Relevant international and domestic law

International anti-corruption conventions

To which international anti-corruption conventions is your country a signatory?

India signed the United Nations Convention against Corruption on 9December2005 and ratified it on 1May2011. Under Indian law, while the central government is competent to enter into treaty obligations to the extent that such treaty obligations affect any justiciable rights of Indian nationals, it would require an act of the legislature for such obligations to be binding upon Indian nationals. Additionally, India also ratified the United Nations Convention on Transnational Organised Crime that also mandates the criminalisation of corruption and the bribing of public officials.

India is also a member of the trilateral India-Brazil-South Africa Cooperation Agreement (IBSA) to foster cooperation in different public-policy sectors, including ‘ethics and corruption combat’ and ‘social responsibility and transparency’. Cooperation mechanisms under IBSA include seminars, meetings, knowledge-sharing, training of civil servants of one country by another country, cooperation between training institutions and the establishment of institutions, projects and other joint mechanisms. The Corruption Prevention and Strategic Information Secretariat has been established under IBSA to act as a nodal point for topics related to anti-corruption policies.

In June 2010, India became a member of the Financial Action Task Force, a 36-member intergovernmental body that aims to develop national and international policies to prevent money laundering and terrorism financing arising, among other things, out ofbribery.

Foreign and domestic bribery laws

Identify and describe your national laws and regulations prohibiting bribery of foreign public officials (foreign bribery laws) and domestic public officials (domestic bribery laws).

The Prevention of Corruption Act 1988

The Prevention of Corruption Act 1988 (PCA) is the primary law relating to the prevention of corruption and matters connected therewith, and has recently been amended (in July 2018). The PCA criminalises the receipt of, or attempt to receive, any ‘undue advantage’, by a ‘public servant’ with the intention of, or as a reward for, performing a public duty improperly or dishonestly, or forbearing to perform such duty (or for causing or inducing another public servant to do so). The term ‘undue advantage’ includes any gratification (other than legal remuneration) and is not limited to pecuniary gratifications or gratifications capable of estimation in monetary terms, and therefore includes non-pecuniary gratifications such as gifts. The term ‘public servant’ has been defined broadly and includes any person in the service or pay of the government, local authority, statutory corporation, government company or other body owned or controlled or aided by the government, as well as judges, arbitrators and employees of institutions receiving state financial assistance. The Supreme Court of India has held that employees of banks would also be considered public servants under the PCA (including employees of privatebanks).

The PCA also criminalises receipt of an undue advantage by a public servant through intermediaries, and certain conduct described as ‘criminal misconduct’ by public servants - this covers dishonest or fraudulent misappropriation of, or conversion for his or her own use of, any property in the possession of the public servant or any illicit enrichment by the public servant. Where the public servant (or any person on his or her behalf) is in possession of assets or pecuniary resources disproportionate to his or her known sources of income, which he or she cannot satisfactorily account for, the public servant is presumed to have intentionally enriched him or herself illicitly. The PCA also provides for more stringent measures against habitual offenders.

Prior to the amendment, the PCA primarily criminalised the receipt of bribes by a public servant, and a bribe giver could be penalised under the PCA only for abetment of the offence committed by the bribe recipient. However, pursuant to the amendment, the act of giving any ‘undue advantage’ to another person (directly or through a third party), with the intention to induce any public servant to (or reward any public servant for) improperly perform any public duty, is now an offence by itself under the PCA. Exceptions have been included for persons who are compelled to give an undue advantage provided they report the same to authorities within seven days of giving the undue advantage, and persons who offer or give a bribe after informing the authorities (to assist the authorities in an investigation against the bribe recipient). However, the amendments have done away with the immunity previously available under section 24 of the PCA for a bribe giver who provided a statement during a corruption trial against a bribe receiver.

The PCA also provides for the establishment of special courts to try offences under the PCA, and offences under the PCA are generally investigated by the Central Bureau of Investigation (CBI). Further, the prosecution of public servants under the PCA requires the prior sanction of the government (or in certain circumstances, the sanction of the lokpal appointed under the Lokpal and Lokayuktas Act 2013, which has been discussed below). The recent amendments also provide that trial of offences under the PCA should be conducted on a day-to-day basis, with an endeavour to complete such trial within a period of two years. While this period may be extended by an additional six months at a time, for reasons to be recorded in writing, the proceedings should ordinarily be concluded within four years.

The recent amendments to the PCA have also incorporated specific provisions addressing the liability of commercial organisations (including companies) and their officers with respect to commission of offences under the PCA. The government has been given powers to attach or confiscate any money or property that has been procured by means of an offence under the PCA. The key offences under the PCA (including the offence of bribing of public servant and the offence of bribing of public servant by a commercial organisation) have been included as predicate offences under the Prevention of Money Laundering Act 2002 (PMLA) - therefore, proceeds from such offences have now been brought within the ambit of Indian anti-money laundering laws.

Though the Supreme Court of India has observed that the PCA is social legislation intended to curb the illegal activities of public servants and therefore should be construed liberally, so as to advance its objective, and not in favour of the accused (State of Madhya Pradesh v Ram Singh (2000) 5Supreme Court Cases 88), it has also laid down that conviction of an accused under the PCA for acceptance of illegal gratification cannot be founded on the basis of inference; the offence should be proved against the accused beyond all reasonable doubt, either by way of direct evidence or even by circumstantial evidence. If such a causal link of the chain of events is not established pointing towards the guilt of accused, then the Supreme Court has held that a conviction may not be sustainable (Banarsi Dass v State of Haryana, 2010 (2) ACR 1344 (SC)).

The applicability of the PCA extends to the whole of India, except the state of Jammu and Kashmir and also to all Indian citizens outside India. The substantive provisions of the PCA, read in conjunction with the statement of its extent make it clear that this statute is intended to apply to situations where an Indian ‘public servant’ accepts illegal gratification from any person, whether in India or abroad. The PCA does not apply to the payment of illegal gratifications to foreign officials.

Service Rules

In addition to the PCA, most government officials are bound, during the tenure of their service, by service rules related to their conduct and discipline (the Service Rules). The primary Service Rules applicable to different classes of officials of the central government of India are:

  • the Central Civil Services (Conduct) Rules 1964;
  • the All India Services (Conduct) Rules 1968; and
  • the Indian Foreign Service (Conduct and Discipline) Rules 1961.

These Service Rules, among other things, prohibit government officials from receiving gifts, lavish hospitality, free transport, boarding or other pecuniary advantages that exceed certain specified thresholds, from persons other than near relatives or personal friends, without the sanction of the government.

Further, even gifts received from near relatives or friends (with whom such official has no business dealings) that exceed specified thresholds in value are required to be reported.

The Service Rules also prohibit public servants engaging in any trade, business, other employment and certain other commercial activities. A violation of these Service Rules may result in the initiation of disciplinary action that may extend to the termination of service of the concerned official. Such departmental disciplinary proceedings are independent of prosecutions initiated under the PCA. It is important to note that unlike the Service Rules, the PCA does not provide for any minimum threshold for gifts, meals, entertainment or hospitality to Indian publicservants.

Separately, under the Indian Penal Code, 1860 (IPC), an officer is criminally liable if he or she engages in any kind of trade, business, profession or occupation if he or she is expressly prohibited from doing so. However, this excludes persons employed by government on a contract or temporary basis such as senior doctors consulting at government hospitals, lawyers engaged by the state, etc.

Foreign Contribution (Regulation) Act 2010

The Foreign Contribution (Regulation) Act 2010 (FCRA) consolidates the laws regulating the acceptance and utilisation of foreign contributions or hospitality by certain individuals, associations or companies, and prohibits the acceptance of contributions from foreign sources or the acceptance of foreign hospitality by certain persons (such as members of legislatures, office bearers of political parties, judges, government servants or employees of government corporations), except with the prior permission of the central government. The definition of the term ‘foreign source’ under the FCRA is wide and includes any foreign company, or any other foreign entity, a multinational corporation, a foreign trust or foundation, and a citizen of a foreign country. The FCRA is administered by a department within the Union Ministry of Home Affairs of the government of India.

