This practice guide provides an overview of certain key concepts under Indian criminal law and touches upon different facets of white-collar offences.
1. Legal Framework
1.1 Classification of Criminal Offences
The Indian Penal Code, 1860 (IPC) is the primary legislation in India enumerating offences and prescribing punishment. Offences are defined under the IPC and the definitions also classify the offence. Offences in India are broadly classified as cognizable or non–cognizable, and bailable or non–bailable.
Cognizable and Non–cognizable Offences
Cognizable offences refer to offences in which a police officer can arrest a person without obtaining permission/ warrant from Court. Cognizable offences are usually serious in nature. In respect of a non-cognizable offence, a police officer cannot arrest a person without obtaining permission from court. These are offences which are less serious in nature.
Bailable and Non–bailable Offences
Bailable offences refer to offences where an arrested person can seek bail (release from custody) from the police officer or the jurisdictional Court as a matter of right, on presentation of a bail bond/undertaking to the arresting officer or court to secure his presence in future. Typically, offences which prescribe punishment of up to three years or less are bailable and non–cognizable.
This is a separate classification of offences which in some cases are amenable to settlement under Indian law. The process known as compounding of offence allows for settling certain offences based on settlement. Serious offences and certain socio-economic offences are non–compoundable, though constitutional courts in India have powers to quash proceedings even in respect of non–compoundable offences in certain cases.
Constituents of an Offence
Broadly, in order to establish criminal liability, the prosecution must prove existence of the following two elements beyond reasonable doubt:
- mens rea or guilty intention. The accused must be proven to have knowingly committed the crime, with full knowledge of their actions and must have mala fide intent. Some crimes do not necessarily require guilty intent, for eg, in heinous crimes such as rape actus reus alone is sufficient; and
- actus reus or the illegal act or omission. This is the physical aspect of the crime and refers to the accused having done something or omitted to do something, resulting in injury to the victim.
An attempt to commit an offence is also punishable under Indian law.
1.2 Statute of Limitations
The Code of Criminal Procedure, 1973 (CrPC) in India prescribes period of limitation for launching prosecution in respect of only certain categories of offences, based on maximum quantum of punishment prescribed. For minor offences prescribing only fine (no imprisonment), limitation period is six months from the commission of offence. For offences prescribing maximum punishment of one year, limitation period is one year from the commission of the offence, and for offences prescribing punishments of more than one year up to three years, the limitation period is three years from the commission of the offence. However, for offences which prescribe punishment of more than three years, there is no limitation prescribed (ie, prosecution may be launched at any point of time). Special penal statutes too may contain provisions pertaining to period of limitations, in which case, such provisions will prevail over the CrPC. For example, under the Negotiable Instruments Act, 1881 which primarily deals with promissory notes, cheques, the period of limitation for filing complaint against dishonour of cheque is one month from the date on which cause of action arises.
Also, where an offence remains undetected, the date of its commission will be construed as the date on which the offence becomes known. Further, if the perpetrator of an offence remains unknown even after detection of an offence, the date on which the identity of the perpetrator is revealed will be the relevant date for determining the period of limitation.
The expiry date of limitation is the date on which the investigation report or the complaint is filed before court. In cases of continuing offences, a fresh period of limitation begins with every moment that the offence is said to have continued. Period of limitation in relation to offences which may be tried together is determined with reference to the offence which is punishable with more severe punishment.
Constitutional Courts in India (Supreme Court of India and various High Courts across India) have quashed prosecution launched after the expiry of period of limitation of the original offence by adding graver offences to the first information report (FIR)/chargesheet.
1.3 Extraterritorial Reach
The CrPC provides for reciprocal arrangements with other countries in matters of service of summons/warrants, investigation and collection of evidence, and attachment and forfeiture of property. The extraterritorial reach of investigation agencies can be found in various specialised legislations targeting economic offences, such as the Prevention of Money Laundering Act, 2002 (PMLA), India’s primary legislation against money laundering which relies on bilateral assistance with notified countries to institute new investigations.
IPC has global applicability as it provides for prosecution of offences committed by Indian citizens abroad, and it covers all persons who commit an offence on an Indian ship or aircraft, as well as those who commit an offence without even being physically present in India, if the offence committed targets a computer source in India.
Please refer to 2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation and Letters Rogatory (LR).
1.4 Corporate Liability and Personal Liability
A company can be prosecuted for an offence under Indian law; however, it cannot be punished for an offence which prescribes only corporal punishment (ie, only imprisonment and no fine). For fastening criminal liability on companies/corporate entities, doctrine of attribution is applied by imputing mens rea of the persons responsible for its affairs (being its alter ego) onto such company/corporate entity.
Conversely, in the absence of a specific provision in a statute recognising vicarious liability, the doctrine of attribution cannot have a reverse application to make directors or person in charge of the affairs of a company, criminally liable.
In the absence of a law containing vicarious liability provisions, a person can be held criminally liable for an offence committed by the company only if there is evidence of his specific and active involvement in the commission of an offence.
There is a growing tendency among the investigation agencies entrusted with investigation of white–collar crimes, such as, the Central Bureau of Investigation (CBI), Directorate of Enforcement (ED) and Serious Frauds Investigation Office (SFIO) to identify promoters, directors, and other senior officials of a corporate entity as accused along with the corporate entity. This often results in initiation of criminal prosecution against such individuals. Courts have, however, struck down overbroad investigations and attempts to include unconnected individuals or independent third parties.
1.5 Damages and Compensation
The court has wide discretionary powers to award compensation at the time of sentencing the perpetrators. Criminal courts, upon a wholesome consideration of facts and due application of mind, can award compensation commensurate with the crime committed.
Following the Nirbhaya rape case in Delhi in 2012, the Indian government established a victims-fund, the ‘Nirbhaya Fund’, to compensate victims and survivors of sexual offences, as well as to finance schemes to ensure the safety of women throughout the country.
The quantum of compensation depends on the gravity of the offence, extent of loss or damage suffered by the victim and the capacity of the perpetrator to pay such compensation. If the perpetrator does not have capacity to pay, the court can compel the state to pay from the state victim compensation fund (although policy of compelling state to pay through this fund has not implemented in most states).
Separately, constitutional courts have provided compensation under the writ jurisdiction as part of the fundamental right to life and in exercise of the powers given to the constitutional courts.
1.6 Recent Case Law and Latest Developments
Vijay Mandanlal Choudhary & Ors v Union of India & Ors reported at 2022 SCC OnLine SC 929. In this case, the Supreme Court of India upheld the constitutional validity of various provisions of PMLA. The pronouncement recognises India’s international commitment to deal strictly with the menace of money laundering. According to the ruling, the PMLA is a sui generis legislation which is neither purely regulatory nor penal, concluding that money laundering is no less a crime than terrorism. Separately, the court also recognised a need to balance out powers to investigate and prosecute and has issued notice on petitions seeking for a review of the Vijay Mandanlal judgment. As a result, the issue has not yet been resolved.
