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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 been proactive in terms of monitoring compliance under relevant anti-corruption and bribery laws and taking action against violations thereof. For instance, in 2016 the government announced demonetisation of Rs500 and Rs1000 bank notes in its attempt to combat unethical practices such as hoarding black money outside the formal economic system, tax evasion and using illicit or counterfeit cash to fund illegal activities. Consequently, on basis of information received from banks, the tax authorities and other anti-corruption bodies have identified suspicious persons and entities and have started taking action against them.

Further, in 2017 the Ministry of Corporate Affairs voluntarily struck off 224,000 shell companies and imposed restrictions on the usage of their bank accounts and transference of company property. Action was taken to disqualify directors who failed to comply with specific requirements under the Companies Act 2013. The ministry also announced that if any director or other authorised signatory of a struck-off company tried to siphon off money from the company’s bank account, he or she will be punished with a prison term of between six months and 10 years, and where the fraud involved public interest, the minimum prison term will be at least three years and may also involve a fine of up to three times the amount involved. The prime minister's office has also created a special task force to oversee the drive against such defaulting companies with the help of various enforcement agencies. 

The Central Vigilance Commission (CVC) has also taken certain proactive actions recently, such as advising all central government departments on quicker disposal of pending corruption cases, launching the ‘VIGEYE’ mobile application to directly interact with citizens on matters of corruption and consolidation of various CVC circulars, guidelines and preventive initiatives in the Vigilance Manual 2017.

The Serious Fraud Investigation Office (the investigative arm of the Ministry of Corporate Affairs) has increased the pace of its investigations over the past couple of years. As per the information available on its website, it has completed investigation in 312 cases to date, 87 of which were completed during 2016 to 2017.

Moreover, the Supreme Court has 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?

Over the past couple of years, Parliament has passed:

  • the Lokpal and Lokayukta (Amendment) Act 2016, which primarily requires public servants to declare their assets and liabilities, and those of their spouses and dependent children;
  • the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015, which penalises the concealment of foreign income and assets, and any related tax evasion;
  • the Benami Transactions (Prohibition) Amendment Act 2016, which empowers the competent authorities to attach and confiscate benami properties (ie, any property which is held by or transferred to or for benefit of a person, and the consideration for which has been provided or paid by another person);
  • the Companies (Amendment) Act 2017, by virtue of which the existing penalty provisions for the commission of corporate fraud have been modified. While the relevant provisions have yet to be notified, on enforcement, if any person is guilty of fraud involving an amount less than Rs1 million or 1% of the company turnover (whichever is lower) and which does not involve public interest, such person will be punishable with a maximum five-year prison term, a fine of up to Rs2.5 million or both. For other instances of fraud, the penalty remains the same (ie, six months to 10 years’ imprisonment and a fine of up to three times the amount involved in the offence); and
  • the Whistleblowers’ Protection (Amendment) Bill 2015 (pending presidential assent), which aims to prohibit the reporting of corruption-related disclosures (by a whistleblower) if it falls under any of the 10 prescribed categories.

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.

Legal framework

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 investigation 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 1988 and the Penal Code 1860. While the CBI’s jurisdiction covers the central government and union territories, the ACB investigates cases within the states. However, the CBI has recently sought guidance from the Supreme Court regarding the permission required from a state government to conduct an inquiry into an offence relating to the state.
  • The Serious Fraud Investigation Office (SFIO) is set up under the Ministry of Corporate Affairs and investigates the affairs of companies based on an order from the central government:
    • on receipt of an application from the competent regulatory authority or government department;
    • at the request of the concerned company;
    • in cases of public interest on a suo moto basis (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. The Ministry of Corporate Affairs has recently conferred the power of arrest (of any person, including those associated with foreign companies) on the SFIO on the grounds of commission of the offence of corporate fraud under the Companies Act 2013.

  • Lokpal, which comprises a chairperson and up to eight members, 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, other than members of armed forces;
    • employees of companies funded or controlled by the central government; and
    • private persons who have abetted in the commission of relevant offences.

