The Indian economy is characterised by the presence of a ‘big’ government – the Indian political structure encompasses central and state governments, as well as various local self-governance structures. This means that a single business entity may be subject to a number of central, state and local regulations, requiring approvals and registration to commence and operate its business, compliance, periodic reporting and inspections, and the exercise of individual discretion by government officials at various levels.
Apart from performing such functions, the government also operates large commercial enterprises in several sectors, including education, defence, aviation, railways (a near monopoly), infrastructure, banking, telecoms and healthcare. In addition to operating commercial enterprises, the incumbent government has increased its endeavours to open its commercial activities to participation by non-government business entities and enter into collaborations with such entities, with the objective of providing a boost to the economy and ensuring the quality of products and services at competitive prices. Accordingly, interactions with the government (in its various forms) and government-owned enterprises are unavoidable for entities looking to do business in India. It is also important to bear in mind that Indian laws and regulations often provide for considerable discretion in the hands of government agencies and personnel, and this can make interacting with the government a subjective and time-consuming exercise.
While Indian anti-corruption laws are fairly stringent, corruption is not uncommon in India. However, recent years have been marked with a growing public dissatisfaction over corruption and its cost to the Indian economy. Over the past seven to eight years, there has been a strong public sentiment against corruption, and high-profile instances of corruption have become key political and election issues.
The incumbent Indian government has also taken a hard-line stance on corruption issues and has prompted the introduction of several legislative measures aimed at tackling corruption in India, including the creation of an independent ombudsman (the ‘Lokpal’) to investigate and prosecute cases of corruption by public officials (including ministers), strengthening laws relating to prosecution of bribe-givers, facilitators and influence-peddlers, expansion of existing laws governing money laundering and ‘benami’ (i.e., proxy) transactions, and new laws to target undisclosed income and assets (whether in India or abroad) and accused persons absconding from prosecution. Most importantly, the past few years have seen a change in attitude of enforcement agencies, which have started enforcing anti-corruption laws aggressively in India against the perpetrators of corrupt practices as well as their advisors, auditors and other agents who either support or ignore the existence of such practices, and have been supported in their efforts by the judiciary (which has taken up an active role in monitoring corruption cases) and civil society.
Brief overview of the law and enforcement regime
Prevention of Corruption Act, 1988
The primary anti-corruption statute in India, the Prevention of Corruption Act, 1988 (‘PCA’), criminalises receipt of any ‘undue advantage’ by ‘public servants’ and the provision of such undue advantage by other persons. The PCA states that an ‘undue advantage’ is any gratification (not limited to being pecuniary in nature or estimable in money) other than the legal remuneration which a public servant is permitted to receive either from the government or any other organisation served by such public servant. Further, the term ‘public servant’ has a wide definition under the PCA, and includes any person in the service or pay of any government, local authority, statutory corporation, government company, or other body owned or controlled or aided by the government, as well as judges, arbitrators, and employees of institutions receiving state financial aid. The Supreme Court of India has also held that employees of banks – public or private – are also considered ‘public servants’ under the PCA.1
The offences under the PCA include: (1) public servants obtaining any undue advantage with the intention, or as a reward, to improperly or dishonestly perform or cause performance of public duty; (2) public servants obtaining any undue advantage without (or for inadequate) consideration from a person concerned in proceedings or business transacted either by the public servant or any other public servant to whom such public servant is a subordinate; and (3) criminal misconduct by a public servant (which includes possession of disproportionate assets) and a habitual offender.
The PCA also 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. Until recently, bribe-givers were brought within the ambit of the PCA through the offence of ‘abetment’ of the offences mentioned above – however, recent legislative changes to the PCA in 2018 have expressly targeted bribe-givers by criminalising the act of providing or promising to provide a bribe to any person (irrespective of whether such person is a public servant or not) to induce or reward a public servant to improperly or dishonestly perform a public duty. The bribe-giver may also be charged with ‘criminal conspiracy’ to commit offences under the PCA. The penalties for various offences under the PCA include imprisonment ranging from six months to 10 years, and a fine (for which no maximum amount is prescribed). Further, recent legislative changes to the PCA have also introduced provisions pertaining to attachment and confiscation of property procured by way of an offence under the PCA. It is not inconceivable for investigating authorities to allege that any advantage received by a bribe-giver pursuant to the bribery (which is an offence under PCA) could also be subject to attachment and confiscation, and not just the property of the public servant(s) in question.