Union of India v M/s Ganpati Dealcom Pvt Ltd reported at 2022 SCC OnLine 1064. In this case, the Supreme Court of India had the opportunity to test the constitutional validity of the Prohibition of Benami Property Transactions Act, 1988 and the Benami Transactions (Prohibition) Amendment Act, 2016. The legislation aimed at targeting benami properties (where the property is held in the name of a person other than the real beneficial owner). The Supreme Court has held, inter alia, Section 3 of this Act, which criminalised execution of benami transactions, as unconstitutional.
The Black Money (undisclosed foreign income and assets) and Imposition of Tax Act, 2015 (Black Money Act), which further strengthens India’s tax law regime and primarily targets non reporting of income originating from foreign sources or that is not reported and sent abroad by tax residents.
Fugitive Economic Offenders Act, 2018 (FEOA) has been implemented to deter fugitive economic offenders from evading the process of law in India. A recent development towards reforming criminal justice system and making it conducive for business has been decriminalisation of penal provisions in various statutes, which previously provided for imprisonment of directors and other officials upon failure of companies to make requisite regulatory and other compliances. These compliance related penal provisions have since been amended to merely provide for monetary penalties on the corporate entity and its directors/officials concerned for failing to make requisite compliances; they no longer provide for imprisonment.
2.1 Enforcement Authorities
The ED was established to investigate contraventions of the Indian exchange control and anti-money laundering regulations, namely the Foreign Exchange Management Act, 1999 (FEMA) and the PMLA. Cases investigated by the ED are adjudicated by Adjudicating Authorities specifically empowered to adjudicate cases under PMLA and FEMA. Additionally, the ED operates a specialised Appellate Tribunal to hear appeals against orders of the Adjudicating Authorities under the PMLA and FEMA.
The SFIO was established to investigate offences under the Indian Companies Act, 2013 (Companies Act). SFIO investigations have been given priority, as all investigations by other investigative agencies must await the completion of the SFIO investigation. As part of its investigation, the SFIO can share information related to the commission of an offence with other investigating agencies in order to prosecute offence outside its purview and is empowered to obtain information from other investigating agencies as part of its investigation. There are special magistrate courts notified to try cases under the Companies Act.
The CBI, which was established under the Delhi Special Police Establishment Act, 1946, is responsible for investigating complex crimes, including white-collar offences, typically in cases involving the Prevention of Corruption Act, 1988 (PCA) or cases of public importance. There are special courts notified to try cases investigated by the CBI, all of which have a judge of the rank of a sessions judge to hear such cases.
The Income Tax department (IT Authorities) has the authority to investigate cases of income tax evasion, undisclosed foreign assets (termed ‘black money’ under Indian Law) and income tax fraud. In addition to the assessment, collection of tax and penalty of interest, the IT Authorities can also prosecute persons for tax evasion, fraud and for holding black money.
Indirect Tax. The Department of Revenue Intelligence and GST intelligence wings in states have been established to enforce various indirect tax laws, such as the Customs Act, 1962, the Central Goods and Services Tax Act, 2017 and to prosecute persons for tax evasion and tax fraud, as well as to assess and recover taxes, penalties and interest.
The Central Vigilance Commission (CVC) is an authority created by the federal government to provide advice and guidance to its agencies on matters related to vigilance, as well as receive complaints concerning allegations of corruption or misappropriation of office and recommend appropriate action on these allegations. The matters investigated and recommended by CVC are tried by courts notified to try offences under the PCA.
The police, which includes the police forces of the states and union territories, is responsible for maintaining law and order in the designated area as well as registering complaints and investigating crimes. Additionally, a special branch has been established in the local police structure known as the Economic Offence Wing (EOW) in order to specifically deal with offences involving economic offences involving a certain threshold of monetary value. EOW is responsible for dealing with, inter alia, banking crimes, housing crimes, corporate frauds, general cheating, and crimes relating to the security and commodities markets.
Certain regulators are also empowered to investigate regulatory offences. For example, Securities and Exchange Board of India (SEBI), the regulator for securities and commodity market in India, is empowered to investigate fraudulent and prohibited transactions in securities, including insider trading. The Reserve Bank of India (RBI) can also prosecute banks and non-banking financial companies for regulatory offences.
Conflict of Jurisdiction
As different authorities are investigating the same offence, their jurisdictions are defined. The SFIO has exclusive jurisdiction for offences under the Companies Act. ED, meanwhile, has exclusive jurisdiction in terms of investigating money laundering-related offences. However, it cannot do so until an offence is registered by the police authorities for an offence listed in the PMLA schedule, ie, a predicate offence. Similarly, police officers cannot exercise generic powers of investigation once a case is submitted to the exclusive jurisdiction of the CBI.
Civil/Administrative Enforcement Against White Collar Offences
White-collar crime does not have any civil enforcement mechanisms, except a duty to disclose in certain cases and restitution under tort law. Recent legislations, like the one on insolvency and bankruptcy, provide for a claw back provision to disgorge undue benefit received by any creditor or related party of a corporate debtor, with the intent to defraud other creditors or for any fraudulent purpose. Furthermore, authorities such as the Insolvency and Bankruptcy Board of India, established under the Insolvency and Bankruptcy Code, 2016 (IBC), prosecute offences under the IBC, such as breaches of moratoriusm, breaches of resolution plans, etc.
2.2 Initiating an Investigation
Generally speaking, investigations are initiated on the basis of a complaint alleging the offence which the concerned authority is empowered to investigate. There may be instances in which authorities initiate investigations on their own, based on reasonable suspicions.
Police officials and officers in the EOW may either register a complaint and initiate investigation or upon direction by a court, depending on the nature of offence. These agencies also have the power to arrest individuals alleged to have committed offences. A public servant cannot be prosecuted for offences of bribery and corruption, except with the previous sanction of the federal government.
An ED investigation is initiated following a complaint alleging money laundering based on the commission of certain identified offences (known as ‘scheduled offences’ like cheating, extortion). In such a case, a complaint is registered if the authority has reason to believe that ‘proceeds of crime’ may have been generated through the commission of a scheduled offence.
The CBI and SFIO cannot initiate investigations on their own but must be specifically notified by the central government or by a court. In addition, the SFIO has the authority to investigate the affairs of a company if it is required in public interest to do so and if the shareholder approval is sought.
