The trigger for conducting an internal investigation by a corporate may be one of many and could involve statutory or regulatory concerns, for instance, under the Companies Act, 2013 (“Companies Act”). An internal investigation could be triggered based on the complaints made by internal or external stakeholders or suo motu to assess any potential liabilities arising from an identified issue. An internal investigation that is appropriately conducted and the related remedial measures would, as a general matter, assist not just in compliance with applicable legal requirements, but also in preparation for potential legal proceedings and/or remedial action to be taken by the corporate. Given that the ambit of potential liabilities, whether under the Companies Act or other laws like the Prevention of Corruption Act and Prevention of Money Laundering Act, has expanded substantially over the last few years, failure to take the necessary steps and precautions in internal investigations could cause material damage to the interests of the corporate, its directors and key managerial personnel.
The steps/issues to be considered in an internal investigation (and the pitfalls that one should avoid) can be divided into the three sections as set out below:
1. Prior to the investigation:
(a) The scope, nature and purpose of the investigation should be identified and formulated. Any specific requirements prescribed under law or the corporate’s own policies (depending on nature of investigation) should be taken into account. This would help identify the specific work steps to be undertaken as part of the investigation plan, including the relevant phases and timelines to be considered.
(b) Depending on the nature and type of the investigation, the corporate needs to ensure fair composition of investigation team at the outset. The investigation team may comprise of a mix of internal audit/compliance personnel, in-house counsel, external legal counsel and forensic accountants. Choosing the right team also helps in demonstrating independence and protecting the sanctity of the investigation.
(c) Additionally, involvement of external legal counsel assists with protection of attorney-client privilege, to the extent possible, and to ensures real time advice if legal action (whether as complainant or defendant) is anticipated.
(d) Depending on nature of the matter and attendant circumstances, a decision on the appropriate stage at which: (i) the board of directors/relevant committee of the board to be informed of the matter; and (ii) informing the statutory auditors unless, of course, the investigation itself is triggered due to findings by the statutory auditors. Role of statutory auditors is very important, given the multiple reporting requirements (including in relation to “fraud” under the Companies Act) that they are required to comply with. The nuance for listed companies (who need to report financial results quarterly) needs to be taken into account.
(e) Depending on the device(s) to be reviewed, analyzing if any consents (including from the subject employees) are likely to be required.
(f) Determine if any third parties are contractually required to be informed, and if so, at what stage.
(g) Consider any HR related steps to be undertaken including suspension of the relevant employees pending enquiry.
(h) If the investigation involves multiple jurisdictions, then to take into account potential consequences and reporting that may be triggered in all jurisdictions while planning the strategy.
(i) Identification of necessary information and documents, and the employees who are in possession of such information and documents. Depending upon the nature of the matter, take interim precautionary measures to safeguard information such as serving legal hold notice on identified employees etc.
(j) Evaluating involvement of experts (e.g. computer forensic expert, accounting expert, industry expert) which can add value to the investigation and if required can provide expert witness testimony in the court of law
2. During the investigation:
(a) To the extent practicable, complete the review of relevant documents/data (and any other investigation steps) and collate all direct and circumstantial evidence before interviews of the relevant person(s).
(b) In case of interviews: (i) to prepare a list of detailed interview questions that could be covered in the interview, taking into account the documents/ data already reviewed and identified, including providing copies of the same to present to the interviewees; (ii) to strategise the scheduling and location of the interviews according to the list of interviewees; (iii) to follow a standard process for the introduction, conduct and closing the interviews (with any required deviations being pre-agreed, to the extent practicable); and (iv) drawing up interview notes.
In this regard, if a lawyer on behalf of the company is present, making (and including in the interview notes) the requisite disclosure on the lawyer acting on behalf of the company, the attorney-client privilege belonging to the company and related matters is important.
(c) Take periodic stock of investigation progress and findings. Based on the outcome of the interviews, identify any additional persons to be interviewed.
3. After the investigation:
(a) Drawing up the investigation findings into a comprehensive investigation report setting out the background to the matter under investigation, steps undertaken as part of the investigation and key findings along with the suggested remediation to be undertaken.
(b) The responsibility of the company does not end with the completion of an internal investigation, but to proceed with the steps required by it under law. Internal investigations provide the findings which would need to be acted upon (depending on the nature of the findings). Further steps could include reporting to board/audit committee, reporting to statutory auditors, reporting to any regulatory authorities to the extent that the same is required under law or advisable given the circumstances, taking measures (required internally) for remediation and evaluating initiation of legal proceedings.
(c) Securing and safeguarding all documentation obtained during an investigation to serve as evidence at a later date (if required).
Each of the above has their own unique set of challenges and whilst the issues may vary from case to case, the above steps form a part of the high-level legal steps and issues that need to be taken into account and summarize the pitfalls that one should avoid in an internal investigation.
Nohid Nooreyezdan, Partner
Prerak Ved, Partner
Soumit Nikhra, Practice Head, Compliance & Investigation Practice