-Arham Anwar
When one company absorbs another through a merger or amalgamation, the acquiring entity inherits a great deal of assets, contracts, employees, and often, reputation. But what about sins of the past? If the target company committed criminal offences before the deal closed, does the acquirer step into the dock as well? Under Indian law, the answer is more nuanced than a simple yes or no, and recent judicial developments, particularly a landmark ruling involving a bank amalgamation, have done much to clarify where the line is drawn.
This article examines the legal framework governing corporate criminal liability in the context of mergers and acquisitions in India, the judicial reasoning that has shaped it, and the practical consequences for dealmakers and compliance professionals.
The Short Answer and Why It Is Not the Whole Story
Indian law firmly recognises that corporations can be prosecuted and punished for criminal offences, including those that ordinarily require proof of a guilty mind. A company is treated as a legal person capable of forming criminal intent through the acts of those who constitute its “directing mind and will”, its senior management and controlling officers.
However, when that company ceases to exist as it does upon amalgamation, its corporate personality is extinguished. The transferor company is, in the eyes of the law, dead. And as a general rule, criminal liability does not transfer automatically to whoever receives its assets and business. The acquiring (transferee) company does not, by default, inherit the criminal sins of its predecessor.
What does survive, robustly and with clear statutory backing, is the individual liability of the officers and employees of the transferor company who actually committed or authorised the offences in question. Corporate dissolution does not grant them amnesty.
The Statutory Architecture
What the Companies Act, 2013 Says
Section 232 of the Companies Act, 2013 (“Act”) governs court-sanctioned mergers and amalgamations. Once a scheme is registered, the transferor company’s liabilities transfer to the transferee, and legal proceedings by or against the transferor may be continued in the name of the transferee. On its face, this sounds broad, but the courts have resisted reading “liabilities” and “legal proceedings” as automatically importing criminal prosecutions against the dissolved entity into the lap of its successor.
The more telling provision is Section 240, which expressly addresses criminal consequences in the merger context. It states that liability for offences committed under the Act by “officers in default” of the transferor company prior to its merger continues after the transaction. The legislature’s deliberate focus on officers rather than on the corporate entity itself signals a clear policy choice: individual accountability survives, corporate criminal liability does not automatically migrate.
The Insolvency Code’s Parallel Lesson
A useful comparator comes from insolvency law. Section 32A of the Insolvency and Bankruptcy Code, 2016, provides that once a resolution plan is approved and control of the corporate debtor passes to an eligible acquirer, the debtor company is absolved of liability for pre-insolvency offences. Importantly, though, the individuals responsible, including former directors, officers, and others in default, remain fully exposed to prosecution.
This provision is Parliament speaking in unambiguous terms: when it intends to ring-fence a successor entity from inherited criminal liability while preserving individual accountability, it does so explicitly. The absence of equivalent language in the general merger framework under Section 232 is, therefore, telling.
The Judicial Foundation: Corporate Criminal Liability in India
The Supreme Court settled any lingering doubts about corporate criminal capacity in Standard Chartered Bank v Directorate of Enforcement, where a Constitution Bench confirmed that a company can be prosecuted for criminal offences, including those carrying mandatory imprisonment; courts simply impose a fine where a custodial sentence cannot physically be executed against a juristic person.
Iridium India Telecom Ltd v Motorola Inc elaborated this further, the Court held that a corporation stands “virtually in the same position as any individual” for purposes of criminal prosecution and may be convicted even for offences requiring mens rea. The criminal intent of those who form its “alter ego” directors and senior managers who control its affairs is attributed to the company itself.
As for vicarious criminal liability of directors and officers, the Court in Aneeta Hada v Godfather Travels made clear that such liability requires an express statutory basis; it is not presumed. Statutes in sectors such as taxation, goods and services, and financial regulation typically contain specific provisions deeming both the company and persons in charge of its affairs to be guilty where the company commits an offence, with a due diligence defence available. Outside these express provisions, automatic spillover of criminal liability is not the default rule.
The Pivotal Case: Religare Finvest and the Lakshmi Vilas Bank Amalgamation
The most authoritative pronouncement on criminal liability in the merger context is the Supreme Court’s decision in Religare Finvest Limited v State of NCT of Delhi (2023), which arose from the forced amalgamation of Lakshmi Vilas Bank (“LVB”) into DBS Bank India (“DBS”).
The background was commercially dramatic. Religare Finvest had placed fixed deposits worth approximately Rs 750 crores with LVB. It is alleged that those deposits were misused in conspiracy with related borrower entities to secure loans without proper authority. An FIR was registered, and LVB’s directors and officials were charge-sheeted. Then, before the case proceeded to trial, LVB was placed under a moratorium and amalgamated with DBS Bank under a scheme framed by the Reserve Bank of India under the Banking Regulation Act.