Under the PCA, if there is an agreement or attempt to give or receive a bribe, this in itself is sufficient to constitute an offence (and attract prosecution), and the actual payment of a bribe is not necessary. Further, it is immaterial whether the bribe has been obtained for a public servant’s own benefit or the benefit of any other person, either directly or through any other person. The 2018 amendment states that the obtaining, accepting, or attempting to obtain an undue advantage in itself is an offence under the PCA, even though the ultimate performance of a public duty by a public servant is not improper. Offences under the PCA are generally investigated by a special enforcement unit called the Central Bureau of Investigation (‘CBI’) or the state anti-corruption departments of the police.
It may be noted that the prior sanction of the government is required for the initiation of prosecution under the PCA against public servants. However, this safe harbour applies only to proceedings against serving and retired public servants and not persons accused of giving bribes. Trials for offences under the PCA are conducted before special courts set up for this purpose. The 2018 amendment states that there shall be an endeavour to conclude the trial within a period of two years since the date of initiation of proceedings, subject to a maximum time period of four years.
Service rules for government officials
Government officials in India are also bound to conduct themselves in accordance with the ‘service rules’ applicable to different classes of officials, including the Central Civil Services (Conduct) Rules 1964 and the All India Services (Conduct) Rules 1968 (‘Service Rules’). Service Rules prohibit government officials from receiving gifts, hospitality, transport, or any other pecuniary advantage that exceeds certain specified thresholds from individuals other than near relatives or personal friends (with whom such official has no business dealings) without the sanction of the government – however, a casual meal, a casual lift, or other social hospitality is permitted. The Service Rules also provide that government servants are not permitted to accept lavish or frequent hospitality from persons with whom they have official dealings, and prohibit government servants from engaging in any trade, business, or other employment, canvassing in support of any business and participating, except in the discharge of official duties, in the registration, promotion or management of any company for commercial purposes. A contravention of the Service Rules can lead to initiation of disciplinary proceedings against the official concerned, the consequences of which can include termination of service.
Foreign Contribution Regulation Act, 2010
The Foreign Contribution Regulation Act, 2010 (‘FCRA’) prohibits the acceptance of hospitality or contributions from ‘foreign sources’ by persons including legislators, judges, political parties or their office-bearers, government servants and employees of bodies owned or controlled by the government, except with the permission of the central government. The FCRA defines the term ‘foreign source’ to include any foreign citizen, company, entity, multinational corporation, trust or foundation. Further, non-governmental organisations (including charities) receiving contributions from a ‘foreign source’ are required to be registered under the FCRA, and report such contributions. The FCRA provides for an exception for personal gifts valued up to INR 25,000 (approximately US$ 375), and such gifts are not prohibited.
In addition to the requirement of obtaining the central government’s consent or registration for the purpose of receiving contributions from a foreign source, the FCRA provides for suspension and cancellation of a registration granted by the central government in case of a contravention of the terms of the registration, the FCRA, or in the larger public interest.
A contravention of the FCRA is punishable with imprisonment of up to five years, or a fine, or both. Where the offender is a company, persons such as directors and other managerial personnel may be held liable for the offence.
Right to Information Act, 2005
The Right to Information Act, 2005 (‘RTI Act’) allows Indian citizens to obtain information held by any public authority, subject to specified exceptions for national interest, legislative privilege and right to privacy. Further, the RTI Act requires public authorities to publicly disclose certain types of information relating to their functions (for example, they must publish relevant facts while formulating important policies or announcing decisions that affect the public and provide reasons for their decisions). The information requested by a citizen is required to be provided in a timely manner (within a period ranging from 48 hours (if the life and liberty of any person are involved) to 30 days). An authority has been set up at the central and state levels to monitor complaints from citizens under the RTI Act (including a refusal of access or a failure to respond). Such authorities are the Chief Information Commissioner at the central level and the state-specific information commissioners at the relevant state levels. The RTI Act was amended in October 2019 to allow the central government to formulate rules and regulations governing the tenure, salaries, allowances and other terms and conditions of service of the Chief Information Commissioner and the information commissioners, which had been fixed under the RTI Act prior to such amendment.
