Anti-Corruption Regulation 2020 – Specialist Chapter, India

Domestic bribery

Legal framework

Describe the individual elements of the law prohibiting bribery of a domestic public official.

Section 7 of the Prevention of Corruption Act, 1988 (“PCA“) provides that if a public servant (i) obtains or accepts or attempts to obtain from any person, an undue advantage, with the intention of, or as reward for, performing or cause performance of public duty improperly or dishonestly or forbearing or cause forbearance to perform such duty either by him or herself or by another public servant, or (ii) performs or induces another public servant to perform improperly or dishonestly a public duty or to forbear performance of such duty in anticipation of or in consequence of accepting an undue advantage from any person, then he or she would be punished with imprisonment for not less than three years but which may extend to seven years, along with a fine. The PCA also provides that it is immaterial whether the public servant obtains or accepts, or attempts to obtain the undue advantage directly or through a third party.

The term ‘undue advantage’ includes any gratification (other than legal remuneration) and is not limited to pecuniary gratifications or gratifications capable of estimation in monetary terms, and therefore includes non-pecuniary gratifications such as gifts. Therefore, strictly speaking, the term can cover an insignificant amount paid to influence the public servant, as long as it is not within the legal remuneration of the public servant. It has been laid down by the Supreme Court of India that the quantum of amount paid as gratification is immaterial and that conviction will ultimately depend upon the conduct of the delinquent public official and the proof established by the prosecution regarding the demand and acceptance of such illegal gratification (AB Bhaskara Rao v Inspector of Police, CBI, Visakhapatnam 2011 (4) KLT(SN) 35).

The PCA clarifies that, for the purposes of section 7, the obtaining, accepting or the attempting to obtain an undue advantage shall itself constitute an offence even if the performance of a public duty by public servant, is not or has not been improper. By way of illustration it has been stated in the PCA that if a public servant demands money to process a routine application on time, the same would be an offence under the section – therefore, the PCA includes even facilitation payments within its scope. Judicial precedents prior to the recent amendments have also held that ‘speed’ payments made to public servants to get lawful things done promptly are covered within the purview of section 7 of the PCA  (Som Prakash v State of Delhi, AIR 1974 Supreme Court 989). Therefore, facilitation or ‘grease’ payments made to public servants would not pass muster under the PCA.

Section 7A criminalises the conduct of a person who accepts or obtains or attempts to obtain from another person for him or herself or for any other person any undue advantage as a motive or reward to induce a public servant, by corrupt or illegal means or by exercise of his or her personal influence, to perform or to cause performance of a public duty improperly or dishonestly or to forbear or to cause to forbear such public duty, and provides that such person shall be punishable with imprisonment for not be less than three years but which may extend to seven years, as well as a fine.

Further, section 11 of the PCA deals with scenarios where a public servant accepts, obtains or attempts to obtain any undue advantage (without consideration, or for a consideration, which he or she knows to be inadequate), from any person whom he or she knows to have been, or to be, or to be likely to be concerned in any proceedings or business transacted or to be transacted by such public servant or having any connection with his or her official functions or public duty (or of any public servant to whom he or she is subordinate), or from any person whom he or she knows to be interested in or related to the person so concerned. Such an offence would be punishable with imprisonment for a term that shall not be less than six months but may extend to five years, along with a fine.

Section 20 of the PCA provides that if, in a trial of an offence punishable under section 7 or under section 11, it is proved that a public servant has accepted or obtained or attempted to obtain for him or herself, or for any other person, any undue advantage from any person, it shall be presumed (unless the contrary is proved), that he or she did so, in a case under section 7, as a motive or reward for performing or to cause performance of a public duty improperly or dishonestly, or, in a case under section 11, without consideration or for a consideration which he or she knows to be inadequate. This section therefore alters the normal rule of criminal law that the prosecution has to prove its case beyond reasonable doubt. The accused can shift the burden of proof to the prosecution by showing a preponderance of probability in his or her favour.

