The Alter Ego approach in the theory of corporate liability is explained in Farrar’s Company Law, 4th Edn. Page 147, where it is stated:
“An employee who acts for the company in the course of his or her employment will usually bind the company and his or her knowledge will be attributed to the company because he or she is the company for the purpose of the transaction in question.
This is so even if the employee is acting dishonestly or against the interests of the company or contrary to orders but it is not so where the company is the victim. This is to avoid an obvious contradiction.”
This appeoach has been applied by the House of Lords in Lennard’s Carrying Co. Ltd. v.Asiatic Petroleum Co Ltd [1915] AC 705 HL is one such instance.
The facts of the case concerned a cargo claim which Lennards sought to defend by contending that Section 502 of the Merchant Shipping Act 2894 exonerated the owner from losses arising without his actual fault. The House of Lords held that they could not rely on that defence since the fault of the appropriate organ such as the Board of Directors or managing Director could be attributed to the company.
Another instance of the application of the theory of Corporate Liability is the `Attribution Approach’ as adopted by the Judicial Committee of the Privy Council in Meridian Global Funds Management Asia Ltd. v. Securities Commission [ 1995] 2 AC 500, [1995] 3 All ER 918.
In that case, two employees of Meridian, had improperly used their authority to purchase in the name of the company a substantial interest in Euro-National Corp. Ltd., a New Zealand listed company. Under the New Zealand Securities Amendment Act 1988, Meridian was required to give notice of its acquisition to ENC and the Stock exchange. The two employees knew this but the Board and the managing Director of Meridian did not. No notice was given. The Privy Council upheld the New Zealand Court’s in decision holding that Meridian had contravened the law, on the premise that the knowledge of the employee would be attributed to Meridian.
In India, in the case of Indian Bank v. Godhara Nagrik Cooperative Credit Society Ltd. and another, decided on May 16, 2008, a Bench of the Supreme Court comprising Justice S B Sinha and Lokeshwar Singh Panta assumed that for the purpose of that case, the Banks involved were constructively liable for acts of their employees.