In recent years, the RTI Act has proved to be a key tool in the fight against corruption – requests for information by activists and citizens have been successful in bringing to light instances of corruption in government tenders and public procurement programmes. The RTI Act promotes transparency in the government and bureaucracy’s decision-making, and by facilitating publication of official records, which ensures that any lapses are brought into the public eye.
Central Vigilance Commission Act, 2003
The central government has constituted the Central Vigilance Commission (‘CVC’) pursuant to the Central Vigilance Commission Act, 2003. The CVC is the government watchdog that is tasked with inquiring into (or commissioning an inquiry into) offences alleged to have been committed under the PCA. It is also responsible for advising, planning, executing, reviewing and reforming vigilance operations in central government organisations. The CVC is required to operate impartially and free of executive control, and can refer investigations to the CBI.
Lokpal and Lokayuktas Act, 2013
The Lokpal and Lokayuktas Act, 2013 is a relatively recent piece of legislation which provides for the establishment of corruption ombudsmen (called ‘Lokpal’ at the central level, and ‘Lok Ayuktas’ at the state level), which act independently from the executive branch of the government. These bodies have been empowered to investigate allegations of corruption against public functionaries, including offences under the PCA (including allegations against the prime minister and other central ministers, members of parliament and other public servants). Further, public servants are required to declare the assets held by them (together with their spouse and dependent children) on an annual basis. In March 2019, a former Supreme Court judge, Justice Pinaki Chandra Ghose, was appointed as the country’s first Lokpal, thus giving much-needed teeth to the anti-corruption legislation.
Companies Act, 2013
The Companies Act, 2013 (‘Companies Act’) is India’s law governing companies, and places a strong emphasis on corporate governance and the prevention of corporate fraud. Under the Companies Act, auditors and cost accountants are mandatorily required to report any suspected frauds (above a specified threshold) to the central government. Certain types of companies are also mandated to establish a vigilance mechanism for the reporting of concerns.
The Companies Act defines the term ‘fraud’ quite broadly, and this could encompass acts of private or commercial bribery. Fraud is a criminal offence under the Companies Act and is punishable with imprisonment ranging from six months to 10 years and/or a fine. The Companies Act also obligates directors and senior management to maintain systems for ensuring compliance with applicable law, as well as accuracy of the books, records and financial statements of the company. Contravention of such provisions is punishable with fines (which depend upon the quantum of the amount involved in the fraud) and imprisonment.
The Companies Act has also led to the establishment of the Serious Fraud Investigation Office (‘SFIO’), which is empowered to detect, investigate and prosecute white-collar crimes and fraud. The SFIO has broad powers to conduct inspections, discover documents, search and seize evidence, etc. Recently, certain additional sections of the Companies Act have been notified, giving the SFIO additional powers to arrest a person who, the SFIO have a reason to believe, has been guilty of specified offences under the Companies Act (including offences relating to ‘fraud’). As per the SFIO website, the agency has filed 1,237 prosecution cases in various courts and designated forums – of which, it had obtained conviction in 92 cases as of March 2017.
Besides the SFIO, the Companies Act also establishes the National Financial Regulatory Authority (‘NFRA’), which monitors and enforces compliance with the accounting and auditing standards under the Act. The NFRA has also been vested with powers of investigation into matters of professional or other misconduct committed by any member or firm of chartered accountants registered under the Chartered Accountants Act, 1949.
Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act, 2002 (‘PMLA’) criminalises ‘money laundering’, which it defines as direct or indirect attempts to knowingly assist or become party to, or actual involvement in, a process or activity connected with the ‘proceeds of crime’ (including its concealment, possession, acquisition or use) and in projecting or claiming such property to be untainted property. Under the PMLA, ‘proceeds of crime’ are defined to mean any property derived or obtained, directly or indirectly, by a person as a result of certain identified crimes (which are considered as predicate offences for the application of the PMLA).
