Mar 15, 2023

A Guide to Anti-Corruption Legislation in Asia Pacific


Key Points:

Key legislation•  Prevention of Corruption Act, 1988 (PCA)

•  Central Civil Services (Conduct) Rules, 1964

•  All India Services (Conduct) Rules, 1968

•  Indian Foreign Service (Conduct and Discipline) Rules, 1961

•  Central Vigilance Commission Act, 2003 (CVC Act)

•  Right to Information Act, 2005

•  Lokpal and Lokayuktas Act, 2013 (Lokpal Act), and state Acts

•  Companies Act, 2013 (Companies Act)

•  Foreign Contribution (Regulation) Act, 2010

•  Fugitive Economic Offenders Act, 2018

Private sector briberyNo laws specifically prohibit bribery in the private sector in India. However, the Companies Act, 2013 (Companies Act) penalises “Fraud” in relation to the affairs of a company. The definition of fraud under the Companies Act is wide and could be invoked to penalise private sector bribery. Certain offences under the Indian Penal Code, 1860 (IPC) (primarily those relating to cheating and criminal breach of trust, among others) can, depending on the facts, also be attracted.

The bribery related offences under the PCA are restricted to bribery of “public servants”.

Extra-territorial effect•  PCA – Yes (to Indian citizens only)

•  Lokpal Act – Yes (to Indian public servants outside India)

•  CVC Act – Yes (to Indian public servants outside India)

Note: Extraterritorial effect can also be achieved through prosecution under the Prevention of Money Laundering Act, 2002 as amended (PMLA) (which can be initiated for offences under the PCA).

Exemption for facilitation paymentsNo
Defences•  The PCA was amended in 2018, and now provides for an “adequate procedures” defence for firms and companies accused of corruption offences. However, guidelines in this regard are yet to be notified by the Indian government.

•  A bribe giver who is compelled to pay a bribe and reports the matter to a law enforcement agency within seven days may raise that as a defence to his or her prosecution.

•  Directors and officers of companies and firms accused of bribery may argue that the offence took place without their consent and connivance.

PCAThe PCA as amended in 2018 criminalises: (i) the taking of bribes by a public servant; (ii) influence- peddling by any person; (iii) offers and payments of bribes to a public servant; (iv) bribery by commercial organisations; (v) obtaining of undue advantage by public servants in transactions; and

(vi) other misconduct by public servants.

The expression “public servant” is very widely defined.

Punishments under most of the offences under the PCA include imprisonment for a period between three to seven years as well as a fine. Abetment of offences is also criminalised by the PCA.

However, public servants who commit criminal misconduct or who are habitual offenders may be subjected to imprisonment for a period of up to ten years as well as a fine.

Lokpal ActThe Lokpal Act provides for the establishment of an anti-corruption ombudsmen (Lokpal) at the federal level. Justice (Retd.) Pinaki Chandra Ghose has been appointed as the first Lokpal of India. States have separately established state level ombudsmen via separate legislation.
Companies Act•  The Companies Act criminalises “Fraud” by a company or perpetrated on a company. The Companies Act provides for imprisonment for a term between six months and ten years as well as a fine ranging between the amount involved in the fraud and up to three times that amount.
Indian Penal Code•  The IPC is a general law that relates to criminal offences in India. Certain offences under the IPC (primarily those relating to cheating and criminal breach of trust, among others) can be attracted in case of offences involving private and public bribery depending upon the facts and circumstances of the case.
Penalties for companies•  Under the PCA, the penalties for companies include fines. In certain cases, directors and other officers in charge of a company may be held personally responsible for an offence and may be liable to imprisonment

•  Additionally, companies can also be held liable for criminal conspiracy under the IPC

Collateral consequencesInvestigations for tax evasion, money-laundering, blacklisting etc.
Anti-corruption treaties•  United Nations Convention against Corruption

•  Member of the Financial Action Task Force

•  United Nations Convention against Transnational Organized  Crime

•  Member of the trilateral India-Brazil-South Africa Cooperation Agreement (IBSA)

What is the definition of a bribe?

The PCA uses the wide expression “undue advantage” to cover
both pecuniary and non-pecuniary illegitimate benefits received
by a public servant. The term “undue advantage” has been
defined as any gratification whatsoever, other than legal
remuneration that a public servant receives from their employer
entity or is permitted by the public servant’s employer entity
to receive.