In addition, section 13 of the PCA criminalises the dishonest or fraudulent misappropriation of, or conversion for his or her own use of, any property in the possession of the public servant or any illicit enrichment by the public servant. Where the public servant (or any person on his or her behalf), is in possession of assets or pecuniary resources disproportionate to his or her known sources of income, which he or she cannot satisfactorily account for, the public servant is presumed to have intentionally enriched him or herself illicitly. Section 14 of the PCA also provides for more stringent measures against habitual offenders, and provides that a repeat offender would be punishable with imprisonment for a term not less than five years but which may extend to 10 years as well as a fine.

Further, under section 8 of the PCA, a person is liable for giving, or promising to give, any ‘undue advantage’ to another person (directly or through a third party) with the intention to induce any public servant to (or reward any public servant for), improperly performing any public duty, and is punishable with imprisonment for a term that may extend to seven years, or with a fine, or with both. Sections 9 and 10 of the PCA address the liability of a commercial organisation (which include foreign entities conducting business in India) and its officers for provision of bribes.

Section 12 of the PCA provides that a person who abets any offence punishable under the PCA, would be punishable with imprisonment for a term not less than three years, but which may extend to seven years as well as a fine. Sections 107 to 116 of the IPC provide what constitutes the offence of abetment, the key element of which is described as being ‘instigation’. While on the one hand the law requires an element of mens rea, and the mere association of a person with an accused, in the absence of any further material or instigation, is normally not sufficient to continue abetment, an omission can qualify as an abetment if the omission itself is considered illegal. It is also significant to note that abetment of an abetment is also an offence under section 108 of the IPC.

Prohibitions

Does the law prohibit both the paying and receiving of a bribe?

Both payment and receiving of bribes are prohibited by law – sections 7, 7A, 11 and 13 address receipt of bribes, whereas sections 8 and 9 address payment of bribers.

Definition of a domestic public official

How does your law define a domestic public official, and does that definition include employees of state-owned or state-controlled companies?

Presently, there are no laws in India which deal with the concept of bribing a foreign public official.  Therefore, the definition of ‘public servant’ under the PCA covers only a domestic public official. The PCA provides a wide definition of ‘public servant’, which includes persons in the service or pay of a corporation established by or under a central, provincial or state act, or an authority or a body owned, controlled or aided by the government or a government company. ‘Government company’ here means any company in which at least 51 per cent of the paid-up share capital is held by the central government or any state governments (or both), as well as the subsidiaries of such a company.

In terms of the above definition, an employee of a company that is controlled by the central or state government, or 51 per cent of whose shares are held by the central or state governments, would be a public servant and his or her actions would fall within the purview of the PCA. The Supreme Court of India has also recently held that employees of banks would also be considered ‘public servants’ under the PCA (including employees of private banks).

The above inclusive definition of ‘public servant’ should be seen in the context of the role played by government-owned companies, commonly known as public sector units (“PSUs“) in the Indian economy. Until India adopted progressive privatisation as a policy in 1991, several key sectors of its economy were dominated or monopolised by PSUs. Various decisions were taken at the PSU level rather than by the government. The prevention of corruption among PSUs and their employees was therefore a critical concern.

Gifts, travel and entertainment

Describe any restrictions on providing domestic officials with gifts, travel expenses, meals or entertainment. Do the restrictions apply to both the providing and the receiving of such benefits?

As already described, the provisions of the PCA and the Service Rules specifically prohibit the provision and receipt of non-pecuniary benefits, including gifts, free transport, boarding and hospitality from persons other than close relatives or personal friends and in connection with the official duties of the public servant.

In this regard it is interesting to note that the Service Rules make an exception for the receipt by officials of ‘casual meals’; however, the PCA does not provide for such an exception. Accordingly, in a prosecution for giving a bribe under the PCA (by providing such benefits to a public servant), courts would apply an intention or mens rea test and the monetary worth of the benefit provided, even if insignificant, would not weigh in favour of the alleged abettor.