IT Authorities and the CVC can initiate investigations, however, there are certain internal safeguards provided by the Income Tax Act, 1961 (Income-Tax Act) and the Central Vigilance Commission Act, 2003 that allow authorities to determine probable cause or develop prima facie view prior to initiating an investigation.
2.3 Powers of Investigation
Investigation agencies have wide powers to investigate white-collar offences. However, the rules and regulations governing such powers vary across agencies.
The police, EOW and CBI have the power to summon persons, conduct search and seizures, compel production of documents and arrest accused persons for interrogation during the investigation. They may call any employee, officer, or director of a company to join the investigation. Failure to join the investigation may be treated as non-cooperation and may justify arrest in some cases. Statements made to these authorities need not be signed. Additionally, under CrPC they have the power to attach movable and immovable properties as well as investigate peremptorily in order to prevent the commission of an offence. However, issues of seizure of confidential and privileged documents or summoning in-house legal counsels of a company are protected by legal and litigation privilege and are currently being tested in Indian courts.
The CVC has all the powers of a civil court, including the power of summoning and enforcing attendance of any person and examining them on oath, production of any document, receiving evidence on affidavits and requisitioning any public record.
The SFIO also has powers of a civil court, as outlined above, and can seek information and documents relating to the affairs of a company as well as examine company employees under oath. The statements recorded in such investigations are to be signed by the accused/witness.
The IT Authorities have also been given powers of a civil court and can compel disclosure of documents, which are in the possession and control of an accused and/or compel the presence of the assessee and fine the person if they fail to do so. However, such powers can be exercised if the authorities have reason to suspect that income has been concealed or is likely to be concealed by any person within their jurisdiction. The statements recorded in such investigations are to be signed by the accused/witness.
The ED has the same powers as those of the IT Authorities under the Income-Tax Act for purposes of enforcing Indian exchange control regulations. In addition, under the PMLA, in relation to an offence of money laundering, the ED has the power to attach properties obtained from proceeds of crime, and in the event the property is located outside of India, it can attach a property of equivalent value located within India. Further, the ED has the authority to summon, conduct searches and seizures, compel the production of documents, and arrest accused persons for interrogation during the investigation. The statements recorded by the ED have to be signed by the accused/witness and can be used in the court of law, unlike the statements recorded by the police officials.
The powers highlighted above can be exercised by the authorities once investigation has been initiated, please refer to 2.2 Initiating an Investigation. There is no right to counsel during interrogation, although a limited right to visit along with the accused and be present outside the room to see the witness (but not hear their responses) is available.
2.4 Internal Investigations
While there is a limited statutory mandate to conduct internal investigations under the Companies Act, there is no overarching requirement to do so. Further, any such internal investigation does not impose an estoppel on the enforcement authorities from conducting an investigation. Nonetheless, internal investigations are a good corporate governance practice that should be conducted, as they may later on assist the company in demonstrating its bona fide during investigations/trials. In some cases where the company is being accused of fraud, if the investigation report does not reveal such accusation, then the company could take the position of a witness or victim to the fraud and not an accused.
Separately, fiduciary duties cast on directors may also require them to initiate internal investigations in addition to filing a formal disclosure with the authorities through a Director’s Responsibility Statement (DRS). Moreover, in the case of a publicly listed company, directors are duty bound to disclose fraudulent acts not only under a DRS but also under listing regulations with stock exchanges. Further, for such publicly listed companies, any forensic audit being conducted at the instance of a regulator or otherwise have to be mandatorily disclosed to the stock exchanges.
2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation
India has reciprocal arrangements with certain countries that enable service of summons to persons residing in the reciprocating overseas territory. Such reciprocal arrangements are in the form of MLATs entered into between the country of delivery of summons and India. These treaties place an obligation on the signatory countries to follow through with requests from another signatory country. The Ministry of Home Affairs (MHA) is the Indian nodal ministry and the designated Central Authority for seeking and providing mutual legal assistance in criminal law matters under the MLATs. India has MLAT arrangement with 14 countries, including Russia, France and the UAE.
The LRs are issued typically in case of countries that do not have an MLAT arrangement with India. LRs are letters of request sent by the court of one country to the court of another country for obtaining assistance in investigation or prosecution of a criminal matter. The CrPC lays down the procedure for sending LRs through the competent court on the request of the investigating officer or investigating agency. For LRs, in the case of non-reciprocating territories, the investigating officer or agency must send the request for issue of LRs to the MHA for concurrence and agreement. Thereafter, LRs are presented to the relevant court for issuance. The summons is then forwarded to the MHA and transmitted to the Central Authority of the non-reciprocating state, through the Ministry of External Affairs (MEA).
Process for Issuance of Summons
The CrPC is the principle Indian legislation which provides for the procedure for administration of substantive criminal procedure, including the issuance of summons by a Court (or a police officer through the court) for the production of any document or material necessary for the purposes of any investigation, inquiry, or trial. Summons in such cases can be issued to any person who the court or police believes to be possessing such information.
The MHA has issued comprehensive guidelines for cross border investigations and for issuance of LRs, MLAT request, and service of summons, notices, judicial documents in respect of criminal matters.
The MHA examines the request upon receipt to ensure that it is compliant with the provisions of any bilateral or multilateral treaty or any other international convention to which both India and the receiving country are signatories. It also examines the summons request to verify compliance with Indian law and the laws of the foreign recipient country. The request is then sent through the MEA to the ‘Central Authority’ of the reciprocating country. In the country to which a request for assistance is made, summons are served in accordance with the laws and procedures of the country. According to the MHA Guidelines, foreign courts or authorities require at least ten weeks to transmit the request and serve summons/notices/judicial processes upon the person concerned.
India is a member state to various multilateral treaties that provide for mutual assistance in enforcement. These include membership to Financial Action Task Force and International Criminal Police Organization, which enable member states to share and access data on crimes and criminals and offer a range of technical and operational support.
The process of extradition is governed by the Indian Extradition Act, 1962. India has entered into a number of bilateral agreements. The Central Government has entered into extradition arrangements with a number of countries with which it does not have a bilateral extradition treaty. In the absence of an extradition treaty between India and a foreign state, the Central Government may, by notified order, treat any convention to which India and that state are parties as an extradition treaty.
Currently, India has extradition treaties with 48 foreign States (including the USA, UK and Switzerland) and extradition arrangements with 12 foreign states (including Sweden and Singapore).
It is also possible to extradite those who are subject to the extradition treaty/arrangement or whose offences are punishable by imprisonment for more than one year under Indian or foreign laws. The term includes a composite offence (ie, offence committed wholly or in part in a foreign country or in India). These broadly include offences under the PCA, PMLA or the IPC.
After an investigation is completed, the CrPC mandates police officials, CBI, EOW to file a report with the jurisdictional court. Once the court is satisfied that an offence is made out and there is sufficient material to prosecute the accused, it can take cognizance of the offence and commit the accused to trial.