The PCA criminalises the receipt or solicitation of illegal
gratification by “public servants” and the payment of such
gratification by other persons.

What is the definition of a public official and a foreign public official?

Domestic public official

The expression “public servant” has a wide import under the
PCA and includes: (i) persons in the service or pay of the
government; or (ii) persons remunerated by the government for
the performance of any public duty; or (iii) persons in the service or pay of a local authority or of a corporation established by or under legislation; (iv) persons in the service of a body owned, controlled or aided by the government; (v) persons in the service of a government company; (vi) judges; (vii) court appointed arbitrators; or (viii) office bearers of certain registered cooperative societies that have received financial aid from any government agency. In terms of the above definition, an employee of a company that is controlled by the central or state government, or 51% 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 has held that employees of banks (whether public or private) are “public servants” under the PCA (CBI v Ramesh Gelli & Ors., 2016 (3) SCC 788).

Foreign public official

There are no Indian laws that apply specifically to the bribery of
foreign public officials.

Is private sector bribery covered by the law?

No laws specifically prohibit bribery in the private sector in India.

Laws such as the PCA are only confined to bribery to and by
“public servants”. However, companies typically prohibit such
bribes through internal codes of conduct in the private sector.
While the Companies Act does not define bribery as a distinct
offence, it penalises fraud in relation to the affairs of a company.
The definition of fraud under the Companies Act is wide. Fraud includes any act, omission, concealment of any fact or abuse of
position committed by any person or any other person with the
connivance in any manner, with intent to deceive, to gain undue
advantage from or to injure the interests of, the company or its
shareholders or its creditors or any other person, whether or
not there is any wrongful gain or wrongful loss. This wide
definition of fraud under the Companies Act could be invoked to
penalise private sector bribery (including for incorrect entries in
books of accounts).

The punishment for fraud under the Companies Act includes
imprisonment for a term which may extend to ten years and a
fine which may extend to three times the amount involved
in the fraud.

Does the law apply beyond national boundaries?

The PCA extends to Indian citizens outside India. A reading of
the provisions of the PCA along with the statement of its extent
makes it clear that this statute applies to situations where an
Indian “public servant” accepts illegal gratification from any
person whether in India or abroad.

The PCA does not apply to the payment of bribes or other
illegal gratifications to foreign public officials.

How are gifts and hospitality treated?

Various rules govern different government employees with
regard to the acceptance of gifts and hospitality. They set out
restrictions on public officials accepting offerings and gifts or any other pecuniary or non-pecuniary benefits including free
transport, boarding and hospitality from any person unless such
acceptance is sanctioned by the government. During weddings
or funerals where it is a religious and social practice to accept
gifts, the public official may accept gifts from near relatives or
personal friends who have no official dealing with him or her. If
such offering is accepted by the public official, acceptance of
gifts exceeding a certain threshold, depending on his or her post, is required to be disclosed as per the applicable rule
governing his or her conduct. The motive and intent of all such
offerings is key in determining whether an offence has been
committed. The term gratification can cover an insignificant
amount paid to influence the public servant, if it is not within the legal remuneration of the public servant. The Supreme Court of India has set out that the amount paid as gratification is immaterial and that conviction will depend on the conduct of the public official and the proof established by the prosecution
regarding the demand and acceptance of the gratification (AB
Bhaskara Rao v Inspector of Police, CBI, Visakhapatnam 2011
(4) KLT(SN) 35).

The PCA presumes a bribe to be the act of giving or offering
to give any gratification or any valuable thing by an accused as
a motive or reward to a public official for doing or forbearing to
do any official act without consideration or for a consideration
which he or she knows to be inadequate, unless the contrary is
proved. The intent with which the gratification or valuable
thing was given or attempted to be given to the public official
is crucial.

There is no de minimis threshold regarding the receipt of
offerings by public officials. However, conduct rules applicable
to some kinds of public officials permit them to accept gifts and
hospitality within certain prescribed limits and accordingly gifts
and hospitality that meet such criteria are permitted. Such limits vary depending on the rules applicable to the public official in each case. For example, the All India Services (Conduct) Rules, 1968 applicable to some officials provide an exception for the receipt of “casual meals” or “casual lifts” or gifts worth up to a de minimis amount of INR5,000 (approx. US$66.89). Further, such rules also permit such officials to accept gifts of up to INR25,000 (approx. US$334.47) from near relatives or from personal friends having no official dealings with them, on occasions such as weddings, anniversaries, funerals and religious functions when the making of gifts is in conformity with the prevailing religious and social practice.