An amendment has been proposed to the definition of ‘foreign source’ by the Finance Bill, 2016 to clarify that companies that have foreign shareholdings in line with permissible limits under applicable foreign exchange regulations will not be considered a foreign source.

Central Vigilance Commission Act 2003

The central government has constituted the Central Vigilance Commission (CVC) pursuant to the Central Vigilance Commission Act 2003. The CVC is the primary agency to inquire or cause inquiry to be conducted into offences alleged to have been committed under the PCA. It is also responsible for advising, planning, executing, reviewing and reforming vigilance operations in central government organisations. The CVC is required to operate impartially and free of executivecontrol.

Right to Information Act 2005

The Right to Information Act 2005 (the RTI Act) is a law aiming, among other things, at transparent governance and prevention of corruption. It prescribes a procedure by which an Indian citizen can apply for and obtain information held by any public authority, subject to certain defined exceptions in respect of national interest, legislative privilege and right to privacy. The term ‘public authority’ is widely defined to mean any authority, body or institution of self-government created under statute or by government order, and includes entities owned, controlled or substantially financed, directly or indirectly, by thegovernment.

All public authorities are required, in terms of the RTI Act, to make a variety of information public, including statements of what information and documents they hold, their budget and their rules and regulations. They are also required to publish all relevant facts while formulating important policies or announcing decisions that affect the public and to provide reasons for their decisions to the persons affected. The RTI Act sets up a structure comprising of information officers to be appointed by each public authority. Citizens may request information from these officers, for a fee. The information officers are required to provide requested information within set timelines, ranging from 48 hours (if the life or liberty of any persons are involved) to 30 days.

The RTI Act has created information commissions at the central and state levels to enquire into complaints from citizens relating to requesting or obtaining access to records, including refusal of access by the public authority, failure to respond within the prescribed time and demands for unreasonable fees. The information commissions are empowered to direct public authorities to comply with the RTI Act, award compensation to the complainant and penalise any information officer with a fine of up to 25,000 Indian rupees or by recommending disciplinary action against him or her.

The RTI Act has proved a powerful tool against corruption, and RTI applications had helped bring to light (and consequently curb) many instances of corruption in procurement by the government and organisations owned or sponsored by the government.

Whistle Blowers Protection Act 2011

The Whistle Blowers Protection Act 2011, is legislation that aims to establish a mechanism to safeguard persons who make a complaint regarding an act of corruption or wilful misuse of power by a public authority. The identity of the complainant is mandatorily protected under the statute and any disclosure to the contrary is punishable with imprisonment as well as a fine. Once a public interest disclosure is made to the competent authority established under the statute, the authority has the power to conduct an inquiry and initiate proceedings accordingly.

The Whistle Blowers Protection (Amendment) Bill 2015 was passed by the lower house of parliament, and is pending the approval of the upper house of parliament, and seeks to prohibit the reporting of a corruption-related disclosure if it falls into certain categories of information, such as:

  • economic and scientific interests and the security of India;
  • cabinet proceedings;
  • intellectual property; and
  • that received in a fiduciary capacity, etc.
Companies Act 2013

The Companies Act 2013 (the 2013 Act), which is the primary legislation regulating companies in India, also contains provisions to prevent corruption and fraud in companies.

Section 177 of the 2013 Act requires every listed company to establish a vigilance mechanism for directors and employees to report genuine concerns and to provide for adequate safeguard mechanism against victimisation of persons who use such a mechanism. Additionally, auditors, cost accountants and company secretaries are mandatorily required to report any suspected frauds to the central government if they, in the course of the performance of their duties, come to the belief that their company’s directors or employees are committing an offence against it.

‘Fraud’ is defined widely under the 2013 Act and could include acts of private bribery. Commission of fraud is a criminal offence under the 2013 Act, which is punishable with imprisonment ranging from six months to 10 years or a fine, or both.

The 2013 Act imposes an obligation on the directors of companies to devise proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. The 2013 Act also obligates companies to maintain books and financial statements in accordance with prescribed accounting standards. There are fines and imprisonment mandated for violation of the aforesaid provisions.

The provisions of the 2013 Act would also be applicable to government companies.

Lokpal and Lokayuktas Act 2013

This legislation, which was notified on 16January2014, provides for the establishment of the Lokpal for the Union and statutory functionaries knows as the Lokayuktas, who are responsible for investigating complaints against the functioning of the state government machinery, including complaints related to bribery and corruption punishable under the PCA, for the states where lokayuktas had not already been established, with the aim of creating a corruption ombudsman that acts independently from the executive branch of the government. Several state governments have now established statutory lokayuktas. Both the CVC and the offices of the lokayuktas are assisted in the investigation of matters and the enforcement of the PCA by the police.

The jurisdiction of the lokpal includes the prime minister, ministers, members of parliament and other public servants. Additionally, the legislation imposes an additional obligation on all public servants to furnish information relating to assets of which he or she, his or her spouse and dependent children are, jointly or severally, owners or beneficiaries to the competent authority under the act within 30 days of making an oath to enter office and an annual return of assets and liabilities. In March 2019, a former Supreme Court judge, Justice Pinaki Chandra Ghose, was appointed as the country’s first Lokpal, thus giving the much needed teeth to the anti-corruption legislation.

Successor liability

Can a successor entity be held liable for violations of foreign and domestic bribery laws by the target entity that occurred prior to the merger or acquisition?

Liability provisions under Indian bribery laws do not specifically stipulate that a successor will be liable in case of a violation of anti-bribery laws by a transferor. However, the concept of successor liability is generally recognised under various Indian laws based on the nature of the transaction. For example, in the context of mergers, section 233 of the 2013 Act states that in case of a merger or amalgamation of certain companies, the liabilities of the transferor company are accrued on the transferee company. In cases of demerger, the transfer of liability is dependent on the scheme of demerger itself. The Supreme Court in All India ITDC Workers Union and Ors v ITDC and Ors AIR 2007 SC 301 has recognised that when a demerger scheme provides for the discharge of liabilities by the transferee from the date of transfer, the liabilities shall be accrued on the transferee from such date. Even in the context of a transfer of an entire business or undertaking, the Supreme Court in Anakapalla Co-operative Agricultural and Industrial Society Limited v Their Workmen AIR 1963 SC 1489 and Rana Girders Ltd v Union of India and Ors 2013 (10) SCALE 356 held that in the case of a going concern where the entire unit or business has been purchased, the purchaser would be considered a successor in interest and the liabilities of the business being transferred would fasten upon the purchaser. The court held that a determination on the accrual of liabilities is based on various considerations. These factors include:

  • whether the purchaser purchased the whole business or undertaking;
  • whether the business purchase was a going concern at the time of the sale transaction, and whether it continues to carry on business post transfer;
  • whether the manner and place of operation of business changes;
  • whether there is a break in the continuity of the business, and the nature and duration of such break;
  • whether goodwill of the business was purchased; and
  • whether purchase of some parts of the business was excluded.

A successor in interest may also be held liable on the principles of equity. A detailed examination of such principles of equity has been made by the Supreme Court of India in Arunima Baruah v Union of India and Ors (2007) 6 SCC 120. However, the application of principles of equity has been fact-specific, keeping in mind positions of the respective parties, reliefs sought, conduct in litigation and other related matters.

Another key consideration as regards successor liability is that the asset that is transferred may itself be ‘tainted’ or ‘charged’. A key statutory provision in this regard is section5 of the PMLA, which permits the relevant authority to attach the proceeds of crime. This means that the authority may prevent the alienation or conversion of any property that has been obtained as a result of criminal activity. Such property is considered to be tainted, and any value that is paid as consideration in the transfer of such property may also be attached.

Civil and criminal enforcement

Is there civil and criminal enforcement of your country’s foreign and domestic bribery laws?