The SFIO, on the other hand, has to prepare an investigation report/complaint, which has to be filed with the Central Government for its direction/permission to initiate prosecution. Once such direction/permission is granted, the report should be presented to a special court notified to take cognizance of offences committed under the Companies Act along with other penal offences. The special court operates in the same way as the criminal court based on the procedures notified under the CrPC.
In the event the IT Authorities conduct a search and seizure or audit of the books of accounts of a company/individual, the IT Authorities are mandated to prepare a report and assess the amount of tax evaded by the accused. A notice of demand of such tax is then issued to an individual, who can either pay the amount or challenge the assessment before Income Tax Authorities/Tribunal.
Once an investigation is concluded by the CVC, it has to submit a report to a commission that recommends further actions to be taken by the department/authorities. Depending on the course of action recommended, a prosecution may be brought before special courts constituted to prosecute matters (as in the case of offences under the PCA).
Under the current scheme, if the ED has reason to believe, and that reason is documented, it can arrest, conduct a search and seizure, and thereby attach property it believes to be the proceeds of crime. Following the issuance of the provisional attachment order, the ED is required to file a complaint within 30 days with the immediately superior authority. Once the complaint is filed, the properties are attached for a period of 180 days during which period the adjudicating authority may uphold or reject the attachment order, which, if not done, would lead to setting aside of the attachment. Upon completion of the investigation, the ED must file a complaint.
Rules of Vicarious Liability
While investigating authorities have discretion to identify who to arraign as an accused, it is not necessary to make everyone an accused. Prosecution may be limited to those persons who alone are responsible for or in-charge of the act which caused the offence. However, when a company is being investigated, and vicarious liability is called upon by prosecution, there can be no prosecution of individuals belonging to the company without the company being included in the proceedings. There is no vicarious liability under Indian laws unless expressly provided for. The Companies Act or the Indian exchange control regulations, for example, have provisions that impose vicarious liability on persons as well as companies for offences committed under the relevant statutes. Furthermore, courts have held that unless a company is not made an accused in a criminal offence, the officers-in-charge or directors cannot be held guilty for offences committed by the company.
2.7 Deferred Prosecution
In India, criminal jurisprudence does not allow for prosecution of criminal offences without a trial. Agreements for deferred prosecution or non-prosecution have no sanctity.
However, certain offences can be compounded by an accused. Offences with punishment of more than seven years of imprisonment or offences of serious economic consequences are not compoundable in India. An offence of white-collar nature that is of less serious nature, such as violation of the Indian exchange control law, or an offence under the IPC, such as criminal breach of trust, assisting in concealment or disposal of stolen properties, or cheating, among others, can be compounded.
Compounding is also permitted with respect to offences punishable with fine under Companies Act and securities and exchange control regulations. False statements made in the board report or annual accounts, violations of securities law, including the failure to furnish information, returns, etc, and the failure to redress investors’ grievances and insider trading, are examples. Such offence may be compounded either before or after the initiation of prosecution. The Central Government has also endeavoured to amend many statutes to de-criminalise certain offences and limit the punishment to fine, thereby allowing for compounding of more offences. Decriminalisation of regulatory offences is being considered by the legislature, as well as the introduction of a settlement mechanism.
2.8 Plea Agreements
Plea bargaining is permitted in limited circumstances. It is not allowed in cases where the prescribed punishment is death or life imprisonment or imprisonment for a term exceeding seven years. Plea bargaining also does not apply where the offence affects the socio-economic condition of the country or has been committed against a woman, or a child under the age of 14 years.
A person accused of an offence may file a plea bargaining application in the jurisdictional court with a brief description of the facts of the case. A pre-requisite for such an application is that the accused person has not previously been convicted of the same offence by a court. After understanding the nature and extent of punishment provided by the law for the offence, the application is voluntarily preferred.
Once the court is satisfied that the application has been filed voluntarily, it shall provide time to the public prosecutor/complainant to mutually work out a satisfactory disposition of the case. Where a satisfactory disposition of the case has been reached, the court shall award compensation to the victim and hear the parties’ argument regarding the severity of the punishment. Upon hearing the parties, if the court finds that minimum punishment for the offence committed by the accused has been provided by law, it may impose either half or one fourth of such minimum punishment.
3. White-Collar Offences
3.1 Criminal Company Law and Corporate Fraud
Companies can be exposed to or engaged in a wide range of criminal offences. The following are some of the offences that commonly implicate companies and its employees
Under Companies Act, fraud in relation to affairs of a company includes (i) any act, omission, concealment of a fact or abuse of position by any person; (ii) with intent to deceive, to gain undue advantage from, or to injure the interests of the company, its shareholders its creditors or any other person; (iii) whether or not there is any wrongful gain or wrongful loss. “Fraud” is a serious offence punishable with imprisonment for a minimum term of six months which may extend to ten years along with fine of up to three times the amount involved in the fraud.
In cases where an audit of a company is conducted by an audit firm, and the partner of such audit firm acts fraudulently or abates or colludes with the fraud, the concerned partner(s) of the firm as well as the firm shall be jointly and severally liable of civil/criminal consequences of fraud.
If an officer of a company, which has been wound up or which is in the process of being wound up, hinders the process of liquidation by failing to provide the liquidator with a true picture (for eg, in relation to its assets) in order to defraud or conceal the truth, the officer would be subject to imprisonment for a period of between three to five years and a fine ranging from one lakh to three lakh rupees.
The Indian courts have ruled that where an offence requiring mens rea or a guilty mind, such as fraud, is committed by persons exercising control over the affairs of a corporate entity, then the offence will also be imputed to the entity. Such imputation will be determined by the extent to which the corporation can be said to act through such persons, in order to make them the “alter ego” of the entity. Therefore, a corporate entity will be held liable for the actions of its directors or officers if such persons are acting in the course of their regular duties.
Criminal breach of trust: The essential ingredients for establishing an offence of criminal breach of trust, are:
- entrusting any person with property; and
- the person entrusted, dishonestly misappropriating or converting to his own use that property.
A more egregious form of breach of trust is when the entrustment/dominion over the property is given to someone with a fiduciary duty to protect towards the person making such entrustment. Depending on who has committed the criminal breach of trust, punishment for criminal breach of trust can be imprisonment ranging from three years to ten years in addition to fine.
The essential ingredients of the offence of cheating are:
- deception of a person either by making a false or misleading representation or by dishonest concealment other action or omission, and
- fraudulently or dishonestly inducing such person to deliver any property or to intentionally induce the deceived person to do or omit to do anything (including delivery of a property to any person) which he would not do or omit if he was not deceived.