Further, companies typically have internal policies governing offering of gifts and non-pecuniary benefits to public servants.

Facilitating payments

Have the domestic bribery laws been enforced with respect to facilitating or ‘grease’ payments?

Payments made to get even lawful things done promptly are covered by section 7 of the PCA – this has also been clarified by a recently inserted illustration in the statute which states that if a public servant demands money to process a routine application on time, the same would be an offence under section 7. This is also clear from judicial precedents – for example, in Som Prakash v State of Delhi, AIR 1974 Supreme Court 98 9, the Supreme Court of India has held:

. . . we have little hesitation in taking the view that ‘speed money’ is the key to getting lawful things done in good time and ‘operation signature’ be it on a gate pass or a proforma, can delay the movement of goods, the economics whereof induces investment in bribery. . .

The court further stated that:

[if] speed payments [are allowed] delay will deliberately be caused in order to invite payment of a bribe to accelerate it again.

Thus, ‘facilitation payments’ fall foul of the PCA.

Public official participation in commercial activities

What are the restrictions on a domestic public official participating in commercial activities while in office?

Participation by public servants in commercial activities while in service is regulated by the terms of the Service Rules applicable to them. For instance, in the case of officials of the central government bound by the Central Civil Services (Conduct) Rules 1964 and the All India Services (Conduct) Rules 1968, there is an express prohibition on public servants from:

a) engaging in any trade, business or other employment;

b) holding an elective office, canvassing for a candidate for an elective office or in support of any business;

c) participating, except in discharge of his or her official duties, in the registration, promotion or management of any bank, company or cooperative society for commercial purposes; and

d) participating in any sponsored private media programme.

Prior approval of the central government is required for undertaking any such activity.  These Service Rules do, however, carve out limited exceptions with respect to participation in honorary social or charitable work, work of literary, artistic or scientific character, amateur sports or in the formation of associations for these purposes.  These Service Rules also prohibit speculation by public servants in any stock, share or other investments. This prohibition does not extend to occasional investments in securities made through registered brokers in accordance with applicable laws.

Section 168 of the IPC makes it a criminal offence for a public servant to engage in any kind of trade, business, profession or occupation if he or she is prohibited from doing so by virtue of being a public servant.

Payments through intermediaries or third parties

In what circumstances do the laws prohibit payments through intermediaries or third parties to domestic public officials?

Section 7A of the PCA covers: (i) any influence peddlers or intermediaries who, in exchange for any undue advantage, induce a public servant, by corrupt or illegal means or by exercise of personal influence, to cause the improper or dishonest performance of public duty; and (ii) any bribe-givers who provide or promise to provide, or any persons who abet the provision of, any undue advantage to any other person (irrespective of whether such person is a public servant or not) with the intention to induce or reward a public servant to improperly or dishonestly perform public duty.  Therefore, the PCA targets the conduct of ‘middlemen’, influence peddlers or intermediaries who facilitate bribery, by criminalising the act of taking any undue advantage to cause the improper or dishonest performance of public duty.  Such influence peddlars may also be charged with abetment and ‘criminal conspiracy’ to commit offences under the PCA.

Individual and corporate liability

Can both individuals and companies be held liable for violating the domestic bribery rules?

The PCA recognises the principle of corporate criminal liability.  Recent legislative changes to the PCA in 2018 have included provisions which expressly state that in case an offence is committed by a commercial organisation, such commercial organisation shall be liable to a fine if any person ‘associated with the commercial organisation’ provides any illegal gratification intended at obtaining or retaining business or advantage in the conduct of business, for such commercial organisation.  A person is considered to be associated with a commercial organisation if such person provides services on behalf of such commercial organisation.  This is a question of fact, and not just the relationship between the person and the organisation – and such person could be acting as an employee, agent or subsidiary of such commercial organisation.  Hence, an employee of the commercial organisation is deemed to have performed services for such commercial organisation.