Indian anti-bribery laws treat bribery as a criminal offence and such laws are enforced by way of criminal proceedings against the accused person. The offences are required to be proved beyond reasonable doubt by the prosecuting authority and the procedure prescribed under the Code of Criminal Procedure1973 (CrPC) or the specific legislation that governs the offence is required to be followed. However, there are certain exceptions to the established principles of criminal proceedings, which may be envisaged under specific legislations. For example, prosecution under the PCA requires prior sanction of the relevant authority. Further, there is a presumption that a public servant accepting undue advantage has taken bribery and the burden of proof remains on the public servant to prove otherwise. This is a departure from general criminal jurisprudence where the accused is presumed as innocent until proven guilty.

It is also pertinent to note that the CrPC itself provides for a civil relief in the form of payment of compensation by an accused person to any other person who has suffered a loss on account of the offence committed by the accused person. Section 357(3) of the CrPC states that when a court imposes a sentence, of which a fine does not form a part, the court may when passing judgment order the accused person to pay by way of compensation such amount as may be specified in the order to the person who has suffered any loss or injury by reason of the act for which the accused person has been so sentenced.

Further, in addition to imposition of criminal penalties such as fine and imprisonment, the PMLA and the PCA also include sanctions regarding attachment and confiscation of property that is procured pursuant to offences listed under the legislations. As regards the PCA, it is usual for investigating authorities to allege that the advantage received by a bribe-giver pursuant to the bribery should also be subject to attachment and confiscation, and not just the property of the public servant in question.

Dispute resolution and leniency

Can enforcement matters involving foreign or domestic bribery be resolved through plea agreements, settlement agreements, prosecutorial discretion or similar means without a trial? Is there a mechanism for companies to disclose violations of domestic and foreign bribery laws in exchange for lesser penalties?

It is not usual for corruption prosecutions to be settled. However, prosecutorial discretion in relation to bribery proceedings is recognised, where the prosecution may elect to not proceed against a person.

The PCA provides for limited exceptions from liability for persons who are compelled to give an ‘undue advantage’ provided they report the same to authorities within seven days of giving the undue advantage, and persons who offer or give a bribe after informing the authorities (to assist the authorities in an investigation against the bribe recipient).

Additionally, under sections 306 to 308 of the CrPC, a court may in certain cases pardon a person accused of an offence on condition that such person makes a full and true disclosure of the circumstances related to the commission of the offence and agrees to tender evidence to that effect at the trial of the offence.

The CrPC classifies certain offences under the IPC as offences that can be compounded by the aggrieved person, with or without the prior permission of the court, depending on the nature of the offence. Compounding of such offences results in a compromise between the aggrieved person and the accused and an acquittal of the accused. Similar provisions have also been included in the FCRA, where an offence punishable under the FCRA that is not punishable with imprisonment only, may, before the institution of any prosecution, be compounded by the relevant authority specified by the central government. However, the PCA does not include any provisions regarding compounding of offences.

Foreign bribery

Legal framework

Describe the elements of the law prohibiting bribery of a foreign public official.

There are no Indian laws that apply to bribery of foreign public officials. The Prevention of Bribery of Foreign Public Officials and Officials of Public Interest Organisations Bill 2011, which sought to criminalise bribery of foreign officials, has not received parliamentary approval and has since lapsed.

However, the provisions of the 2013 Act relating to ‘fraud’ and financial record-keeping may be attracted if an Indian company attempts to camouflage the bribery of foreign public officials by reflecting the amounts paid as having been incurred for legitimate business expenses.

Definition of a foreign public official

How does your law define a foreign public official, and does that definition include employees of state-owned or state-controlled companies?

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

Gifts, travel and entertainment

To what extent do your anti-bribery laws restrict providing foreign officials with gifts, travel expenses, meals or entertainment?

There are no Indian laws that restrict providing foreign officials with gifts, travel expenses, meals or entertainment. However, companies in India may have internal codes of conduct and policies that may impose restrictions on providing gifts, travel expenses, meals or entertainment to foreign public officials.

Further, the provisions of the 2013 Act relating to ‘fraud’ and financial record-keeping may be attracted if an Indian company attempts to camouflage the bribery of foreign public officials by reflecting the amounts paid as having been incurred for legitimate business expenses.

Facilitating payments

Do the laws and regulations permit facilitating or ‘grease’ payments to foreign officials?

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

Payments through intermediaries or third parties

In what circumstances do the laws prohibit payments through intermediaries or third parties to foreign public officials?

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

Individual and corporate liability

Can both individuals and companies be held liable for bribery of a foreign official?

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

Private commercial bribery

To what extent do your foreign anti-bribery laws also prohibit private commercial bribery?

While there are no Indian laws that apply specifically to foreign bribery, the provisions of the 2013 Act relating to fraud and financial record-keeping may be attracted if an Indian company attempts to camouflage the bribery of foreign commercial organisations by reflecting the amounts paid as having been incurred for legitimate business expenses. Further, any payments involving a remittance of funds from within India to a person resident outside India are subject to the provisions of the Foreign Exchange Management Act1999 and rules and regulations promulgated thereunder. Such foreign exchange regulations list out certain permissible current account and capital account transactions. Any transactions that do not fall within the purview of such permitted transactions will result in a scrutiny by the Reserve Bank of India (RBI).

Defences

What defences and exemptions are available to those accused of foreign bribery violations?

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

Agency enforcement

What government agencies enforce the foreign bribery laws and regulations?

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

Patterns in enforcement

Describe any recent shifts in the patterns of enforcement of the foreign bribery rules.

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

Prosecution of foreign companies

In what circumstances can foreign companies be prosecuted for foreign bribery?

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

Sanctions

What are the sanctions for individuals and companies violating the foreign bribery rules?

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

Recent decisions and investigations

Identify and summarise recent landmark decisions or investigations involving foreign bribery.

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

Financial record-keeping and reporting

Laws and regulations

What legal rules require accurate corporate books and records, effective internal company controls, periodic financial statements or external auditing?

Indian companies are required to maintain their books of accounts and other business records for a definite period of time under various laws,including:

  • the 2013 Act;
  • the Income Tax Act 1961 (Income Tax Act) and other applicable taxstatutes;
  • applicable regulations notified by regulators such as the Securities and Exchange Board of India (SEBI) or the RBI; and
  • the PMLA.
Companies Act 2013

The 2013 Act has introduced several stipulations on good governance, record-keeping and preventing fraud and corruption, and the annual financial statements of all companies are required to be audited by an external auditor. Section 129 of the 2013 Act stipulates that the financial statements of a company, are among other things, required to give a true and fair view of the state of affairs of the company. Further, as per section 134 of the 2013 Act, every balance sheet and profit and loss account of a company (other than a banking company) is required to be signed, on behalf of its board of directors, by the two directors of the company including the managing director and the company secretary. This section further requires the board of directors of every company to prepare, and lay before the general meeting of its shareholders, as an attachment to its balance sheet and external auditors report, a directors’ report with respect to the state of the company’s affairs. The directors’ report must contain a ‘directors’ responsibility statement’, stating, among other things, that the directors have:

  • selected and applied accounting policies, and made prudent judgements, to give a true and fair view of the company’s affairs;
  • taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the 2013 Act for preventing and detecting fraud and other irregularities; and
  • devised proper systems to ensure compliance with the provisions of all applicable laws.

This report is required to be signed by the chairman of the board, and if he or she is not authorised to do so, by at least two directors, including the managing director.

Further, under section 206 of the 2013 Act, if the Registrar of Companies is of the opinion that the information or books and papers disclosed by the company do not represent a full and fair statement, the Registrar may call upon the company to produce further books and documents for his or her inspection and if satisfied that there is a case, may carry out an inquiry into the affairs of the company. Further, the central government, if satisfied that the circumstances warrant it, may order for the inspection of books and papers by an inspector appointed by it.

The central government, under section 210 of the 2013 Act, can initiate an investigation of the affairs of the company on the direction of a court. Under section 219 of the 2013 Act, the inspector may also investigate the company’s subsidiary or holding companies, or a company that had been a subsidiary of its holding company, or a holding company of its subsidiary, at the relevant time. Under the 2013 Act, such companies could include those incorporated outside India. Any failure to disclose books and records to the inspector for the sake of an investigation is punishable. The inspector may also seize any document with the consent of a magistrate.