A supplementary charge-sheet sought to implicate DBS as the successor. DBS challenged this, and the matter ultimately reached the Supreme Court.
What the Court Decided
The Court’s reasoning proceeded along four lines. First, it reaffirmed the foundational principle from General Radio & Appliances Co Ltd v M.A. Khader: amalgamation destroys the corporate existence of the transferor. LVB no longer existed as a legal person. Second, the Court examined the amalgamation scheme carefully and noted that while it contemplated continuation of certain legal proceedings, the provision dealing with criminal matters was specifically directed at the “officers” of the transferor bank, not the bank as an institution, and certainly not DBS as successor.
Third, and most significantly, the Court articulated what may be taken as the governing principle: corporate criminal liability “cannot be transferred ipso facto” on amalgamation. The passing of assets and civil liabilities is one thing; the migration of criminal accountability is altogether another matter and requires either an express statutory provision or actual participation by the transferee’s own management in the underlying wrongdoing.
Fourth, the Court noted the complete absence of any factual case against DBS. Nothing in the charge sheet suggested that DBS or anyone controlling DBS had any role in the alleged conspiracy. Without either statutory succession of criminal liability or independent factual involvement, there was no lawful basis to summon DBS as an accused.
The criminal proceedings against the individual officers of LVB were permitted to continue unaffected. The Court, in essence, separated the corporate thread from the human one: the institution died with its dissolution, but the personal accountability of those who ran it did not.
When Can the Acquiring Company Actually Be Held Liable?
Religare does not create a blanket immunity for acquirers. Three pathways remain open for criminal exposure, each with distinct contours.
The first, and most significant, is actual participation. If the acquiring company’s own controlling minds, its directors or senior management, were involved in, or knowingly enabled, the offences committed through the target company before the merger (through shared management, shadow control, or pre-arranged schemes), then liability does not rest on succession at all. It rests on the acquiring company’s own mens rea, imputed through the alter-ego doctrine. In such cases, criminal exposure is entirely appropriate, and no question of automatic transfer arises.
The second route is express statutory provision. Parliament can, if it chooses, enact a provision stating that upon amalgamation, the transferee shall be treated as having committed the offences of the transferor, or shall be liable to prosecution for them. This is a drafting choice that exists in principle and is illustrated by the manner in which vicarious liability clauses are constructed in statutes such as the Central GST Act. No mainstream Indian legislation currently goes this far in the merger context, but the possibility is not closed.
The third pathway concerns proceedings that are penal or regulatory in character rather than strictly criminal. Penalty adjudications under tax statutes, regulatory enforcement actions, and compounding proceedings occupy a different conceptual space from criminal prosecutions, and courts may be readier to treat these as continuing against the successor where a statutory scheme so indicates.
What This Means for the BNS Era
The Bharatiya Nyaya Sanhita, 2023, which replaced the Indian Penal Code with effect from 1 July 2024, does not alter the underlying framework in any material way. Section 358 of the BNS expressly preserves prior offences, penalties already incurred, and investigations or proceedings already underway. A pre-merger offence committed under the IPC remains fully prosecutable after 1 July 2024, and the principles governing corporate criminal liability, including successor liability, remain as they were, simply mapped to corresponding BNS provisions.
Similarly, the Bharatiya Nagarik Suraksha Sanhita, 2023, which replaced the Code of Criminal Procedure, continues the general framework for criminal proceedings, including the position on continuation of prosecutions across structural changes.
Conclusion: Personal Accountability Outlives Corporate Death
Indian law, as currently constituted, draws a principled distinction between the fate of a corporate entity and the fate of those who directed its conduct. When a company is absorbed in a merger, its corporate criminal liability generally dissolves with it. The acquiring company starts without the weight of the target’s criminal past, absent its own involvement or an express statutory direction to the contrary.
What does not dissolve is the liability of the individuals who committed or authorised those offences. Section 240 of the Act, the savings provisions of the BNS, and the general criminal law together ensure that human accountability survives corporate restructuring intact. A merger can dissolve a company; it cannot dissolve a conscience, or the legal consequences of its absence.
For counsel advising on transactions, the framework calls for targeted due diligence, one that looks past the corporate vehicle to the individuals within it, and that anticipates not merely the letter of criminal exposure but the shadow it casts on a deal’s commercial logic and long-term viability.
(The Author works as an associate in the Corporate Team at TLH Advocates & Solicitors, Hyderabad)