Even prior to such amendment, the principle of corporate criminal liability was recognised in India, and corporations can be held liable for criminal offences under Indian law. The Supreme Court of India in CBI v Blue Sky Tie-Up Private Limited and in Standard Chartered v Directorate of Enforcement, held that a corporation can be prosecuted for an offence under the PCA and, while the company cannot be imprisoned, it can be fined and convicted of an offence under the PCA.

As regards liability of senior management or directors for offences committed by a company, the 2018 amendment to the PCA, has under section 10, clarified that when an offence has been proved in court to have been committed by a commercial organisation with the consent or connivance of a director, manager, secretary or any other officer of such commercial organisation, such persons shall be liable to be proceeded against and be punished with imprisonment and fine if found guilty.  The maximum term of imprisonment provided is seven years. Recent legislative changes to the PCA have now incorporated vicarious criminal liability.  Such provisions state that in case any offence is committed by a commercial organisation, the directors, managers, secretaries and any other officers with whose consent and connivance the offence has been proved to have been committed, shall be liable to penalties.

Additionally, the PCA now includes an ‘adequate procedures’ defence for commercial organisations – commercial organisations that can demonstrate that they had in place adequate procedures in compliance of guidelines prescribed under PCA, would not be subject to prosecution under section 9. However, the government has not yet issued guidelines regarding the compliance measures required to be undertaken to take the benefit of this defence.

Private commercial bribery

To what extent does your country’s domestic anti-bribery law also prohibit private commercial bribery?

In India, there is no specific law that covers ‘private commercial bribery’. Laws such as the PCA are only confined to bribery by ‘public servants’. However, as stated above, companies typically prohibit such bribes through internal codes of conduct. Additionally, private commercial bribery may constitute ‘fraud’ under the Companies Act, 2013, and if such payments are concealed as legitimate expenses, this may result in contravention of provisions relating to maintenance of books and records.  Our response to question 19 lays down details of issues with inaccurate financial reporting.

Defences

What defences and exemptions are available to those accused of domestic bribery violations?

The true test of whether a person should be prosecuted under any anti-bribery legislation is whether the mens rea (criminal intent) to commit an act of corruption or violate any anti-bribery law existed as on the date of such payment.  This is further evidenced by the conduct of the delinquent public official and the proof established by the prosecution regarding the acceptance of such illegal gratification.

Therefore, every situation will need to be analysed on a case to case basis depending upon the relevant facts existing as on the date of any payment.  As a best practice, legal advice may be obtained each time any entity intends to provide any gratification of whatsoever nature to a government official.

Having said that, certain anti-bribery legislations in India Include statutory defences which may be available to the accused, such as:

Reasonable and bona fide business expenses

The Service Rules and the FCRA provide exemptions for reasonable and bona fide business expenses by stipulating monetary thresholds which operate as value based de minimis amounts. However, the PCA does not prescribe any exemptions or defences for reasonable or bona fide business expenses or value based de minimis amounts.  Accordingly, the thresholds specified under the Service Rules and the FCRA can, at best, be viewed as guidelines, on the assumption that there is no intent to violate the PCA.  If a casual meal or casual gift is provided with the intent to influence a public servant, this will attract prosecution and penalties under the PCA, even if the value of the meal or gift is below the thresholds specified under the Service Rules or the FCRA.  Similarly, the substantive restrictions and penalties under FCRA also continue to apply in parallel with the Service Rules and since the object of the FCRA is different, the amounts prescribed under the Service Rules will not operate as an exception to the FCRA.

The Supreme Court of India in A.B. Bhaskara Rao v. Inspector of Police, CBI, Visakhapatnam, AIR 2011 SC 3845 has held that the quantum paid as gratification is immaterial and that conviction will ultimately depend upon the conduct of the delinquent public official and proof established by the prosecution regarding the acceptance of such illegal gratification.