Section 182 of the 2013 Act, among other things, restricts the ability of companies to make direct or indirect contributions to a political party, or to any person for a political purpose. Section 182 of the Companies Act further requires all companies to disclose the amounts and the recipients of such contributions in their profit and loss accounts. A contravention of this section is punishable with imprisonment and afine.

Section 447 of the 2013 Act defines fraud in a broad manner, to include any act, omission, concealment of any fact or abuse of position committed by any person or any other person with their connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss. Persons convicted of fraud are subject to severe penal consequences:

  • if the fraud involves an amount of at least 1 million rupees or 1 per cent of the turnover of the company (whichever is lower), the punishment is imprisonment for a term of not less than six months that may extend to 10 years (but where the fraud in question involves public interest, the term of imprisonment shall not be less than three years), and a fine that is not less than the amount involved in the fraud and that may extend to three times the amount involved; and
  • if the amount involved in the fraud is more than the above-mentioned thresholds, and does not involve public interest, then the punishment prescribed is imprisonment for a term that may extend to five years or a fine that may extend to 5 million rupees or both.

Further, under section 448 of the 2013 Act, when a person (including a director) is found making false statements or knowingly omitting a material fact in a return, report, certificate, financial statement or prospectus, he or she is liable for the same punishment as prescribed for fraud - this provision would therefore apply to circumstances where directors knowingly maintain accounts or approve financial statements that include inaccurate entries or that incorrectly reflect bribes paid to foreign or Indian public officials as legitimate business expenses.

PMLA

The PMLA criminalises money laundering. Money laundering is defined as the direct or indirect attempts to indulge, or knowingly assist, or knowingly becoming a party to, or actual involvement in the process or activity connected with the ‘proceeds of crime’ (including its concealment, possession, acquisition or use) and projection or claiming of such property as untainted property. It further identifies offences under sections 7 to 14 of the PCA as offences of which proceeds are treated as ‘proceeds of crime’. The term ‘proceeds of crime’ refers to any property derived or obtained by a person as a result of certain identified crimes that are considered as predicate offences for the application of the PMLA. The Finance Act of 2019 has further amended the PMLA and has inserted an ‘explanation’ to the definition of ‘proceeds of crime’ whereby the definition now clarifies that ‘proceeds of crime’ include property not only derived or obtained from the scheduled offence but also any property that may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.

Further, the PMLA defines two categories of acts as ‘offences with cross-border implications’. The first category covers acts committed outside India that are offences both under Indian law and local laws, and proceeds of which are remitted to India. The second category covers offences committed in India, proceeds of which are transferred or are attempted to be transferred abroad. The PMLA also incorporates the concept of ‘corresponding law’ to link the provisions of the PMLA with the laws of foreign countries. The PMLA also casts obligations upon banking companies, financial institutions and entities such as brokers, money-changers and casino operators, defined as ‘intermediaries’, to maintain records of transactions and of their clients’ identities, and furnish such records to an officer appointed by the central government for this purpose. The PMLA allows, even at a preliminary stage of investigation or proceedings, for the provisional attachment of properties in the possession of persons accused of money laundering, as well as others who are knowingly parties to the activities connected with the proceeds of crime under the PMLA, provided certain conditions are satisfied.

Indian regulators, such as the RBI and SEBI have also issued guidelines to entities regulated by them (such as banks, financial institutions and market intermediaries), specifying know-your-customer requirements and other anti-money laundering measures. These guidelinesinclude:

  • norms governing establishment of customer identity;
  • risk-based categorisation of customers, client due diligence (including enhanced measures for high-risk customers);
  • procedures for conducting various types of transactions (including cross-border transactions); and
  • reporting of transactions to the Financial Intelligence Unit.

Recent legislative changes have made all offences under the PMLA cognisable (which empowers the Enforcement Directorate to arrest an accused on its own motion without judicial warrant) and non-bailable (that is, where grant of bail is a matter of discretionary power in the hands of the court). Further, the prerequisite of a first information report or charge sheet being filed in relation to a scheduled offence under the PMLA, prior to the Enforcement Directorate being competent to investigate the offence of money laundering resulting from such scheduled offence, has been removed.

Serious Fraud Investigation Office

The Ministry of Corporate Affairs (MCA) has set up an investigating authority under the 2013 Act. The Serious Fraud Investigation Office (SFIO), which is invested with the powers of detecting, investigating and prosecuting white-collar crimes and frauds with multidisciplinary ramifications or public interest elements where improvements in the system, laws and procedures are possible. The SFIO has statutory recognition and is vested with the powers of the magistrate under section 211 of the 2013 Act.

While the SFIO primarily investigates matters received from the MCA, it also has the authority to take up cases on its own. These investigations are to be carried out pursuant to section 212 of the 2013 Act. The SFIO also takes up investigation of cases of fraud referred to it by the central government or if a company passes a special resolution stating that the affairs of the company are required to be investigated. To date, the SFIO has been involved in matters relating to stock market frauds. On 24August2017, certain provisions of the 2013 Act relating to the powers of the SFIO were made effective. These provisions give wide powers to the SFIO to arrest persons who that have a reason to believe has been guilty of specified offences under the 2013 Act (including offences relating to ‘fraud’).

In addition to the above statutes, companies may be guided by applicable accounting and company secretarial standards, with respect to their accounting and record retention policies. It must be noted that although none of these laws and standards are intended exclusively to check illegal gratifications to public servants, records maintained under these laws and regulations may be summoned by a competent authority or by a court to be used as evidence for or during an investigation into a charge under the PCA. Further, misstatement of books and records in an attempt to cover up, disguise or conceal illicit payments as legitimate expenses may result in contravention of these provisions, and attract the applicable penalties.

Disclosure of violations or irregularities

To what extent must companies disclose violations of anti-bribery laws or associated accounting irregularities?

There is no express obligation under Indian law to disclose offences under the PCA. However, a reporting obligation cast upon statutory functionaries of bodies corporate such as auditors may be triggered if an act qualifies for reporting under the 2013 Act (eg, commission of a fraud on the company).

Witnesses to offences under the PCA are not considered accomplices merely because they did nothing to prevent or disclose offences, unless they were under a legal obligation to do so. The PCA or any other criminal legislation does not expressly make it mandatory for a person to disclose the commission of an offence under the PCA. It is pertinent to point out in this context that section 39 of the CrPC casts an obligation on every person aware of the commission or the intent to commit certain specified offences to report such commissions to the police or to a magistrate. Given that Indian courts have recently taken an expansive view of anti-corruption provisions (eg, extending the provisions of the PCA to employees of banks), it remains to be seen whether Indian courts will extend the reporting obligations under the CrPC to offences under the PCA.

If the non-disclosure, on the facts of a particular case, amounts to an illegal omission under any other law, or is of such a nature that the court may infer a degree of participation in the offence or abetment, then such a person could be prosecuted for abetment under section 12 of the PCA. There may, however, be limited advantages accruing to persons making disclosures of offences under the PCA, as describedbelow.

The PCA provides for limited exceptions from liability for persons who are compelled to give an ‘undue advantage’ provided they report the same to authorities within seven days of giving the ‘undue advantage’, and persons who offer or give a bribe after informing the authorities (to assist the authorities in an investigation against the bribe recipient). The PCA earlier included a provision providing to a bribe giver who provided a statement during a corruption trial against a bribe receiver; however, this provision has been done away with as part of the recent amendments.

Under sections 306 to 308 of the CrPC, a court may in certain cases pardon a person accused of an offence on condition that such person makes a full and true disclosure of the circumstances related to the commission of the offence and agrees to tender evidence to that effect at the trial of the offence.

Section 245B of the Income Tax Act provides for the setting up of the Settlement Commission. A person may at any stage of a case under the Income Tax Act make an application for the settlement of cases pending against him in the prescribed form if the person has furnished the returns of income that he or she is required to furnish under any of the provisions of the Income Tax Act, and the additional amount of income tax payable on the income disclosed in the application exceeds 100,000 rupees.