Cheating is punishable by imprisonment for up to seven years and a fine.
Forgery is the act of creating a false document or electronic record with the intention of causing damage or injury, supporting a claim or title, causing a person to part with their property, or entering into an express or implied contract, or with the intent to commit fraud or the possibility that fraud may be committed by the act of forgery. Forgery is punishable with imprisonment of up to two years. If the forgery is committed for the purpose of cheating, the same shall be punishable with imprisonment up to a period of seven years.
Falsification of accounts
This offence is satisfied if it is established that the accused was a clerk, officer or servant of the company at the relevant time and, while acting in such capacity, they wilfully and with the intent to defraud, destroyed, altered, mutilated or falsified any accounts (books, papers, etc) which belonged to their employer. The offence is punishable by up to seven years of imprisonment or fine or both.
Dishonest misappropriation of property
Key ingredients of this offence are: (a) Property belongs to a person other than the accused; (b) Accused person appropriates the property or convert it to their own use; and most importantly; (c) They did so “dishonestly”, ie, with the intention of causing wrongful gain to one or wrongful loss to another person. Persons who have been found guilty of the aforementioned offence are subject to imprisonment of up to two years.
3.2 Bribery, Influence Peddling and Related Offences
Bribery of foreign public officials and bribery between private parties is not criminalised in India at present. At the same time, the PCA deals with offences involving “public servants”. As per the PCA, “public servant” is understood to mean a person who is performing a public duty and works with either a public, government or a local authority.
Under the PCA, giving any undue advantage to another person (directly or through a third party) to induce or reward any public servant to perform or improperly perform any public duty, is an offence punishable with imprisonment up to a period of seven years or with fine or both.
“Public duty” or public function in this context is understood to mean a duty discharged in public or community interest by the state. An example would be a clerk working in the state public works department or an elected representative of the state. A banker or a stock exchange officer irrespective of whether the bank or stock exchange is privately owned are also considered to be public servants as their entities employ them to perform a public duty.
The PCA makes a commercial organisation (including foreign entities carrying on business in India) liable if any person associated with such organisation offers any undue advantage to induce or reward any public servant in exchange of any advantage for the business or conduct of its business. Such persons may include directors, employees, consultants, service providers, etc.
The test to determine an associated person in respect of a commercial organisation would be by reference to all the relevant circumstances and not merely by reference to the nature of relationship between such person and the commercial organisation.
Interestingly, by way of an amendment to the PCA in 2018, the facilitators who accept bribe for influencing the public servant are also considered to be offenders punishable with imprisonment, which could range between three to seven years.
3.3 Anti-bribery Regulation
At present, there is no specific obligation to prevent bribery and influence peddling in India. There is, however, a defence available to the bribe giver in the event that they have been compelled to bribe, and that after being so compelled, they inform the law enforcement agency within seven days of the act of being compelled. Also, the codified legislation does not require that a company maintain a compliance programme; however, such a requirement may arise under extra-territorial laws, for example, the US Foreign Corrupt Practices Act.
Where a company is prosecuted under the PCA, it may defend itself by demonstrating that it had in place adequate procedures to prevent persons associated with it from engaging in the illegal act prohibited by the PCA. However, the government has yet to introduce guidelines on the appropriate procedures to be followed by the company.
3.4 Insider Dealing, Market Abuse and Criminal Banking Law
Indian securities and commodities law recognise insider trading and market manipulation as offences.
Insider Trading is regulated under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations).
With respect to insider trading, it is an offence if an insider:
- deals in securities of a publicly traded company based on any Unpublished Price Sensitive Information (UPSI);
- communicates any UPSI to any person, with or without their request for such information except as required in the ordinary course of business or under any law; or
- counsels or procures for any other person to deal in securities of a body corporate on the basis of UPSI.
The definition of “insider” as per the PIT Regulations is wide enough to cover any person who is or has during the six months prior to the concerned act been associated with the concerned company, directly or indirectly, in any capacity. If the communication or procurement of UPSI was done for legitimate purposes, performance of duties or discharge of legal obligations, it would not constitute as an offence. While there is a presumption against the accused, the Supreme Court of India has ruled through a series of decisions that such a presumption is subject to the existence of foundational facts.
A person found to be indulging in fraudulent and unfair trade practices by SEBI is subject to paying penalty which shall not be less than INR500,000 but which may extend to INR250 million or three times the amount of profits made out of such practices, whichever is higher.
Market Abuse in the Form of Market Manipulation
Stock price manipulation is regulated and is made an offence under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations).
SEBI prohibits the use or employment of any manipulative/deceptive device/artifice to defraud in connection with issue, purchase or sale of any securities listed or proposed to be listed. It also prohibits a person from engaging in any activity which operates or would operate as fraud upon any person in connection with the issuance, dealing with the listed securities or securities proposed for listing. It is also an offence to indulge in manipulative, fraudulent or unfair trade practice in the securities markets. The PFUTP Regulations clarify that any act of diversion, misutilisation or siphoning off of assets or earnings of a publicly traded company, as well as any concealment of such acts, is regarded as manipulating the books of accounts or financial statements of the company that directly or indirectly manipulates the price of its securities. This is deemed as a “manipulative, fraudulent and an unfair trade practice” in the securities market.
Dealing in securities would be treated as manipulative, fraudulent/unfair trade practice if it involves any of the itemised acts mentioned in Regulation 4(2) of the PFUTP Regulations such as knowingly indulging in creation of false or misleading appearance of trading in the securities market and dealing in a security intending to operate only as a device to inflate, depress or cause fluctuations in the price of a security for wrongful gain/avoidance of a loss.
Criminal Banking Law
While offences in relation to banking and related operations may be dealt with under the IPC, additionally, there are certain special statutes that prescribe penalties in relation to certain offences. These include the Reserve Bank of India Act, 1934 (RBI Act) pursuant to which India’s central bank, namely, the RBI, which is responsible for regulation of Indian banking system, has been constituted. The RBI Act provides for penalty in the case of wilfully making or omitting to make false statements by any person under any application, return, statement, etc, in connection with an invitation of deposit of money from the public. Separately, failure to produce books, accounts as required under the RBI Act entails a fine of up to INR2,000 for each offence with additional fine if the offence persists. Also, if a person other than the RBI or as expressly permitted by the government of India, inter alia, draws, accepts, makes or issues any bill of exchange or promissory note for payment of money payable to bearer on demand, then such a person shall be punishable with fine, which may extend to the amount of the bill of exchange or promissory note.
Separately, there are certain local legislations which regulate money lending at a state level as per which undertaking the business of money lending without valid license and making false statements are punishable acts (with imprisonment extending up to five years in certain cases or fines up to INR50,000).
