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Trends and climate
Trends Have there been any recent changes in the enforcement of anti-corruption regulations? In the wake of numerous scams being unearthed in India over the past decade, the enforcement agencies have become increasingly proactive in terms of monitoring compliance under relevant anti-corruption and bribery laws and taking action against violations thereof. For instance, in 2015 the Central Vigilance Commission (CVC) opened a suo moto (ie, of its own accord) inquiry against a private company (a subsidiary of a multinational corporation) for the first time, amid allegations that the company had bribed public servants in order to obtain certain clearances and permits in India.
The CVC has also taken other proactive actions, such as advising all central government departments on quicker disposal of pending corruption cases and launching the ‘VIGEYE’ mobile application to directly interact with citizens on matters of corruption.
The Serious Fraud Investigation Office (the investigative arm of the Ministry of Corporate Affairs) has also investigated cases of alleged fraud in 258 companies in the past four years, of which 116 investigations have concluded.
Further, the Supreme Court recently expanded the ambit of the definition of ‘public servant’ (under the Prevention of Corruption Act 1988) to include all officials of private banks, as their duties are public in nature (Central Bureau of Investigation, Bank Securities and Fraud Cell v Ramesh Gelli, February 23 2016).
Legislative activity Are there plans for any changes to the law in this area? Parliament recently passed:
- the Lokpal and Lokayukta (Amendment) Act 2016;
- the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015; and
- the Whistleblowers’ Protection (Amendment) Bill 2015 (pending presidential assent).
The Prevention of Corruption (Amendment) Bill 2013, which is pending parliamentary approval, seeks to amend the Prevention of Corruption Act 1988 by:
setting out specific provisions for the prosecution of bribe givers; explicitly bringing commercial organisations within the ambit of the definition of ‘bribe giver’; and prescribing a specific time limit for completing trials.
Authorities Which authorities are responsible for investigating bribery and corruption in your jurisdiction? The primary regulatory authorities responsible for monitoring and investigating corruption and bribery in India are as follows:
- The Central Vigilance Commission (CVC) is the nodal statutory body that supervises investigations of corruption (under the Prevention of Corruption Act 1988 and the Penal Code 1860) in central government departments, government companies and local government bodies, and among public servants. The CVC can refer cases to either the central vigilance officer of the relevant government department or the Central Bureau of Investigation (CBI) for investigation.
- The CBI and the Anti-corruption Bureau (ACB) are also investigative authorities for corruption under the Prevention of Corruption Act and the Penal Code. While the CBI’s jurisdiction covers the central government and union territories, the ACB investigates cases within the states.
- The Serious Fraud Investigation Office (SFIO) is set up under the Ministry of Corporate Affairs and investigates the affairs of companies:
- on receipt of an application from the competent regulatory authority;
- at the request of the concerned company;
- in cases of public interest; or
- suo moto (ie, of its own accord).
If a matter is handled by the SFIO, no other investigatory agency is entitled to proceed with a parallel investigation.
- Lokpal is the nodal ombudsman authority which investigates and prosecutes cases of corruption involving:
- the prime minister;
- the council of ministers;
- members of Parliament;
- public servants and other central government employees;
- employees of companies funded or controlled by the central government; and
- private persons who have abetted in the commission of relevant offences.
However, members of the first Lokpal office have yet to be appointed. Lokayuktas are state-level counterparts of the Lokpal.
- The Enforcement Directorate (ED) is established under the Ministry of Finance to investigate and prosecute cases relating to the Prevention of Money Laundering Act 2002 and the Foreign Exchange Management Act 1999. The ED also cooperates with foreign countries in matters relating to money laundering and restitution of assets in accordance with their respective local laws.
Domestic law What are the key legislative and regulatory provisions relating to bribery and corruption in your jurisdiction? The key laws pertaining to corruption and bribery in India are as follows:
- The Prevention of Corruption Act 1988 is the principal anti-corruption law. It penalises offences committed by public servants in relation to the acceptance or attempted acceptance of any form of illegal gratification (ie, anything of value other than a legal entitlement). A bribe giver may also be prosecuted if it is proven that he or she was involved in the abetment of the offence committed by the public servant.
- The Penal Code is the penal law of India and sets out provisions which are interpreted to cover bribery and fraud matters, including those committed in the private sector. Its provisions include offences relating to cheating and dishonestly inducing delivery of property and criminal breach of trust.