The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C of the Income Tax Act has cooperated with the Settlement Commission and has made a full and true disclosure of his or her income and the manner in which such income has been derived, grant immunity from prosecution for any offence under the Income Tax Act or under the IPC or any other central acts. Such immunity, however, would not be granted by the Settlement Commission in cases where prosecution has been instituted under the relevant central legislation before the date of the application under section 245C of the Income Tax Act. Typically, the Settlement Commission would not grant immunity in relation to prosecutions initiated under the central legislation that do not have any material connection or bearing on tax evasion.

India has also signed an Intergovernmental Agreement with the United States to implement the Foreign Account Tax Compliance Act in India, which allows the automatic exchange of information between the two countries and to combat tax evasion by nationals and companies in both the countries. The Central Board of Direct Taxes has recently notified guidelines to banks and financial institutions to collect additional details from US nationals and withhold tax on qualifying payments. India is a signatory to the Organisation for Economic Co-operation and Development Convention on Mutual Administrative Assistance in Tax Matters, and has agreed to implement the Common Reporting Standard for automatic exchange of tax and financial information. India is part of the first phase of countries implementing this protocol.

Prosecution under financial record-keeping legislation

Are such laws used to prosecute domestic or foreign bribery?

There are no Indian laws relating to foreign bribery. With the exception of reliance on records maintained in accordance with these laws in course of prosecutions under the PCA, historically these laws have not been used to prosecute domestic bribery. The focus on eliminating corruption in India and the introduction of stringent provisions relating to ‘fraud’, tax evasion and money laundering in recent years are indicative of a growing trend towards the use of financial offences to address corruption.

In our view, these provisions will become increasingly important facets of the Indian anti-corruption regime, and we expect regulators to place greater reliance on such provisions in the future. We have already seen a trend where external auditors are increasingly resorting to the provisions of the 2013 Act relating to ‘fraud’ to report instances where it has come to their attention that the books of a company incorrectly reflect certain payments (and are being used to cover up bribery or other illicit payments, such as commercial kickbacks).

Sanctions for accounting violations

What are the sanctions for violations of the accounting rules associated with the payment of bribes?

As previously described, the PCA and other laws relating to the payment of bribes do not themselves cast any accounting or bookkeeping obligations on companies. However, the statutes discussed below penalise violation of the accounting and disclosure requirements set out by them.

Companies Act, 2013

In terms of section 217(8) of the 2013 Act, the failure by officers of a company to produce the books or furnish any requisite information to the inspector despite being required to do so by a competent court or investigating authority is punishable by imprisonment for a term of six months or a fine, which may extend to 100,000 rupees or both, with an additional fine of 2,000 rupees for each day the violation continues.

Contravention of section 129 of the 2013 Act (relating to accuracy of financial statements), the managing director, the full-time director in charge of finance, the chief financial officer or any other person charged by the board with the duty of complying with the requirements of section 129 (and in the absence of any of the aforementioned officers, all directors) are liable for the same- the applicable penalty is imprisonment for a term that may extend to one year or with a fine that shall not be less than 50,000 rupees, but that may extend to 500,000 rupees or both.

Contravening section 134 of the 2013 Act (relating to the financial statements) is punishable with a fine on the company that shall not be less than 50,000 rupees but that may extend to 2.5 million rupees. Further, every officer of the company who is in default shall be punishable with imprisonment for a term that may extend to three years or with a fine that shall not be less than 50,000 rupees but that may extend to 500,000 rupees, or with both.

Under section 224 of the 2013 Act, if it appears to the central government that any person in relation to the company has been guilty of any offence for which he or she is criminally liable, the central government may prosecute such person. Contributions by a company to a political party in contravention of section 182 of the 2013 Act are punishable, in the case of the company, with a fine of up to five times the amount so contributed, and in the case of officers in default, with imprisonment for up to six months, as well as a fine of up to five times the amount so contributed.

Section 448 of the 2013 Act deals with penalties for making false statements. Under this section (read with section 447), where any person knowingly makes a materially false statement or knowingly omits a material fact from a return, report, certificate, balance sheet, prospectus, statement or other document required under the act, involving an amount of at least 1 million rupees or 1 per cent of the turnover of the company (whichever is lower), he or she shall be punishable with imprisonment for a term of not less than six months that may extend to 10 years, and shall also be liable to pay a fine that shall be not less than the amount involved in the fraud and may extend to three times the amount involved. However, where the fraud in question involves public interest, the term of imprisonment shall not be less than three years. If the amount involved is than above-mentioned threshold, and does not involve public interest, the punishment prescribed is imprisonment for a term that may extend to five years or a fine that may extend to 5 million rupees or both. This is not a compoundable offence.

Income Tax Act

Section 277 of the Income Tax Act states that any person who makes a statement in any verification under the Income Tax Act, or delivers an account or statement that is false, and that he or she either knows or believes to be false, or does not believe to be true, shall be penalised with ‘rigorous imprisonment’ for a term from six months to seven years and a fine, if the amount of tax that would have been evaded if the statement or account had been accepted as true, exceeds 100,000 rupees; and ‘rigorous imprisonment’ for a term of three months to three years and a fine, in any other case.

In terms of section 277A of the Income Tax Act, any person who with intent to enable any other person to evade any tax, makes or causes to be made a false entry or statement in any books of accounts or such other document, is liable to be punished with ‘rigorous imprisonment’ for a term of three months to three years and with a fine.

The Income Tax Act further provides in section 278B(2) that where an offence committed by a company and is proved to have been committed with the consent, connivance or neglect of any director, then such director shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

PMLA

In terms of section 4 of the PMLA, money laundering is punishable with ‘rigorous imprisonment’ for a term of three to seven years and a fine of up to 500,000 rupees.

Tax-deductibility of domestic or foreign bribes

Do your country’s tax laws prohibit the deductibility of domestic or foreign bribes?

In terms of Indian income tax laws, expenses incurred for any purpose that is an offence or that is prohibited by law are not considered incurred for the purpose of the business and are not tax deductible. Accordingly, payments for unlawful purposes such as protection money, extortion and bribes are not permitted to be tax-deductible expenditures.

Domestic bribery

Legal framework

Describe the individual elements of the law prohibiting bribery of a domestic public official.

Section 7 of the PCA provides that if a public servant (i) obtains or accepts or attempts to obtain from any person, an undue advantage, with the intention of, or as reward for, performing or cause performance of public duty improperly or dishonestly or forbearing or cause forbearance to perform such duty either by him or herself or by another public servant, or (ii) performs or induces another public servant to perform improperly or dishonestly a public duty or to forbear performance of such duty in anticipation of or in consequence of accepting an undue advantage from any person, then he or she would be punished with imprisonment for not less than three years but which may extend to seven years, along with a fine. The PCA also provides that it is immaterial whether the public servant obtains or accepts, or attempts to obtain the undue advantage directly or through a third party.

The term ‘undue advantage’ includes any gratification (other than legal remuneration) and is not limited to pecuniary gratifications or gratifications capable of estimation in monetary terms, and therefore includes non-pecuniary gratifications such as gifts. Therefore, strictly speaking, the term can cover an insignificant amount paid to influence the public servant, as long as it is not within the legal remuneration of the public servant. It has been laid down by the Supreme Court of India that the quantum of amount paid as gratification is immaterial and that conviction will ultimately depend upon the conduct of the delinquent public official and the proof established by the prosecution regarding the demand and acceptance of such illegal gratification (AB Bhaskara Rao v Inspector of Police, CBI, Visakhapatnam 2011 (4) KLT(SN) 35).