Adequate procedures defence

Recent amendments to the PCA have introduced a proviso to the sub-section (1) of Section 9 of the PCA stating that in the event an offence under the PCA is alleged to have been committed by a commercial organisation, a valid defence is available to the commercial organisation to prove that it had in place adequate procedures, in compliance of guidelines prescribed under the PCA, to prevent persons associated with the commercial organisation from undertaking any conduct which results in the commercial organisation providing or promising to provide any undue advantage to a public servant.  The federal government is yet to prescribe such guidelines as regards adequate procedures required to be put in place by a commercial organisation.

Person compelled to give undue advantage

Recent amendments to the PCA have introduced provisos to sub-section (1) of Section 8 of the PCA stating that any person providing a bribe or any undue advantage to a public servant shall not be prosecuted under the PCA in case such person: (A) has been compelled to give such undue advantage; and (B) reports the incident to the law enforcement authority or investigating agency within a period of 7 (seven) days from the date of providing the undue advantage.  Further, sub-section (2) of Section 8 of the PCA states that such person, upon informing a law enforcement authority or investigating agency, may provide or promise to provide any undue advantage in order to assist the law enforcement authority or investigating agency in its investigation against the alleged recipient of the undue advantage.

Agency enforcement

What government agencies enforce the domestic bribery laws and regulations?

The following government agencies enforce the domestic bribery laws in India:

a) The Central Vigilance Commission acts as the nodal statutory body that overlooks investigation of corruption under the PCA and the IPC.  The role of the CVC is to supervise any corruption proceedings in relations to departments of the central government, government companies and state owned corporations, local government bodies, and amongst public servants.  These cases can be referred to either the CBI or the relevant government department by the CVC.

b) The CBI and the state anti-corruption bureaus also have the power to investigate corruption under the PCA and the IPC.  The CBI exercises its jurisdiction over employees of central government, union territories and undertakings owned by the central government, while corruption cases within the states are investigated upon by the state anti-corruption bureaus.

c) The MCA set up the Serious Fraud Investigation Office to investigate affairs of companies as specified by central government.  The SFIO exercises its jurisdiction upon:

(i) receipt of an application from the competent regulatory authority or government department;

(ii) at the request of the concerned company; or

(iii) in cases of public interest on a suo moto basis (i.e, of its own accord).

d) The Lokpal, which comprises a chairperson and up to eight members, is a nodal ombudsman authority which investigates and prosecutes cases of corruption involving:

(i) the prime minister;

(ii) the council of ministers;

(iii) members of Parliament;

(iv) public servants and other central government employees, other than members of armed forces;

(v) employees of companies funded or controlled by the central government; and

(vi) private persons who have abetted in the commission of relevant offences.

The Lokpal also has the power of superintendence over the CBI, if it refers a case to the CBI. Justice Pinaki Chandra Ghose along with other retired and sitting chief justices of various high courts have been appointed to the Lokpal office.

e) Lokayuktas are the counterparts of the Lokpal at the state-level and theirappoinment, powers and functions are governed by state-specific legislations.  Typically, Lokayuktas have the power to investigation and prosecute allegations of corruption against the state council of ministers, secretaries and public servants appointed in relation to the affairs of the state or any sub-division thereof, members of local municipal authorities and officers in the service of any undertaking owned by the state.

f) The Ministry of Finance has established the Enforcement Directorate to investigate and prosecute cases relating to the Prevention of Money Laundering Act 2002 and the Foreign Exchange Management Act 1999.  The Enforcement Directorate also cooperates with foreign countries in matters relating to money laundering and restitution of assets in accordance with their respective local laws.

g) The Income Tax department has been appointed as the authority in cases pertaining to the Benami Transactions (Prohibition) Act, 1988 by virtue of which it can attach and confiscate benami properties.

Patterns in enforcement

Describe any recent shifts in the patterns of enforcement of the domestic bribery rules.

Several instances of large-scale corruption have resulted in a stark change in the approach towards enforcement of anti-corruption laws.  In an attempt to bolster and cure India’s perceived weakness in its anti-corruption machinery, the government in March 2019, appointed the first Lokpal under the Lokpal and Lokayuktas Act, 2013.