The Finance Act, 2019 has further clarified that ‘proceeds of crime’ shall include any property which may be directly or indirectly derived or obtained as a result of any criminal activity relatable to such identified offence. A crucial aspect of this law is that it permits the attachment of properties of accused persons (and other parties who are connected with the proceeds of crime) at a preliminary stage of the investigation (and even prior to conviction). The offence of money laundering attracts punishment of imprisonment of three to seven years, and a fine. An investigation in relation to a contravention of the PMLA is initiated and conducted by the Enforcement Directorate in India.
Legislative changes to the PMLA in 2018 included ‘fraud’ under the Companies Act as one of the identified crimes which would attract the application of the PMLA. As a result, any property derived or obtained pursuant to a fraud is considered ‘proceeds of crime’ under the PMLA. Unlike the PCA, ‘fraud’ under the Companies Act is not linked only to bribery of public servants, but covers a much wider ambit.
The PMLA also requires banks, financial institutions and intermediaries (such as brokers and money changers) to maintain records of transactions and ‘know your customer’ details (as per norms specified by sectoral regulators), and to report suspicious transactions and transactions exceeding a specified value.
Recent legislative changes to the PMLA have made all oﬀences ‘cognisable’ (i.e., which empower the Enforcement Directorate to arrest an accused on its own motion without judicial warrant) and ‘non-bailable’ (that is, where grant of bail is a matter of discretionary power in the hands of the court). Further, the prerequisite of a first information report or charge sheet being filed in relation to a scheduled offence under the PMLA, prior to the Enforcement Directorate being competent to investigate the offence of money laundering resulting from such scheduled offence, has been removed.
Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015
This enactment levies penal rates of tax on any undisclosed asset or income held abroad by a person resident in India and penalises individuals for non-disclosure of foreign income or assets, wilful attempt to evade tax, failure to furnish requisite returns, etc. The objective of the Act is to target undisclosed income and assets (potentially derived through illegal means, including corruption) which have been ‘stashed’ offshore by resident Indians.
Fugitive Economic Offenders Act, 2018
In order to prevent offenders accused of economic offences from evading prosecution within the country, the Fugitive Economic Offenders Act, 2018 (‘FEOA’) was enacted on July 31, 2018. The FEOA targets fugitive economic offenders against whom an arrest warrant has been issued for certain predicate economic offences involving INR 100 crores and who have either left the country to avoid criminal prosecution or are abroad and refuse to return to face criminal prosecution. Predicate offences under the FEOA cover cheating and counterfeiting under the Indian Penal Code, 1860, offences under the PCA and PMLA, corporate fraud under the Companies Act, benami transactions and tax evasion. The strength of the FEOA lies in its far-reaching measure of immediate confiscation of all properties of any abscondee, which acts as a strong deterrent against any desertion from the country.
Overview of enforcement activity and policy
The past few years have witnessed a stark change in the approach towards enforcement of anti-corruption laws. One of the driving forces behind this change has been the increased public focus on the issue of corruption in government, combined with an active role played by the judiciary in corruption matters. This movement against corruption was triggered by the discovery of several instances of large-scale corruption by highly influential ministers and bureaucrats within the government machinery. Recently, instances of financial fraud by established corporate giants and multi-millionaire businessmen have also come to light. This led to a large-scale public outcry regarding the impact of corruption on the Indian economy and its citizens.
Amidst growing public dissatisfaction regarding this state of affairs, the government reacted by enacting various legislative measures. In an attempt to bolster and cure India’s perceived weakness in its anti-corruption machinery, in March 2019, the government 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. In early 2019, the former chairman of an established beverage-manufacturing entity was declared 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. While certain accused individuals have fled India, the Indian government has, in parallel, increased its efforts to extradite such individuals and has charged them under provisions of the PCA, PMLA and the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015.
On account of an increasing number of delinquent borrowers and non-performing assets, anti-corruption enforcement has recently directed its focus towards corruption in the financial services sector, particularly in the approval of large loans. In an effort to bridge the information asymmetry in the loan market and 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 will act as a central repository drawing real-time information from the Securities and Exchange Board of India, the Ministry of Corporate Affairs, the Goods and Services Tax Network and the Insolvency and Bankruptcy Board of India. The registry aims to allow banks and financial institutions to have a complete view of the financial profiles of existing and prospective borrowers.