The PCA clarifies that, for the purposes of section 7, the obtaining, accepting or the attempting to obtain an undue advantage shall itself constitute an offence even if the performance of a public duty by public servant, is not or has not been improper. By way of illustration it has been stated in the PCA that if a public servant demands money to process a routine application on time, the same would be an offence under the section - therefore, the PCA includes even facilitation payments within its scope. Judicial precedents prior to the recent amendments have also held that ‘speed’ payments made to public servants to get lawful things done promptly are covered within the purview of section 7 of the PCA (Som Prakash v State of Delhi, AIR 1974 Supreme Court 989). Therefore, facilitation or ‘grease’ payments made to public servants would not pass muster under the PCA.

Section 7A criminalises the conduct of a person who accepts or obtains or attempts to obtain from another person for him or herself or for any other person any undue advantage as a motive or reward to induce a public servant, by corrupt or illegal means or by exercise of his or her personal influence, to perform or to cause performance of a public duty improperly or dishonestly or to forbear or to cause to forbear such public duty, and provides that such person shall be punishable with imprisonment for not less than three years but that may extend to seven years, as well as a fine.

Further, section 11 of the PCA deals with scenarios where a public servant accepts, obtains or attempts to obtain any undue advantage (without consideration, or for a consideration, which he or she knows to be inadequate), from any person whom he or she knows to have been, or to be, or to be likely to be concerned in any proceedings or business transacted or to be transacted by such public servant or having any connection with his or her official functions or public duty (or of any public servant to whom he or she is subordinate), or from any person whom he or she knows to be interested in or related to the person so concerned. Such an offence would be punishable with imprisonment for a term that shall not be less than six months but may extend to five years, along with a fine.

Section 20 of the PCA provides that if, in a trial of an offence punishable under section 7 or under section 11, it is proved that a public servant has accepted or obtained or attempted to obtain for him or herself, or for any other person, any undue advantage from any person, it shall be presumed (unless the contrary is proved), that he or she did so, in a case under section 7, as a motive or reward for performing or to cause performance of a public duty improperly or dishonestly, or, in a case under section 11, without consideration or for a consideration which he or she knows to be inadequate. This section therefore alters the normal rule of criminal law that the prosecution has to prove its case beyond reasonable doubt. The accused can shift the burden of proof to the prosecution by showing a preponderance of probability in his or her favour.

In addition, section 13 of the PCA criminalises the dishonest or fraudulent misappropriation of, or conversion for his or her own use of, any property in the possession of the public servant or any illicit enrichment by the public servant. Where the public servant (or any person on his or her behalf), is in possession of assets or pecuniary resources disproportionate to his or her known sources of income, which he or she cannot satisfactorily account for, the public servant is presumed to have intentionally enriched him or herself illicitly. Section 14 of the PCA also provides for more stringent measures against habitual offenders, and provides that a repeat offender would be punishable with imprisonment for a term not less than five years but which may extend to 10 years as well as a fine.

Further, under section 8 of the PCA, a person is liable for giving, or promising to give, any ‘undue advantage’ to another person (directly or through a third party) with the intention to induce any public servant to (or reward any public servant for), improperly performing any public duty, and is punishable with imprisonment for a term that may extend to seven years, or with a fine, or with both. Sections 9 and 10 of the PCA address the liability of a commercial organisation (which include foreign entities conducting business in India) and its officers for provision of bribes.

Section 12 of the PCA provides that a person who abets any offence punishable under the PCA, would be punishable with imprisonment for a term not less than three years, but that may extend to seven years as well as a fine. Sections 107 to 116 of the IPC provide what constitutes the offence of abetment, the key element of which is described as being ‘instigation’. While on the one hand the law requires an element of mens rea, and the mere association of a person with an accused, in the absence of any further material or instigation, is normally not sufficient to continue abetment, an omission can qualify as an abetment if the omission itself is considered illegal. It is also significant that abetment of an abetment is also an offence under section 108 of the IPC.

Scope of prohibitions

Does the law prohibit both the paying and receiving of a bribe?

Both the payment and receiving of bribes are prohibited by law - sections 7, 7A, 11 and 13 address receipt of bribes, whereas sections 8 and 9 address payment of bribers.

Definition of a domestic public official

How does your law define a domestic public official, and does that definition include employees of state-owned or state-controlled companies?

Presently, there are no laws in India that deal with the concept of bribing a foreign public official. Therefore, the definition of ‘public servant’ under the PCA covers only a domestic public official. The PCA provides a wide definition of ‘public servant’, which includes persons in the service or pay of a corporation established by or under a central, provincial or state act, or an authority or a body owned, controlled or aided by the government or a government company. Government company here means any company in which at least 51 per cent of the paid-up share capital is held by the central government or any state governments (or both), as well as the subsidiaries of such a company.

In terms of the above definition, an employee of a company that is controlled by the central or state government, or 51 per cent of whose shares are held by the central or state governments, would be a public servant and his or her actions would fall within the purview of the PCA. The Supreme Court of India has also recently held that employees of banks would also be considered ‘public servants’ under the PCA (including employees of private banks).

The above inclusive definition of ‘public servant’ should be seen in the context of the role played by government-owned companies, commonly known as public sector units (PSUs) in the Indian economy. Until India adopted progressive privatisation as a policy in 1991, several key sectors of its economy were dominated or monopolised by PSUs. Various decisions were taken at the PSU level rather than by the government. The prevention of corruption among PSUs and their employees was, therefore, a critical concern.

Gifts, travel and entertainment

Describe any restrictions on providing domestic officials with gifts, travel expenses, meals or entertainment. Do the restrictions apply to both the providing and the receiving of such benefits?

As already described, the provisions of the PCA and the Service Rules specifically prohibit the provision and receipt of non-pecuniary benefits, including gifts, free transport, boarding and hospitality from persons other than close relatives or personal friends and in connection with the official duties of the public servant.

In this regard it is interesting to note that the Service Rules make an exception for the receipt by officials of ‘casual meals’; however, the PCA does not provide for such an exception. Accordingly, in a prosecution for giving a bribe under the PCA (by providing such benefits to a public servant), courts would apply an intention or mens rea test and the monetary worth of the benefit provided, even if insignificant, would not weigh in favour of the alleged abettor.

Further, companies typically have internal policies governing offering of gifts and non-pecuniary benefits to public servants.

Facilitating payments

Have the domestic bribery laws been enforced with respect to facilitating or ‘grease’ payments?

Payments made to get even lawful things done promptly are covered by section 7 of the PCA - this has also been clarified by a recently inserted illustration in the statute, which states that if a public servant demands money to process a routine application on time, the same would be an offence under section 7. This is also clear from judicial precedents - for example, in SomPrakash v State of Delhi, AIR 1974 Supreme Court 98 9, the Supreme Court of India has held:

. . . we have little hesitation in taking the view that ‘speed money’ is the key to getting lawful things done in good time and ‘operation signature’ be it on a gate pass or a proforma, can delay the movement of goods, the economics whereof induces investment inbribery.

The court further stated that:

[if] speed payments [are allowed] delay will deliberately be caused in order to invite payment of a bribe to accelerate it again.

Thus, ‘facilitation payments’ fall foul of the PCA.

Public official participation in commercial activities

What are the restrictions on a domestic public official participating in commercial activities while in office?

Participation by public servants in commercial activities while in service is regulated by the terms of the Service Rules applicable to them. For instance, in the case of officials of the central government bound by the Central Civil Services (Conduct) Rules 1964 and the All India Services (Conduct) Rules 1968, there is an express prohibition on public servants from:

  • engaging in any trade, business or other employment;
  • holding an elective office, canvassing for a candidate for an elective office or in support of any business;
  • participating, except in discharge of his or her official duties, in the registration, promotion or management of any bank, company or cooperative society for commercial purposes; and
  • participating in any sponsored private media programme.

Prior approval of the central government is required for undertaking any such activity. These Service Rules do, however, carve out limited exceptions with respect to participation in honorary social or charitable work, work of literary, artistic or scientific character, amateur sports or in the formation of associations for these purposes. These Service Rules also prohibit speculation by public servants in any stock, share or other investments. This prohibition does not extend to occasional investments in securities made through registered brokers in accordance with applicable laws.