How is bribery through intermediaries treated?

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 peddlers may also
be charged with abetment and “criminal conspiracy” to commit
offences under the PCA.

Are companies liable for the action of their subsidiaries?

Indian law does not ordinarily hold a company liable for the acts of its subsidiaries.

However, there may be some circumstances where a court may
ascribe liability to a parent company for acts of its subsidiaries.
These circumstances include situations where the two
companies in reality constitute a single economic entity, or the
parent company uses its subsidiary as a device to perpetrate
fraud, or illegally evade taxes, or if the parent company
exercises shadow directorship over the subsidiary.

Indian courts have the power to lift the corporate veil and look
into the internal workings of a company in cases where they are
of the view that doing so is essential in order to prevent fraud or
improper conduct and to affix liability.

A 2018 amendment to the PCA has explicitly included
provisions relating to bribery by a commercial organisation.
Under the new provision, a commercial organisation would be
liable in case a person “associated with the commercial
organization” provides illegal gratification for such a commercial organisation. A subsidiary of a company has also been explicitly recognised as a “person associated with the
commercial organization”.

Is there an exemption for facilitation payments?

Facilitation payments are expressly considered bribes under the
PCA and there is no exemption for such payments. Payments
made to get even lawful things done promptly are prohibited
and the PCA has been enforced with respect to facilitation
payments – this has also been clarified by an illustration in the
PCA, 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.

The Supreme Court of India has held that it has “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 pro forma, can delay the movement of
goods, the economics whereof induces investment in bribery”,
and that, if speed payments are allowed, “delay will deliberately
be caused in order to invite payment of a bribe to accelerate it
again” (Som Prakash v State of Delhi, AIR 1974 Supreme
Court 989).

Is there a defence for having adequate compliance procedures?

Amendments to the PCA introduced a proviso to sub-section (1)
of section 9 of the PCA. This proviso states that in the event
that 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 with guidelines
prescribed under the PCA, to prevent persons associated with
the commercial organisation from undertaking any conduct that
results in the commercial organisation providing or promising to provide any undue advantage to a public servant. However,
such guidelines have not yet been issued by the government.

What are the enforcement trends in the business area?

Recent cases have demonstrated strong and substantive
enforcement activity.

Prevalence of a strong public sentiment against corruption has
led to increased enforcement activity, in addition to several key
changes being incorporated to the PCA in 2018.

Of late, several cases of financial defaulters absconding from
India came into the limelight. To tackle this problem, the Fugitive Economic Offenders Act, 2018 was introduced in 2018 which provides for the confiscation of property of individuals who evade summons or warrants issued by court in connection with certain economic offences (including bribery) by leaving the country. The confiscation under this statute ceases to take
effect the moment the alleged offender returns to the country
and participates in the proceedings against him.

The scope of the offence of money laundering under the
Prevention of Money Laundering Act, 2002 has also been broadened by the inclusion of fraud under the Companies Act
as a predicate offence. That is to say, any funds connected to
an alleged fraud are now treated as proceeds of crime.

In addition, the Companies Act and rules thereunder contain a
provision making it mandatory for listed companies to establish
a “vigil mechanism” for reporting of “genuine concerns”. Rules
issued by the Ministry of Corporate Affairs extend this to
companies which accept deposits from the public and
companies which have taken money from banks and public
financial institutions, of more than INR500 million (approx.
US$6.69 million). The Companies Act also imposes an
obligation on the directors of companies to devise proper
systems to ensure compliance with the provisions of all
applicable laws and ensure that such systems were adequate
and operating effectively. Fines and imprisonment are mandated for violating the provisions.

The Companies Act provides statutory backing to the Serious
Fraud Investigation Office (SFIO) for the purpose of investigating the affairs or frauds relating to a company. The statute contemplates that once a case is assigned to the SFIO, it shall be the sole authority to investigate the case and all the papers, documents and the information shall be transferred to the SFIO, which has the power to arrest people for violations of the Companies Act.





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