Law enforcement agencies have initiated proceedings against various corporate giants and multi-millionaire businessmen for defrauding public and private sector banks. 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, 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. 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.
Perhaps the most welcome change has been an increased appetite among enforcement agencies to aggressively investigate and pursue corruption cases, even against high-profile politicians and powerful bureaucrats. Additionally, enforcement agencies have initiated proceedings against statutory auditors of entities who have been subject to financial fraud. The Ministry of Corporate Affairs, the Securities and Exchange Board of India and the NFRA have been at the forefront of prosecuting audit firms who, while being appointed as statutory auditors of companies in India, have allegedly colluded with the management in perpetrating fraud upon the entity, its shareholders, banks and the public at large.
It is interesting to note that, as regards the PMLA, the offence of fraud under the Companies Act was 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; neither shall they 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 of India. 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 of India, 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.
Law and policy relating to issues such as facilitation payments and hospitality
At the outset, it should be noted that unlike the US Foreign Corrupt Practices Act, the PCA expressly prohibits the payment of ‘facilitation payments’ or ‘grease money’. 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 the PCA. It is important to recognise that, unlike the Service Rules or the FCRA, the PCA does not provide for any de minimis thresholds for gifts, meals, or hospitality in respect of public servants and the thresholds specified under the Service Rules and the FCRA can, at best, be viewed as guidelines for de minimis amounts, on the assumption that there is no intent to violate the PCA. Moreover, the Supreme Court of India 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.2 It should be noted that the true test of whether a person shall be prosecuted under any anti-bribery legislation is whether the mens rea to commit an act of corruption or violate any anti-bribery law existed as on the date of such payment.
Therefore, the receipt of gratification or valuable things (however insignificant their value) by a public servant, which is not within the legal remuneration of the public servant, could potentially attract prosecution under the PCA. The provision of gifts, meals, or hospitality of a nominal value (and below the thresholds specified in the Service Rules or FCRA) could also be considered inconsistent with the PCA and constitute an illegal act. The 2018 amendment has made available the ‘adequate procedures’ defence to commercial establishments. Thus, a company can demonstrate its lack of mens rea to commit an offence under the PCA by proving compliance with such guidelines as may be prescribed by the central government to prevent persons associated with it from undertaking such conduct. This defence is in line with that provided under the US Foreign Corrupt Practices Act and the UK Bribery Act.
In view of the foregoing, the compliance regimes of multinational organisations operating in India have to be carefully crafted and customised to the Indian legal framework, and specific legal advice ought to be obtained in this regard.
Key issues relating to investigation and enforcement procedures
Indian law recognises that communications between an attorney and a client are privileged. It is, however, important that advice on Indian law be sought when evaluating the availability of privilege in the specific facts of every case. In the context of an investigation, we suggest that the company should appoint an Indian law firm to conduct the investigation, and (although this position remains untested as a matter of law) any experts, investigators or auditors should be appointed by the law firm to extend the privilege (to the extent available) to any work product prepared by such experts, investigators, or auditors.
Data privacy concerns
Companies are generally permitted under Indian law to collect and review electronic data stored on their servers or electronic equipment (such as laptops or phones) in the context of an investigation, and this right should be specifically reserved by the company in its policy manuals or employee handbooks. The Information Technology Act 2000 and the rules issued thereunder regulate the collection, storage, use and disclosure of sensitive personal information (‘SPI’), such as passwords, financial information, medical records, biometric information, etc.; therefore a company should obtain the consent of an employee before accessing or reviewing data from an employee’s personal electronic devices.
There is no express obligation under Indian law to self-report offences under the PCA. However, a reporting obligation imposed upon auditors may be triggered if the act also qualifies for reporting under the Companies Act. Although the Code of Criminal Procedure, 1973 contains provisions relating to reporting obligations, it remains to be seen whether Indian courts will extend these obligations to offences under the PCA.
Presumptions and exemptions under the PCA
Where the authorities can establish the receipt of gratification or a valuable thing by a public servant, the PCA creates a legal presumption that the receipt was pursuant to an offence under the PCA – the burden of proof is then on the accused to demonstrate that such receipt was not improper. Additionally, legislative changes made to the PCA in 2018 provide immunity to individuals accused of providing gratification, if such individual has been compelled to give such gratification and is willing to report the matter to the law enforcement authority or investigating agency within a period of seven days from the date of giving such gratification.