Section 168 of the IPC makes it a criminal offence for a public servant to engage in any kind of trade, business, profession or occupation if he or she is prohibited from doing so by virtue of being a public servant.

Payments through intermediaries or third parties

In what circumstances do the laws prohibit payments through intermediaries or third parties to domestic public officials?

Section7A of the PCA covers: (1)any influence peddlers or intermediaries who, in exchange for any undue advantage, induce a public servant, by corrupt or illegal means or by exercise of personal influence, to cause the improper or dishonest performance of public duty; and (2)any bribe-givers who provide or promise to provide, or any persons who abet the provision of, any undue advantage to any other person (irrespective of whether such person is a public servant or not) with the intention to induce or reward a public servant to improperly or dishonestly perform public duty. Therefore, the PCA targets the conduct of ‘middlemen’, influence peddlers or intermediaries who facilitate bribery, by criminalising the act of taking any undue advantage to cause the improper or dishonest performance of public duty. Such influence peddlars may also be charged with abetment and ‘criminal conspiracy’ to commit offences under the PCA.

Individual and corporate liability

Can both individuals and companies be held liable for violating the domestic bribery rules?

The PCA recognises the principle of corporate criminal liability. Recent legislative changes to the PCA in 2018 have included provisions that expressly state that in case an offence is committed by a commercial organisation, such commercial organisation shall be liable to a fine if any person ‘associated with the commercial organisation’ provides any illegal gratification intended at obtaining or retaining business or advantage in the conduct of business, for such commercial organisation. A person is considered to be associated with a commercial organisation if such person provides services on behalf of such commercial organisation. This is a question of fact, and not just the relationship between the person and the organisation - and such person could be acting as an employee, agent or subsidiary of such commercial organisation. Hence, an employee of the commercial organisation is deemed to have performed services for such commercial organisation.

Even prior to such amendment, the principle of corporate criminal liability was recognised in India, and corporations can be held liable for criminal offences under Indian law. The Supreme Court of India in CBI v Blue Sky Tie-Up Private Limited and in Standard Chartered v Directorate of Enforcement, held that a corporation can be prosecuted for an offence under the PCA and, while the company cannot be imprisoned, it can be fined and convicted of an offence under the PCA.

As regards liability of senior management or directors for offences committed by a company, the 2018 amendment to the PCA has, under section 10, clarified that when an offence has been proved in court to have been committed by a commercial organisation with the consent or connivance of a director, manager, secretary or any other officer of such commercial organisation, such persons shall be liable to be proceeded against and be punished with imprisonment and fine if found guilty. The maximum term of imprisonment provided is seven years. Recent legislative changes to the PCA have now incorporated vicarious criminal liability. Such provisions state that in case any offence is committed by a commercial organisation, the directors, managers, secretaries and any other officers with whose consent and connivance the offence has been proved to have been committed, shall be liable to penalties.

Additionally, the PCA now includes an ‘adequate procedures’ defence for commercial organisations - commercial organisations that can demonstrate that they had in place adequate procedures in compliance of guidelines prescribed under PCA, would not be subject to prosecution under section 9. However, the government has not yet issued guidelines regarding the compliance measures required to be undertaken to take the benefit of this defence.

Private commercial bribery

To what extent does your country’s domestic anti-bribery law also prohibit private commercial bribery?

In India, there is no specific law that covers ‘private commercial bribery’. Laws such as the PCA are only confined to bribery by ‘public servants’. However, as stated above, companies typically prohibit such bribes through internal codes of conduct. Additionally, private commercial bribery may constitute fraud under the 2013 ACt, and if such payments are concealed as legitimate expenses, this may result in contravention of provisions relating to maintenance of books and records. Question 19 lays down details of issues with inaccurate financial reporting.

Defences

What defences and exemptions are available to those accused of domestic bribery violations?

The true test of whether a person should be prosecuted under any anti-bribery legislation is whether the mens rea (criminal intent) to commit an act of corruption or violate any anti-bribery law existed as on the date of such payment. This is further evidenced by the conduct of the delinquent public official and the proof established by the prosecution regarding the acceptance of such illegal gratification.

Therefore, every situation will need to be analysed on a case-by- case basis depending upon the relevant facts existing as on the date of any payment. As a best practice, legal advice may be obtained each time any entity intends to provide any gratification of whatsoever nature to a government official.

Having said that, certain anti-bribery legislations in India include statutory defences that may be available to the accused, such as the following.

Reasonable and bona fide business expenses

The Service Rules and the FCRA provide exemptions for reasonable and bona fide business expenses by stipulating monetary thresholds that operate as value based de minimis amounts. However, the PCA does not prescribe any exemptions or defences for reasonable or bona fide business expenses or value-based de minimis amounts. Accordingly, the thresholds specified under the Service Rules and the FCRA can, at best, be viewed as guidelines, on the assumption that there is no intent to violate the PCA. If a casual meal or casual gift is provided with the intent to influence a public servant, this will attract prosecution and penalties under the PCA, even if the value of the meal or gift is below the thresholds specified under the Service Rules or the FCRA. Similarly, the substantive restrictions and penalties under FCRA also continue to apply in parallel with the Service Rules and since the object of the FCRA is different, the amounts prescribed under the Service Rules will not operate as an exception to the FCRA.

The Supreme Court of India in AB Bhaskara Rao v Inspector of Police, CBI, Visakhapatnam, AIR 2011 SC 3845 held that the quantum paid as gratification is immaterial and that conviction will ultimately depend upon the conduct of the delinquent public official and proof established by the prosecution regarding the acceptance of such illegal gratification.

Adequate procedures defence

Recent amendments to the PCA have introduced a proviso to sub-section(1) of section9 of the PCA stating that in the event an offence under the PCA is alleged to have been committed by a commercial organisation, a valid defence is available to the commercial organisation to prove that it had in place adequate procedures, in compliance of guidelines prescribed under the PCA, to prevent persons associated with the commercial organisation from undertaking any conduct that results in the commercial organisation providing or promising to provide any undue advantage to a public servant. The federal government is yet to prescribe such guidelines as regards adequate procedures required to be put in place by a commercial organisation.

Person compelled to give undue advantage

Recent amendments to the PCA have introduced provisos to sub-section(1) of section8 of the PCA stating that any person providing a bribe or any undue advantage to a public servant shall not be prosecuted under the PCA in case such person: (1)has been compelled to give such undue advantage; and (2)reports the incident to the law enforcement authority or investigating agency within a period of seven days from the date of providing the undue advantage. Further, sub-section(2) of section8 of the PCA states that such person, upon informing a law enforcement authority or investigating agency, may provide or promise to provide any undue advantage to assist the law enforcement authority or investigating agency in its investigation against the alleged recipient of the undue advantage.

Agency enforcement

What government agencies enforce the domestic bribery laws and regulations?

The following government agencies enforce the domestic bribery laws in India.

The CVC acts as the nodal statutory body that overlooks investigation of corruption under the PCA and the IPC. The role of the CVC is to supervise any corruption proceedings in relations to departments of the central government, government companies and state-owned corporations, local government bodies and among public servants. These cases can be referred to either the CBI or the relevant government department by the CVC.

The CBI and the state anti-corruption bureaus also have the power to investigate corruption under the PCA and the IPC. The CBI exercises its jurisdiction over employees of central government, union territories and undertakings owned by the central government, while corruption cases within the states are investigated upon by the state anti-corruption bureaus.

The MCA set up the SFIO to investigate affairs of companies as specified by central government. The SFIO exercises its jurisdiction:

  • upon receipt of an application from the competent regulatory authority or government department;
  • at the request of the concerned company; or
  • in cases of public interest on a suo moto basis (ie, of its own accord).

The Lokpal, which comprises a chairperson and up to eight members, is a nodal ombudsman authority that 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.

The Lokpal also has the power of superintendence over the CBI, if it refers a case to the CBI. Justice Pinaki Chandra Ghose, along with other retired and sitting chief justices of various high courts, has been appointed to the Lokpal office.