- The Companies Act 2013, which was recently enacted, contains certain corporate governance provisions, including:
- a broad definition of ‘fraud’, which covers instances of corruption and bribery involving a company;
- the duty of statutory auditors to disclose any instances of fraud committed by company employees;
- increased penalties for fraud offences (up to 10 years of imprisonment and a fine of up to three times the amount involved in the relevant fraudulent transaction);
- the accordance of increased powers to the SFIO;
- provisions for the establishment of vigilance mechanisms and audit committees; and
- increased responsibilities of independent directors.
- The Whistleblowers’ Protection Act 2011 is primarily intended to protect whistleblowers with respect to disclosure of acts of corruption, wilful misuse of power, wilful misuse of discretion or the commission of attempted commission of a criminal offence by a public servant.
- The Lokpal and Lokayuktas Act 2013 establishes the offices of the nodal ombudsman for the central and state governments (Lokpal and Lokayuktas, respectively) and accords relevant powers to these bodies to unearth, investigate and adjudicate corruption in India.
- The Foreign Contribution (Regulation) Act 2010 regulates the acceptance and use of foreign contributions and hospitality by corporate entities and individuals. Receipt of foreign contributions requires prior registration with or approval of the Ministry of Home Affairs. In the absence of such registration or approval, receipt of foreign contributions may be considered illegal and punishable.
- The Prevention of Money Laundering Act 2002 aims to prevent instances of money laundering and restrict use of the proceeds of crime in India. It prescribes strict penalties for violation of its provisions, including imprisonment of up to 10 years and the attachment or confiscation of tainted property.
The scope of application of the primary anti-corruption law is limited to the public and government sectors, and does not cover extraterritorial activity (ie, instances of illegal gratification and payments made to foreign officials or persons employed by public international organisations).
International conventions What international anti-corruption conventions apply in your jurisdiction? India is a signatory to the United Nations Convention against Corruption, as ratified in 2011. It is also a member of the G20 Anti-corruption Action Group.
Further, the guidelines and draft clauses of the International Chamber of Commerce hold persuasive value in the country.
Specific offences and restrictions
Offences What are the key corruption and bribery offences in your jurisdiction? The following actions qualify as corruption and bribery offences under Indian law:
- a public servant taking illegal gratification as reward or motive for undertaking an official act;
- an individual taking illegal gratification to influence a public servant;
- an individual taking illegal gratification to exercise personal influence over a public servant;
- a public servant obtaining a valuable thing without consideration from a person in connection with business dealings with such person;
- a public servant dishonestly or fraudulently misappropriating or converting for personal use any property entrusted to him or her or under his or her control, or any public servant allowing another person to do as such;
- a public servant obtaining a valuable thing or monetary advantage for himself or herself or any other person by corruption, abuse of his or her position of authority or any other illegal means; and
- a public servant holding property or resources disproportionate to his or her known sources of income.
Abetment or attempted abetment of the abovementioned offences may be prosecuted as an offence under the relevant anti-corruption laws.
Actions such as the acceptance of foreign contributions without prior government approval or registration, money laundering and fraudulent acts against a company are also punishable.
Hospitality restrictions Are specific restrictions in place regarding the provision of hospitality (eg, gifts, travel expenses, meals and entertainment)? If so, what are the details? The government has formulated guidelines and monetary thresholds for public servants regarding the acceptance of gifts, business courtesies and hospitality. The key guidelines are contained in the Central Civil Services (Conduct) Rules 1964 and the All India Services (Conduct) Rules 1968. These rules must be followed by public servants employed in specified government services. Similar conduct rules have been introduced separately by state governments and specific government departments (eg, the railways and defence services) and apply to their respective employees.
As a general rule, members of the concerned government services should avoid accepting lavish or frequent hospitality from persons having official dealings with them, or from industrial or commercial firms beyond the specified thresholds. The guidelines also provide that a public servant should neither accept any gift nor permit any member of his or her family or any other person acting on his or her behalf to do the same. The term ‘gifts’ includes:
- free transport;
- free boarding;
- free lodging; and
- any other service or pecuniary advantage provided by a person other than a near relative or personal friend who has no official dealings with the public servant.
However, the definition of ‘gift’ does not include casual meals, casual lifts or other similar social hospitality.
No such rules are prescribed for dealings between private parties. However, to avoid any potential liability, most companies internally determine their policies and monetary thresholds in connection with the offer and acceptance of gifts, business courtesies and hospitality.