Multiplicity of enforcement proceedings and agencies
From the perspective of commercial organisations, it is important to recognise that multiple agencies with similar powers are often competent to investigate different aspects or facets of a single set of facts. For example, the use of company funds to bribe an official of the central government may constitute related but distinct offences under the PCA, the PMLA and the Companies Act, each of which may be investigated by a different agency. If the company in question is listed, the securities market regulator – the Securities and Exchange Board of India – may also initiate proceedings against the company. Therefore, addressing any compliance issues and/or dealing with an investigation requires companies to adopt a nuanced and carefully crafted strategy.
Although 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 up to a maximum amount of INR 10,000,000 for cases where the whistle-blower’s information leads to a disgorgement of at least INR 10,000,000.
Overview of cross-border issues
As noted above, we have recently seen greater levels of interaction between Indian authorities and their counterparts in other jurisdictions, and they have demonstrated a willingness to invoke treaties and join forces for mutual assistance to investigate corruption matters. Indian authorities have also been known to take note of settlements agreed between multinational corporations and offshore regulators such as the United States Department of Justice, and to initiate proceedings into the Indian businesses belonging to such corporations. Therefore, corporations being investigated in other jurisdictions should also be prepared in respect of potential investigations in India.
India has ratified the United Nations Convention against Corruption (‘UNCAC’) and the United Nations Convention against Transnational Organized Crime and its three protocols; both of these Conventions mandate the criminalisation of corruption and bribery of public officials. The legislative changes to the PCA in 2018 were introduced with the intention of removing any inconsistencies and aligning the provisions of the PCA with India’s international obligations under the UNCAC.
It may be noted that there is no existing Indian law that applies to bribery of foreign public officials by Indian companies, and a bill introduced in parliament in this regard (the Prevention of Bribery of Foreign Public Officials and Officials of Public Interest Organisations Bill, 2011) has since lapsed.
India has signed an Inter-Governmental Agreement with the United States to implement the Foreign Account Tax Compliance Act (‘FATCA’) in India, allowing automatic exchange of information between the two countries, and to combat tax evasion by nationals and companies in both countries. India is also a signatory to the Convention on Mutual Administrative Assistance in Tax Matters, and has agreed to implement the Common Reporting Standard for automatic exchange of tax and financial information, with effect from 2017.
Corporate liability for bribery and corruption offences
The Supreme Court of India has recognised the principle of corporate criminal liability in India, and held that mens rea may be attributed to companies on the principle of ‘alter ego’ of the company, i.e. the state of mind of directors and managers who represent the ‘directing mind and will’ of the company.3 It has stated that in order to attribute the mens rea of a person or group of persons in a company, it is necessary to ascertain whether ‘the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons’. Accordingly, for authorities to succeed in holding a company criminally liable, the mens rea of the relevant employees will have to be attributable to the company. In practice, however, Indian authorities typically always charge an employer company for the offence along with the individual employee (regardless of the seniority of the employee), and the liability of the company would need to be proved (or disproved) at trial.
The PCA and the FCRA recognise the principle of corporate criminal liability. Recent legislative changes to the PCA in 2018 have included provisions which expressly state that in the case that 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 – 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.
As regards liability of senior management or directors for offences committed by a company, the 2018 amendment to the PCA, 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 a 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 the case that 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 – however, the central government is yet to issue guidelines regarding the compliance measures required to be undertaken by a company.
Following recent legislative developments in relation to various anti-corruption laws, no further reforms, amendments or updates are currently contemplated. The implications of recent developments, along with their enforcement and any practical difficulties arising therefrom, will need to be analysed in future.
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1. CBI v. Ramesh Gelli & Ors., 2016 (3) SCC 788.
2. AB Bhaskara Rao v. Inspector of Police, CBI, Visakhapatnam, 2011 (4) KLT (SN) 35.
3. Iridium India Limited v. Motorola Incorporated & Ors., AIR 2011 SC 20.
Aditya Vikram Bhat, Partner
Shantanu Singh, Associate