3.5 Tax Fraud
Principle Offences in Relation to Tax Fraud
Tax fraud consists of the following principal offences:
- fraudulently removing, concealing, transferring, or delivering any property or any interest in such property with an intention to prevent recovery of taxes;
- parting with company’s properties in contravention of the Income-Tax Act;
- failure to deposit tax deducted or collected at source;
- wilful attempt to evade tax imposable or reportable under the Income-Tax Act;
- failure to furnish return where tax liability exceeds INR10,000;
- failure to produce accounts and documents if information is sought by the IT Authorities, or failure to get accounts audited as directed by the IT Authorities;
- failure to furnish returns in search (raid) cases;
- abetment to the offence of filing of false returns; and
- making false statement to evade taxes, penalty, or interest or abetting or inducing any person to make or deliver a false account or a false declaration.
Punishment prescribed in relation to the aforesaid offences may entail penalty and rigorous imprisonment for a minimum and maximum term of two months and seven years along with fine, depending on the nature of offence.
If a person holds foreign income or assets that are undisclosed, they can be prosecuted under the Black Money Act. Offences under this legislation in addition to penalty, also entail rigorous imprisonment ranging from six months to seven years.
As part of the Income-Tax Act and the Black Money Act, taxpayers are required to make full and true disclosure of their income and assets, failing which they may be prosecuted and fined.
In case of prosecution, culpable mental state is presumed, unless the defendant proves otherwise. Culpable mental state includes intention, motive or knowledge of a fact or belief in, or reason to believe a fact.
3.6 Financial Record-Keeping
The Companies Act mandates a company to maintain its books of accounts for a period of up to eight preceding financial years. If there is an inquiry or investigation pending against the company under the Companies Act, the company may be required to maintain its books of accounts for a longer period of time. Further, if the senior management, including the managing director and the chief financial officer or any person charged by the Board, fails to comply with such obligations, then such person will be punished with imprisonment for a term extending to one year and/or fines between INR50,000 and INR500,000.
The managing director, the whole-time director in charge of finance, the chief financial officer or any other person charged with the duty of complying with the requirements of maintaining the financial statement of the company shall be punishable with imprisonment for a term, which may extend to one year or with fines between INR50,000 and INR500,000, or with both. This would be the case if the books:
- do not show the true and fair view of the state of affairs of the company;
- do not comply with the accounting standards notified under the Companies Act; or
- are not in the form or forms provided for different class or classes of companies in the Companies Act.
If the concerned officer mentioned above is found to maintain false books of accounts they may, depending on the facts and allegations, be subject to the various offences mentioned in 3.1 Criminal Company Law and Corporate Fraud above.
3.7 Cartels and Criminal Competition Law
Prohibition of Anti–competitive Agreements
In terms of the Competition Act, 2002, agreements in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within India are prohibited and, if entered, would be void.
Appreciable adverse effect on competition – presumptions
This is an agreement or a decision taken by any association of enterprises or association of persons including cartels engaged in identical or similar trade of goods or provision of services, which:
- directly or indirectly determines purchase or sale prices;
- limits or controls production, supply, markets, technical development, investment or provision of services;
- shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way; or
- directly or indirectly results in bid rigging or collusive bidding.
“Cartel” includes “an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in goods or provision of services.”
Prohibition of Abuse of Dominant Position
In terms of the above Indian anti-trust legislation, an enterprise that imposes unfair, discriminatory conditions on the purchase or sale of goods or services, or imposes an unfair or discriminatory price on the purchase or sale of goods or services (including predatory prices) would be regarded as abusing its dominant position.
After conducting an inquiry, if the Competition Commission of India (CCI) finds contravention of the aforesaid prohibitions, it may take various actions including imposition of penalty of up to 10% of the average turnover of the enterprise for the three preceding financial years. Where the CCI finds that there is the anti-competitive agreement entered into by a cartel, it may impose upon each producer, seller, distributor, trader or service provider included in that cartel, a penalty of up to three times of its profit for each year of the continuance of such agreement or 10% of its turnover for each year of the continuance of such agreement, whichever is higher. Apart from the imposition of penalties, the CCI has no power to impose any criminal sanctions. However, in the event the penalties imposed are not paid, that itself will be an offence punishable with imprisonment for a term which may extend to three years, or with fine which may extend to INR250 million.
3.8 Consumer Criminal Law
As per The Consumer Protection Act, 2019 (CPA) which deals with consumer protection in India:
- Offence of false or misleading advertisement prejudicial to the interest of consumers is punishable with imprisonment for a term which may extend up to two years and with fine up to INR1 million; each subsequent offence is punishable with imprisonment for a term, which may extend to five years and with fine, which may extend to INR5 million.
- Offence of manufacturing products containing adulterants, for sale or storing, selling or distributing or importing, result in imprisonment ranging from six months to life term, in addition to a fine ranging from INR100,000 to INR1 million, depending on the impact/injury it has caused to the consumer. Where the manufactured goods are spurious, the imprisonment would range between one year to life imprisonment and fine which would range from INR300,000 to INR1 million, depending on the impact/injury such action has had on the consumer.
Action may additionally be initiated under the provisions of IPC for offences such as cheating.
3.9 Cybercrimes, Computer Fraud and Protection of Company Secrets
Cybercrimes are dealt with under the IPC as well as under the Information Technology Act, 2000 (IT Act). Some of the major offences in the cyberspace are given below.
Hacking and data theft
There are a number of actions ranging from hacking into a computer network, data theft, contaminating computer networks, systems with viruses, causing damage to computer networks, systems, etc, as well as disrupting any computer networks, systems, denying access to authorised persons of computer systems, networks, etc, destroying information residing in computers, tampering/manipulating of computer systems, etc, have been prohibited under the IT Act. The maximum punishment for the above offences is imprisonment for up to three years or a fine of up to INR500,000 or both.
The offence of “theft” of movable property and “mischief” under the IPC will also apply to the theft of any data, online or otherwise. Under the IPC, theft is punishable by imprisonment for up to three years or a fine, or both, while mischief is punishable with imprisonment for up to three months or a fine, or both.
Receiving stolen computer resource
The IT Act also prescribes punishment for dishonestly receiving a stolen computer resource or communication device, which may result in imprisonment of up to three years or a fine of up to INR100,000, or both. The IPC also provides for an identical offence where the fine amount is uncapped.
Sending offensive messages through a computer resource
Sending by means of a computer resource or a communication device, any information that is grossly offensive or has a menacing material, or any information knowing it to be false, but for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill will, or issuing an e-mail for the purpose of causing annoyance or inconvenience or to deceive or to mislead the addressee or recipient about the origin of such messages, is punishable with imprisonment for a term which may extend to three years as well as a fine.