Further, alarmed by the increasing number of financial defaulters absconding the jurisdiction of domestic law enforcement agencies to avoid prosecution, the government enacted the Fugitive Economic Offenders Act, 2018 and in early 2019, the former chairman of United Spirits Limited was declared as India’s first Fugitive Economic Offender under the new law, thus enabling the government agencies to confiscate his properties in the INR 9,000 crore loan default case.  The Indian government has also increased its efforts to extradite such defaulters by charging them under provisions of the PCA, PMLA and the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015.

In an effort to bridge the information asymmetry in the loan market and attempt to shield the credit environment from further shocks, the Reserve Bank of India has begun work in setting up a digital Public Credit Registry.  This registry shall act as a central repository drawing real-time information from the Securities and Exchange Board of India, the corporate affairs ministry, the Goods and Services Tax Network and the Insolvency and Bankruptcy Board of India.  The registry aims to allow banks and financial institutes to have a complete view of the financial profiles of existing and prospective borrowers.

Another growing trend is that enforcement agencies have become more sophisticated in unravelling complex corporate or financial structures, and have increased their reliance on technological tools.  Importantly, the government agencies have also shown a willingness to take the assistance of specialists such as private forensic auditors or investigators to help them in this endeavour, and provide expertise that they may lack themselves.  Internal investigations or forensic audits are a fairly new trend.  However, the same has been undertaken by various companies and regulatory bodies. The Supreme Court in August 2019 had directed that a forensic audit report be given to the Enforcement Directorate, the Delhi Police and the Institute of Chartered Accountants in India for taking appropriate action against Amrapali directors and auditors for siphoning off over Rs 3,000 crore of homebuyers’ money. The CBI also relied upon a forensic audit report commissioned by the bankers of, and filed a FIR against, Ratul Puri and other directors of Moser Baer India Limited in connection with a bank fraud case.  Recently, Infosys Limited, a leading information technology company received a whistleblower complaint alleging matters such as bidding for contracts with low or nil margin and over-recognising revenues. Infosys in its filing with the exchanges mentioned that aid its internal auditor and a law firm would conduct an independent investigative probe.

Indian enforcement agencies have also strengthened their relationships with agencies from other jurisdictions, and we have witnessed far more cooperation and coordination in cross-border enforcement efforts.

While the legislation protecting whistle-blowers is currently pending before the Indian parliament, the Securities and Exchange Board of India has meanwhile offered a monetary reward to whistle-blowers upto a maximum amount of INR 1,00,00,000 for cases where the whistle-blower’s information leads to a disgorgement of at least INR 1,00,00,000

It is interesting to note that as regards the PMLA, the offence of fraud under Section 447 of the Companies Act, 2013 has been recently introduced as a scheduled offence on April 18, 2018.  Pursuant to Article 20 of the Constitution of India, any finding of fraud prior to such period should not trigger the provisions of the PMLA since Article 20 of the Constitution of India expressly states that no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence.  However, this principle in relation to PMLA proceedings is in the process of being tested at the level of the Supreme Court.  While the High Court of Karnataka has upheld this principle in light of Article 20 of the Constitution of India in Directorate of Enforcement v. Obulapuram Mining Company Private Limited, the order passed by the High Court of Karnataka has been appealed before the Supreme Court, which has passed an interim order stating that the high court’s order will not operate as a precedent, pending the conclusion of proceedings before the Supreme Court

Prosecution of foreign companies

In what circumstances can foreign companies be prosecuted for domestic bribery?

The definition for a “commercial organisation” In the PCA includes any body or partnership which is incorporated outside India and which carries on a business, or part of a business, in any part of India.  In this regard, offences committed by foreign companies are treated on par with offences committed by Indian companies, as discussed in detail in response to query above.

Sanctions

What are the sanctions for individuals and companies that violate the domestic bribery rules?