Facilitation payments What are the rules relating to facilitation payments? There is no specific exception for making facilitation payments to public servants in India; any such payment amounts to bribery under the anti-corruption laws.
Scope of liability Can both individuals and companies be held liable under anti-corruption rules in your jurisdiction? Yes, both individuals and companies may be held liable under the anti-corruption laws. In the landmark judgment in Iridium India Telecom v Motorola Incorporated ((2011) 1 SCC 74) the Supreme Court held that companies and other corporate entities can no longer claim immunity from criminal prosecution on the grounds that they cannot possess the necessary ‘guilty intent’ for the commission of criminal offences (including criminal acts of corruption, fraud and payment of bribes). Since a company cannot be ‘imprisoned’ per se, the courts may impose fines or other monetary penalties on the company or imprison persons in charge of or responsible for the conduct of the company’s business at the time that such offences were committed.
Can agents or facilitating parties be held liable for bribery offences and if so, under what circumstances? Yes, agents and facilitating parties may be held liable for:
- proven instances of abetment of bribery of public servants; and
- acting as a conduit to a public servant’s receipt of illegal gratification.
Foreign companies Can foreign companies be prosecuted for corruption in your jurisdiction? The Prevention of Corruption Act 1988 extends to the whole of India (other than the state of Jammu and Kashmir) and to all Indian citizens, irrespective of their geographical location. Thus, by implication it may also apply to foreign companies doing business in the Indian territory.
The Lokpal and Lokayuktas Act 2013 also applies to the whole of India, thereby granting powers to the Lokpal to investigate and prosecute Prevention of Corruption Act offences by a foreign company doing business in the Indian territory.
Whistleblowing and self-reporting
Whistleblowing Are whistleblowers protected in your jurisdiction? Yes, the Whistleblowers’ Protection Act 2011 establishes protective measures for whistleblowers (ie, persons making a public interest disclosure relating to an act of corruption, wilful misuse of power, wilful misuse of discretion or a criminal offence committed or attempted by a public servant). While the whistleblower must disclose his or her identity when making the disclosure, the relevant authorities are statutorily obliged to ensure his or her anonymity and protection from victimisation thereafter. Moreover, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 require companies listed on a recognised stock exchange in India to devise an effective whistleblower mechanism that enables stakeholders – including individual employees and their representative bodies – to freely communicate their concerns about illegal or unethical practices in such companies.
No legal protection is afforded to whistleblowers who make disclosures in connection with the private sector, although most companies provide protection to such whistleblowers through internal policies and programmes.
Self-reporting Is it common for leniency to be shown to organisations that self-report and/or cooperate with authorities? If so, what process must be followed? The Indian anti-corruption laws contain no specific provisions which grant discretion to the relevant authorities to show leniency towards self-reporting organisations or individuals.
However, immunity from prosecution can be granted to a bribe giver under the Prevention of Corruption Act 1988 if he or she agrees to make a statement against the offence committed by a public servant in any criminal proceeding (ie, the bribe giver’s statement must affirm that he or she offered or agreed to offer a form of gratification). The court may also pardon any person who has been directly or indirectly involved in or privy to an offence on the condition that such person make a full and true disclosure of the circumstances of the offence (within his or her knowledge). Further, the bribe giver or abettor may cooperate with the authorities at any stage of investigation, including at the time of commencement of criminal proceedings.
Dispute resolution and risk management
Pre-court settlements Is it possible for anti-corruption cases to be settled before trial by means of plea bargaining or settlement agreements? There are no specific provisions to settle before trial by means of plea bargaining or settlement agreements and the offences of corruption and bribery are typically non-compoundable.
Defences Are any types of payment procedure exempt from liability under the corruption regulations in your jurisdiction? The Indian anti-corruption laws contain no specific payment-related exemptions. However, if the amount involved does not breach the monetary thresholds prescribed under the relevant conduct rules for public servants, this can be used as a defence against allegations of abetment of bribery.
What other defences are available and who can qualify? Under certain anti-corruption laws, persons in charge of a company or responsible for the conduct of its business may avoid liability for offences committed by the company if it is proven that such individuals had no knowledge of the offence or exercised all due diligence to prevent such offences.
