Well. The perpretrator is brought before the Kage of the village and states his or her case. After hearing the details of the situation, the Kage and the council will discuss the issue in private. Ultimately, the Kage decides how the perpretrator will be punished.

(OOC: I actually don't know how the judicial system works in the Naruto world, so I'm pulling this out of my ass. >_>; Sorry!)