Sanctions for individuals in relation to violation of the PCA have been discussed in query 24 above.  Sanctions applicable to companies have been discussed in the query above.

Recent decisions and investigations

Identify and summarise recent landmark decisions and investigations involving domestic bribery laws, including any investigations or decisions involving foreign companies.

Recently, P. Chidambaram who is the erstwhile finance minister of India was arrested in connection with the INX media scam, where Chidambaram was accused of corruption and money laundering.  The Supreme Court has recently released him on bail citing aspects such as fragile health during incarceration, him being already held as not a ‘flight risk’, the possibility of tampering with evidence or influencing witnesses being ruled out and the duration of his custody.  The Supreme Court also stated that the gravity of an offence can be a factor for denying bail, and stating that even economic offences would fall under the category of “grave offences” and in such circumstances the application for bail should be considered keeping in mind the nature of allegation made against the accused. the Supreme Court also remarked that even if the allegation is one of grave economic offence, it is not a rule that bail should be denied in every case since there is no such bar created under law nor under bail jurisprudence established by the courts in India.

The Enforcement Directorate has also been actively involved in prosecuting HDIL and its promoters, Rakesh Wadhawan and Sarang Wadhawan for an alleged fraud to the tune of INR 4,355 crores availed from Punjab and Maharashtra Co-operative Bank.  As of October 2019, the ED had arrested the promoters and senior management of Punjab and Maharashtra Co-operative Bank for allegedly perpetrating such fraud.  The ED has also attached properties amounting to INR 3,800 crores which include cars, bungalows and jewelry and also identified 50 new properties suspecting that such properties have been purchased from proceeds from crime.  The ED has also arrested Ratul Puri and filed a charge sheet against him and Moser Baer India Limited alleging that two group companies of Moser Baer were accused of money laundering by diverting funds amounting to INR 355 crore, being loan amounts availed from Central Bank of India and the subject matter of fraud being committed against the Central Bank of India.

The Ministry of Corporate Affairs has been the front runner in prosecuting the directors, management and the statutory auditors of Infrastructure Leasing and Financial Services in relation to an alleged fraud amounting to the tune of approximately INR 91,000 crores. The assets and bank accounts of the accused management had been frozen pending the investigation by the SFIO and pursuant to an interim report submitted by the SFIO, proceedings for fraud under Section 447 of the Companies Act, 2013 have been initated by the MCA before a special court in Mumbai, India.  Further, the MCA has also moved the National Company Law Tribunal to ban the statutory auditors, being Deloitte Haskins and Sells and KPMG, under Section 140(5) of the Companies Act, 2013.

Based on publicly available information, as of July 1, 2019, as many as 79 investigations were assigned to the SFIO in the last three years wherein 594 companies were involved.  These include proceedings against the lenders and promoters of Bhushan Steel, where the agency submitted a 70,000 page report to a special court In Dwarka, Delhi alleging that the senior officials of 13 banks were hand-in-glove with the promoters in order to perpetrate a bank fraud committed by the promoters against the relevant banks.

The Securities and Exchange Board of India (“SEBI“) had banned Pricewaterhouse Coopers in India from auditing the books of accounts of any company whose securities are listed on any recognised stock exchange in India, pursuant to its allegedly involvement in the fraud committed by the management of Satyam Computer Services Limited.  Pursuant to an appeal before the Securities Appellate Tribunal (“SAT“), the SAT revoked the ban passed by the SEBI, stating that the ban on auditing was punitive in nature, violative of the principles under Article 19 of the Constitution of India and beyond the scope of the powers granted to SEBI.  The order has now been further appealed to the Supreme Court, which has stayed the SAT’s orders pending proceedings.

Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology GTDT Anti-Corruption Regulation, 2020. For further information please contact adam.sargent@lbresearch.com.

Authors:

Aditya Vikram Bhat, Senior Partner
Shantanu Singh, Senior Associate

Published In:Getting The Deal Through
Date: August 7, 2020