Identity theft and impersonation
Fraudulent or dishonest use of the electronic signature, password or any other unique identification feature of a person is punishable with imprisonment for a term which may extend to three years and fine which may extend to INR100,000. Cheating by impersonation is also an offence under the IPC punishable with imprisonment for a period which may extend to three years or with a fine, or both. Further, “forgery”, “forgery for the purpose of cheating” and usage of “forged document” are also offences under the IPC and the punishment may extend to seven years of imprisonment and also fine.
Where there is a conflict between the provisions of IT Act and the IPC, the Supreme Court of India has held that the IT Act being a special statute shall prevail over the IPC.
3.10 Financial/Trade/Customs Sanctions
The Indian foreign trade/customs laws do not provide for blanket bans/restrictions or sanctions. However, some restrictions are provided on import/export of specified items from specified countries and with certain organisations and individuals/entities associated with such organisations.
Presently, item-specific sanctions apply to the Democratic People’s Republic of Korea, Iraq, Iran, Somalia, the Islamic State in Iraq and the Levant, Al Nusrah Front, as well as any other entities, individuals, groups, undertakings and individuals linked to Al Qaida, either directly or indirectly.
Items restricted to be imported from/exported to the aforementioned countries/organisations/entities are typically aligned with United Nations Security Council Resolutions/items specified by other multilateral organisations, such as the International Atomic Energy Agency.
Under the IPC, whoever intending to, or knowingly causing to facilitate the commission of an offence punishable with death or imprisonment for life, voluntarily conceals by any means, the existence of a design to commit such offence or makes any representation which they know to be false in respect of such design, shall:
- if the offence be committed, be punished with imprisonment of for a term which may extend to seven years;
- if the offence is not committed, with imprisonment, for a term which may extend to three years; and
- in either case shall also be liable to fine.
When the concealment is done with respect to any other offence punishable with imprisonment, such concealment is punishable with imprisonment for a period one-fourth of the longest term of such imprisonment if the offence is committed and one-eighth of the longest term of such imprisonment if the offence is not committed.
The offence of concealment is separate from the predicate offence. However, a person may face consequences for facilitating or aiding the commission of the predicate offence.
3.12 Aiding and Abetting
In the case of a common intent offence, the IPC applies the principle of joint liability, which means each person is liable as if they did that act alone.
Separately, abetment is constituted by instigating a person to commit an offence, or engaging in a conspiracy to commit the offence, and, pursuant to such conspiracy doing an act or omitting to do an act where it is legally required to do the act, or intentionally aiding a person to commit the offence. When an offence is committed as a result of an abettor’s instigation or assistance, the abettor shall be punished in the same manner as the principal perpetrator
A conspiracy is committed when two or more persons agree to do an illegal act, or to do an act that is not illegal, by illegal means. A person who is a party to a criminal conspiracy to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for two years or more, shall be punished the same way as if they had abetted the offence. Whereas a person who is a party to a criminal conspiracy other than as punishable above, shall be punished with imprisonment for a term not exceeding six months, or with fine, or both.
There are certain statutes such as the PCA that also provide for a punishment for abetment of offences committed under the PCA, which include imprisonment for a minimum term of three years, extending up to seven years, along with a fine.
3.13 Money Laundering
PMLA is India’s primary legislation dealing with the offence of money laundering. The relevant prosecution agency under PMLA is the ED.
To invoke PMLA, ED needs to establish two foundational facts. That a predicate offence has been committed, which has resulted in the generation of ‘proceeds of crime’ (PoC). PoC refers to any property which has been derived as a result of the predicate offence. According to the PMLA schedule, predicate/scheduled offences include serious offences, such as those under the IPC, anti-narcotics laws, and anti-terrorism laws. The test here is that the property should have been derived as a result of the criminal activity relating to or in relation to a scheduled offence.
The second fact that needs to be established is existence of any of the prescribed process or activity under the PMLA connected with the PoC. The process or activity can be in any form, be it one of concealment, possession, acquisition, use of PoC or claiming it to be untainted property. Any involvement in even one of these process or activities connected with PoC would constitute money-laundering.
Since the trigger for invoking PMLA is commission of a predicate/scheduled offence, in the event the person named in the criminal activity relating to a scheduled offence is finally absolved by a court of competent jurisdiction owing to an order of discharge, acquittal or because of quashing of the criminal case (scheduled offence) against them, there can be no action for money-laundering against such a person or person claiming through them in relation to the property linked to the stated scheduled offence.
The provisions of PMLA are stringent in nature as compared to ordinary penal statues. For example:
- An accused is not entitled to a copy of the FIR/ECIR under PMLA unlike in cases of ordinary offences, where copy of the FIR is furnished to an accused as a matter of right;
- Arrests may be made by or on instructions of senior officers of ED if they have reason to believe on the basis of material in their possession that any person is guilty of an offence punishable under PMLA;
- Unlike ordinary penal statutes, there is no such requirement of prior notice under PMLA before making arrests;
- There is also a much higher threshold to obtain bail/anticipatory bail by a person arrested under provisions of PMLA. As opposed to the established cardinal principle of criminal jurisprudence towards presumption of innocence of an accused until his conviction by a court of law in trial, the presumption is reversed in cases of PMLA. Thus, a person arrested under PMLA has to first prima facie satisfy to the court that he is not guilty of such offence in order to be entitled to bail;
- As opposed to the general principle that statement made before the police cannot be used as evidence in court, the statements made before the ED are admissible in evidence before a court of law; and
- ED has wide powers to seize and attach assets of not only persons who are involved in the commission of scheduled offence, but also any person in possession of the proceeds of crime, who need not be the person accused of PMLA offence or who is being tried for the scheduled offence. On conclusion of the trial, not only property involved in money-laundering but also the property used for the commission of the offence of money-laundering are liable to be confiscated.
The offence of money-laundering is considered to be a continuing offence, the cause of action for which renews with every day of the possession of PoC. Thus, criminal activity may have been committed before it had been notified as a scheduled offence for the purpose of PMLA, but if a person has indulged in, or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as a scheduled offence, then they may be liable to be prosecuted for offence of money-laundering for continuing to possess or conceal the proceeds of crime (fully or in part) or retaining possession thereof or using it in tranches until fully exhausted. The offence of money-laundering is not dependent on or linked to the date on which the scheduled offence or the predicate offence has been committed. The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime.
The constitutional validity of the provisions of the PMLA was challenged before the Supreme Court of India. However, the Supreme Court has upheld the validity of the provisions of the PMLA through its decision rendered on 27 July 2022 in the matter of Vijay Madanlal (Supra).
The ED is presently focusing its attention on cases involving high value of proceeds of crime and cases involving serious predicate offence involving terror financing, narcotics, corruption, offence involving national security, etc.
