline.com/blog/post/2020/06/15/bhopal-to-vizag-a-jurisprudential-analysis-of-the-tortious-liability-for-companies/.

[34] Poisonous Gas Leakage in Visakhapatnam v. State of Andhra Pradesh, WPs (PIL) No. 112, 117 & 119 of 2020.

[35] DTE Staff, SC Orders Kerala to compensate Endosulfan victims in 90 days, DOWNTOEARTH.ORG.IN (Jan.13, 2017),https://www.downtoearth.org.in/news/agriculture/sc-orders-kerala-to-compensate-endosulfan-victims-in-90-days-56780.

[36] The Daily Mirror Newspapers Lts. v. Gardner & Ors, 1968 2 All E.R 163.

[37] Amway India Enterprises Pvt. Ltd. & Ors. v. 1MG Technologies Pvt. Ltd. & Ors., CS (OS) 410 / 2018 (India).

[38] Pepsi Foods Ltd. and Ors. v. Bharat Coca- Cola Holdings Pvt. Ltd. and Ors., 1999 VAD (Delhi) 93 (India).

[39] Mohit Chadha et al, Tortious Interference – A Tort Lesser Evolved in India, MONDAQ (May. 12, 2020),http://www.modaq.com/india/civil-law/932836/tortious-interference-a-tort-lessor-evolved-in-India.

[40] Philips v. Eyre, 6 L.R. Q.B.1.

[41]Yashaswini Prasad, Cross Border Tort Disputes, LAWCTOPUS (Feb. 04, 2015) https://www.lawctopus.com/academike/cross-border-tort-disputes/.

[42] Boys v. Chaplin, 2 Q.B. 1 (1968).

[43] Govindan Nair v. Achuta Menon, (1915) I.L.R 39 Mad 433 (India).

[44] Kotah Transport Ltd. v. Jhalawar Bus Service Ltd., AIR 1960 Raj. 224 (India).


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