Risk management What compliance procedures and policies can a company put in place to assist in the creation of safe harbours? In 2015 India ranked 76th out of 168 countries in the Corruption Perception Index published by Transparency International. Further, the legal framework for anti-corruption compliance in India does not yet address all relevant issues. Therefore, companies generally adopt their own procedures and policies to avoid any potential liability. While the specific procedures implemented by companies to mitigate such risks vary, the following standard practices can be adopted to ensure compliance with the relevant anti-corruption laws:
- implementing a robust code of conduct that includes policies governing the exchange of gifts, business courtesies and hospitality, whistleblower protection mechanisms and provisions covering compliance with relevant anti-corruption laws (including foreign laws with extraterritorial effect, such as the US Foreign Corrupt Practices Act 1977 and the UK Bribery Act 2010);
- implementing effective, up-to-date book-keeping and record maintenance systems to prevent any illegal gratification from being routed through the company’s accounts;
- accurate and complete preparation and maintenance of all accounts, invoices and other documents relating to payments made by the company;
- conducting due diligence in relation to third-party dealings (eg, with agents, consultants, advisers and intermediaries) in order to reduce the risk of vicarious liability;
- regular communications and documented training on anti-corruption, bribery and ethics at all levels of the company; and
- implementing appropriate disciplinary procedures to address violations of anti-corruption laws and the company’s code of conduct.
Record keeping and reporting
Record keeping and accounting What legislation governs the requirements for record keeping and accounting in your jurisdiction? There is no specific legislation governing record keeping, but it is covered under various other laws that may apply to certain companies. For instance, the Companies Act 2013 requires Indian companies to maintain and preserve the books of accounts at their registered office for at least eight financial years preceding the present financial year, together with all vouchers relevant to any entry in such books of accounts. The term ‘books of accounts’ has been broadly defined to include records of items including sums of money received and expended by the company and sales and purchases of goods and services by the company.
The Companies Act also sets out the accounting method for company financial records, which must typically be undertaken on an accrual basis and pursuant to the double-entry bookkeeping system.
In addition, persons (including companies) registered under the Foreign Contribution (Regulation) Act 2010 must maintain an account of any foreign contribution received, along with a record of the manner in which such contribution has been used.
What are the requirements for record keeping? As mentioned above, the anti-corruption laws of India do not expressly require concerned companies and individuals to maintain any specific records per se. However, the Companies Act requires companies to maintain and preserve their books of accounts along with other corporate documents for at least eight financial years preceding the present financial year. In addition, records relating to income tax and service tax must be retained for seven years and five years, respectively.
Similarly, persons (including companies) registered under the Foreign Contribution (Regulation Act) must maintain an account of any foreign contribution received, along with a record of the manner in which such contribution has been used.
Reporting What are the requirements for companies regarding disclosure of potential violations of anti-corruption regulations? There is no specific legislation in India that expressly requires companies to disclose potential violations of anti-corruption laws within their organisation.
However, the Companies Act stipulates that if any statutory auditor of a company has reason to believe that fraud is being or has been committed during the performance of his or her professional duties, he or she must report the potential offence to the central government if the sum involved is Rs10 million or more. Where the involved amount is less than Rs10 million, the auditor must report the matter to the company’s board of directors or audit committee (as applicable), which must then disclose the details of the offence in the director’s report (to be prepared on an annual basis).
Individuals What penalties are available to the courts for violations of corruption laws by individuals? The anti-corruption laws prescribe various penalties. For instance, the Prevention of Corruption Act 1988 sets out that public servants found guilty of the prescribed offences or any person found to have abetted in the commission of such offences will be subject to a prison term of between three and seven years (seven years for repeat offenders) and a fine to be set by the court.
Similarly, the commission of fraud under the Companies Act 2013 is subject to a prison term of between six months and 10 years and a fine of up to three times the amount involved in the offence.
Money laundering, as defined in the Prevention of Money Laundering Act 2002, is subject to a prison term of between three and 10 years and a fine or up to Rs500,000.
Other penalties include confiscation or attachment of the accused’s property, or debarment or blacklisting from dealing with government authorities (in perpetuity or for a specific duration).
Companies or organisations What penalties are available to the courts for violations of corruption laws by companies or organisations? The anti-corruption laws do not differentiate between the penalties to be imposed for offences committed by an individual and those committed by a company or organisation; therefore, the relevant penalties apply to both. However, where the penalty for a given offence involves imprisonment and a fine, the courts will impose only the fine on the company or organisation (as the penalty of imprisonment cannot be imposed on a legal person), although persons in charge of the company or responsible for the conduct of its business when the offence was committed may be liable to imprisonment.