Lokpal also has the power of superintendence over the CBI, if it refers any case to CBI. Members of the first Lokpal office have yet to be appointed. Lokayuktas are state-level counterparts of the Lokpal, and certain Indian states have already appointed officers for this position.

  • The Enforcement Directorate 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 Enforcement Directorate also cooperates with foreign countries in matters relating to money laundering and restitution of assets in accordance with their respective local laws.
  • The Income Tax department has been appointed as the authority in cases pertaining to the BenamiTransactions (Prohibition) Amendment Act 2016, by virtue of which it can attach and confiscate benami properties.

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 1860 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 contains certain provisions to prevent corruption and fraud in the corporate sector, including:
    • the duty of statutory auditors to disclose any instances of fraud (which covers instances of corruption and bribery) 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);
    • vesting increased powers (eg, power to arrest) with 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 whistle-blowers 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 and investigate cases of corruption in the public sector in India (eg, the authority to provisionally attach property pending proceeding). 
  • 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 prohibit 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).

However, the Institute of Company Secretaries of India has recently formulated the Corporate Anti-bribery Code, which outlines a systematic mechanism that could be voluntarily adopted by companies to prevent bribery in both public and private sectors. The code also prohibits bribery of foreign public officials to obtain or retain business or receive an improper advantage in business (which is otherwise not specifically addressed under the anti-corruption laws).

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 key corruption and bribery offences under Indian law:

  • a public servant taking illegal gratification as a reward or motive for undertaking (or forbearing to undertake) an official act, or for showing (or forbearing to show) any favour or disfavour to any person in the exercise of his or her official functions, or for rendering any service or disservice to any person;
  • an individual taking illegal gratification to influence a public servant for the abovementioned actions;
  • an individual taking illegal gratification to exercise personal influence over a public servant, to induce such public servant for the abovementioned actions;
  • 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, concealment of foreign income and assets, dealing with benami property and committing 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 certain 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 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 specifically 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, particularly during religious and festive occasions.

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.

Liability

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. Although, in such cases the intent behind offering or accepting gifts (irrespective of the gift’s monetary value) may also be relevant.

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 2016 India ranked 79th out of 176 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.

However, the Institute of Company Secretaries of India has recently formulated the Corporate Anti-bribery Code, which outlines a systematic mechanism that could be voluntarily adopted by companies to prevent bribery in both public and private sectors. The code also prohibits bribery of foreign public officials to obtain or retain business or receive an improper advantage in business (which is otherwise not specifically addressed under the anti-corruption laws).

While the specific procedures implemented by companies to mitigate such risks may vary, the following basic 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, whistle-blower 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 appropriate due diligence in relation to third-party dealings (eg, with agents, consultants, advisers and intermediaries) in order to reduce the risk of vicarious liability;
  • ensure written agreements with third parties are executed, which clearly identify the work to be performed along with compensation and appropriate language on anti-corruption compliance;
  • regular communications and documented training on anti-corruption, bribery and ethics at all levels of the company;
  • appropriate oversight and monitoring of anti-corruption policies and programmes; 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. Similarly, the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 require companies listed on a recognised stock exchange in India to have a two-pronged policy for the preservation of relevant documents:

  • permanent preservation; and
  • preservation for an eight-year period after completion of a transaction.

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.

Further, 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?

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. Similarly, the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 require listed companies to have a two-pronged policy for the preservation of relevant documents:

  • permanent preservation; and
  • preservation for an eight-year period after completion of a transaction.

In addition, records relating to income tax and goods and services tax must be retained for seven years and six years, respectively.

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, during the performance of his or her professional duties, has reason to believe that fraud is being or has been committed, 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).

Separately, the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 require listed companies to make disclosures relating to fraud and defaults committed by the company or its promoter, key managerial personnel, directors or employees, as applicable, in a prescribed manner.

Penalties

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 involving an amount exceeding Rs1 million or 1% of the company turnover (whichever is higher) or which involves public interest, is subject to a prison term 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.

Commission of relevant offences under the Penal Code is punishable with three to seven years’ imprisonment.

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.