A strong defence strategy in a criminal offence has two hallmarks:
- Version of facts to be pleaded need to be plausible; and
- Version of fact is backed by credible and admissible evidence.
During a trial, an accused person has a chance to establish their defence against the charges brought by the prosecution, including by cross examining witnesses and bringing witnesses of their own.
The onus of proof is beyond all reasonable doubt and rests on the prosecution. Even in cases where there is reverse burden of proof such as the PMLA, the prosecution still needs to prove the foundational facts before triggering the reversal of burden of proof on the accused.
In many instances, prior approval and sanction of the higher authorities within a department is required before prosecution can be initiated. For example, under the PCA, without taking the prior sanction of the state or central government as is applicable, the investigation agency cannot commence an enquiry or an investigation against the government official. Another defence available to accused persons is that of assailing the chain of custody or deviation from due process as provided under the IPC and the CrPC. The two statutes have ample safeguards and provisions supervising the procedure for seizure of case related property and articles.
The IPC statutorily prescribes general exceptions, which are the defences provided to the accused that exculpate criminal liability. In other words, there are some exceptions provided under the IPC which can make an act or omission (offence) non-criminal/non-offence.
Thus, acts or omissions by children, or a person of unsound mind, or committed by a person justified by law, or committed under the influence of intoxication, or committed by a person in good faith, or acts committed by a person under threat or duress are generally exempt from prosecution for the crimes mentioned. However, the burden of proof for availing benefit of the exception is high and inferences will be drawn from the overall facts and circumstances of the case and the credible evidence presented by accused person to show that such mitigating factors and influences existed.
4.3 Co-operation, Self-Disclosure and Leniency
Every person is mandated under law to cooperate with the relevant investigation agencies in matters of inquiry/investigation. This includes, providing the requisitioned materials/information/documents as sought by the investigation agencies during the course of inquiry/investigation, and appearance before the relevant investigation officer when summoned either to provide any information/material/document or to record statement. There is also a legal duty to furnish correct and accurate information to the investigation officer when called upon to do so. It is punishable under law to fail to provide relevant information/material/documents or to provide false information. The aforesaid rule is, however, subject to the constitutional right against self-incrimination.
Additionally, knowledge of offences of grave nature, such as murder, kidnapping, etc, are mandatorily reportable by the public to the concerned authorities.
In the event an accused person pleads guilty to an offence during or before commencement of trial, the courts have discretion to take a lenient view while sentencing them. However, while exercising this discretion, the court cannot award a sentence, which is lower than the minimum sentence prescribed for such offence.
Additionally, with a view to obtaining evidence of any person supposed to have been directly or indirectly concerned in or privy to an offence, the court at any stage of inquiry or trial may grant pardon to such person on the condition of their making a full and true disclosure of the circumstances within their knowledge with respect to the offence in question, whether as a principal or abettor of such offence. However, the aforesaid power of the court is applicable only to grave and serious offences, which prescribe minimum punishment of seven years or more.
4.4 Whistle-Blower Protection
It was in May 2014, the government of India notified the Whistle Blowers Protection Act, 2014 to establish a mechanism for receiving complaints relating to disclosure on allegations of corruption or wilful misuse of power by public servants and to further provide adequate safeguards against victimisation. However, the Act is yet to be operationalised.
One of the drawbacks of the aforesaid legislation in the current form is that it does not cover corporate whistle-blowers.
Apart from the above, there are certain other voluntary mechanisms in India to deal with whistle-blowing. SEBI mandates that every listed company must have a whistle-blower policy in place. Moreover, SEBI has also introduced a reward mechanism from 2019 onwards to encourage employees of listed companies to come forward with their concerns.
In 2020, the Ministry of Corporate Affairs implemented a new format for conducting statutory audits of companies, known as the Company Auditors Report Order, 2020 and has been made applicable for audits beginning from financial year 2021–2022. A salient feature of this order is that the auditor of the company will now be obligated to generate reports regarding whistle blower complaints filed against the company during the said financial year.
5.1 Burden of Proof
According to Indian criminal law, doctrine of ‘innocence until proven guilty’ is well recognised. Unless a statute specifically provides for reversing the onus of proof, the burden of proof will always rest with the prosecution, which must prove its case beyond reasonable doubt against each accused person.
A reverse onus clause is prescribed under certain special statutes, including the PMLA and IT Act. In terms of the reverse onus clause, there is a presumption of guilt against a person charged for the specialised offence and it is up to the accused person to prove their innocence. However, even in such a case, the prosecution has to prove that the foundational facts are established before the reverse onus triggered.
The constitutionality of reversing the burden of proof has only been upheld in India in the most extreme cases, such as terrorism, gang and mafia crimes, drug offences, and sexual violence against children.
5.2 Assessment of Penalties
There is no formal sentencing policy in India. Consequently, there is a wide discretion with courts in matters concerning sentencing of accused. Penalty upon conviction can take two forms namely, imprisonment and/or fine.
A number of broad guidelines have been outlined by the Supreme Court with respect to the award of sentences to accused persons. As per these, while awarding sentences, courts must consider the principle of proportionality and deterrence.
Broadly, certain mitigating circumstances that courts consider while sentencing an accused upon completion of trial include past antecedents of the accused, their mental and physical health at the time of offence, as well as their socio-economic background.
Courts may impose fine as an alternative for imprisonment or can add it to the imprisonment. For certain offences, statutes stipulate maximum quantum of fine that may be imposed by the court. However, when the sum is not expressed under the statute, the quantum of fine to which the offender is liable is unlimited, though the guiding principle here is that fine shall not be excessive.
In determining the quantum of fine in cases in which the relevant statute does not specify the amount, the court will generally look at the severity of the offence, the extent of the victim’s loss or damage, and the capacity of the perpetrator to pay the fine.
While there is no concept of deferred prosecution agreement and non-prosecution agreement in India, the concept of plea bargaining in a limited scope is applicable in India.
Plea bargaining refers to pre-trial negotiation between the accused and the prosecution where the accused agrees to plead guilty in exchange for certain concessions by the prosecution. In India, the benefit of plea bargaining is limited to sentence bargaining, ie, the accused agrees to plead guilty to the stated charge and, in return, they bargain for a lighter sentence. The benefit of plea bargaining/sentence bargaining in India can only be availed in the following circumstances:
- where the maximum punishment is imprisonment of up to seven years;
- where the offences do not affect the socio-economic condition of the country; and
- where the offences are not committed against a woman or a child below the age of 14 years.
Plea bargaining is an entirely voluntary process between the accused and the victim and the court monitors it closely to ensure that there is no compulsion or coercion of any kind during the process.