Lokayuktas are the counterparts of the Lokpal at the state-level and their appointment, powers and functions are governed by state-specific legislation. Typically, Lokayuktas have the power to investigation and prosecute allegations of corruption against the state council of ministers, secretaries and public servants appointed in relation to the affairs of the state or any sub-division thereof, members of local municipal authorities and officers in the service of any undertaking owned by the state.

The Ministry of Finance has established the Enforcement Directorate to investigate and prosecute cases relating to the PMLA 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 Benami Transactions (Prohibition) Act1988 by virtue of which it can attach and confiscate Benami properties.

Patterns in enforcement

Describe any recent shifts in the patterns of enforcement of the domestic bribery rules.

Several instances of large-scale corruption have resulted in a stark change in the approach towards enforcement of anti-corruption laws. In an attempt to bolster and cure India’s perceived weakness in its anti-corruption machinery, in March 2019, the government appointed the first Lokpal under the Lokpal and Lokayuktas Act 2013.

Further, alarmed by the increasing number of financial defaulters absconding the jurisdiction of domestic law enforcement agencies to avoid prosecution, the government enacted the Fugitive Economic Offenders Act 2018 and in early 2019, the former chairman of United Spirits Limited was declared as India’s first Fugitive Economic Offender under the new law, thus enabling the government agencies to confiscate his properties in the 90 billion rupee loan default case. The Indian government has also increased its efforts to extradite such defaulters by charging them under provisions of the PCA, PMLA and the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act 2015.

In an effort to bridge the information asymmetry in the loan market and attempt to shield the credit environment from further shocks, the RBI has begun work in setting up a digital Public Credit Registry. This registry shall act as a central repository drawing real-time information from the SEBI, the Corporate Affairs Ministry, the Goods and Services Tax Network and the Insolvency and Bankruptcy Board of India. The registry aims to allow banks and financial institutes to have a complete view of the financial profiles of existing and prospective borrowers.

Another growing trend is that enforcement agencies have become more sophisticated in unravelling complex corporate or financial structures, and have increased their reliance on technological tools. Importantly, the government agencies have also shown a willingness to take the assistance of specialists such as private forensic auditors or investigators to help them in this endeavour, and provide expertise that they may lack themselves. Internal investigations or forensic audits are a fairly new trend. However, the same has been undertaken by various companies and regulatory bodies. The Supreme Court in August 2019 had directed that a forensic audit report be given to the Enforcement Directorate, the Delhi Police and the Institute of Chartered Accountants in India for taking appropriate action against Amrapali directors and auditors for siphoning off over 30 billion rupees of homebuyers’ money. The CBI also relied upon a forensic audit report commissioned by the bankers of, and filed a FIR against, Ratul Puri and other directors of Moser Baer India Limited in connection with a bank fraud case. Recently, Infosys Limited, a leading information technology company received a whistle-blower complaint alleging matters such as bidding for contracts with low or nil margin and over-recognising revenues. Infosys, in its filing with the exchanges, mentioned that its internal auditor and a law firm would conduct an independent investigative probe.

Indian enforcement agencies have also strengthened their relationships with agencies from other jurisdictions, and we have witnessed far more cooperation and coordination in cross-border enforcement efforts.

While the legislation protecting whistle-blowers is currently pending before the Indian parliament, the SEBI has, meanwhile, offered a monetary reward to whistle-blowers up to a maximum amount of 10 million rupees for cases where the whistle-blower’s information leads to a disgorgement of at least 10 million rupees.

It is interesting to note that as regards the PMLA, the offence of fraud under section447 of the 2013 Act has been recently introduced as a scheduled offence on 18 April12018. Pursuant to article20 of the Constitution of India, any finding of fraud prior to such period should not trigger the provisions of the PMLA since article20 of the Constitution of India expressly states that no person shall be convicted of any offence except for violation of the law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence. However, this principle in relation to PMLA proceedings is in the process of being tested at Supreme Court level. While the High Court of Karnataka has upheld this principle in light of article20 of the Constitution of India in Directorate of Enforcement v Obulapuram Mining Company Private Limited, the order passed by the High Court of Karnataka has been appealed before the Supreme Court, which has passed an interim order stating that the high court’s order will not operate as a precedent, pending the conclusion of proceedings before the Supreme Court.

Prosecution of foreign companies

In what circumstances can foreign companies be prosecuted for domestic bribery?

The definition for a ‘commercial organisation’ in the PCA includes any body or partnership that is incorporated outside India and that carries on a business, or part of a business, in any part of India. In this regard, offences committed by foreign companies are treated on par with offences committed by Indian companies, as discussed in detail in question 31.

Sanctions

What are the sanctions for individuals and companies that violate the domestic bribery rules?

Sanctions for individuals in relation to violation of the PCA are discussed in question 24. Sanctions applicable to companies are discussed in question31.

Recent decisions and investigations

Identify and summarise recent landmark decisions and investigations involving domestic bribery laws, including any investigations or decisions involving foreign companies.

Recently, P Chidambaram, who is the erstwhile Finance Minister of India, was arrested in connection with the INX media scam, where Chidambaram was accused of corruption and money laundering. The Supreme Court has recently released him on bail citing aspects such as fragile health during incarceration, him being already held as not a ‘flight risk’, the possibility of tampering with evidence or influencing witnesses being ruled out and the duration of his custody. The Supreme Court also stated that the gravity of an offence can be a factor for denying bail, and stating that even economic offences would fall under the category of ‘grave offences’ and in such circumstances the application for bail should be considered keeping in mind the nature of allegation made against the accused. The Supreme Court also remarked that even if the allegation is one of grave economic offence, it is not a rule that bail should be denied in every case since there is no such bar created under law nor under bail jurisprudence established by the courts in India.

The Enforcement Directorate (ED) has also been actively involved in prosecuting HDIL and its promoters, Rakesh Wadhawan and Sarang Wadhawan for an alleged fraud to the tune of 4,355 billion rupees availed from Punjab and Maharashtra Co-operative Bank. As at October2019, the ED had arrested the promoters and senior management of Punjab and Maharashtra Co-operative Bank for allegedly perpetrating the fraud. The ED has also attached properties amounting to 38 billion rupees, which include cars, bungalows and jewellery, and also identified 50 new properties suspecting that such properties have been purchased from proceeds from crime. The ED has also arrested Ratul Puri and filed a charge sheet against him and Moser Baer India Limited, alleging that two group companies of Moser Baer were accused of money laundering by diverting funds amounting to 355 billion rupees, being loan amounts availed from Central Bank of India and the subject matter of fraud being committed against the Central Bank of India.

The Ministry of Corporate Affairs has been the front runner in prosecuting the directors, management and the statutory auditors of Infrastructure Leasing and Financial Services in relation to an alleged fraud amounting to the tune of approximately 91 billion rupees. The assets and bank accounts of the accused management had been frozen pending the investigation by the SFIO and pursuant to an interim report submitted by the SFIO, proceedings for fraud under section447 of the 2013 Acthave been initiated by the MCA before a special court in Mumbai. Further, the MCA has also moved the National Company Law Tribunal to ban the statutory auditors, Deloitte Haskins and Sells and KPMG, under section 140(5) of the 2013 Act.

Based on publicly available information, as of 1 July 2019, as many as 79 investigations in which 594 companies were involved were assigned to the SFIO in the previous three years. These include proceedings against the lenders and promoters of Bhushan Steel, where the agency submitted a 70,000-page report to a special court in Dwarka, Delhi alleging that the senior officials of 13 banks were hand-in-glove with the promoters to perpetrate a bank fraud committed by the promoters against the relevant banks.

The SEBI had banned Pricewaterhouse Coopers in India from auditing the books of accounts of any company whose securities are listed on any recognised stock exchange in India, pursuant to its alleged involvement in the fraud committed by the management of Satyam Computer Services Limited. Pursuant to an appeal before the Securities Appellate Tribunal (SAT), the SAT revoked the ban passed by the SEBI, stating that the ban on auditing was punitive in nature, violative of the principles under article19 of the Constitution of India and beyond the scope of the powers granted to SEBI. The order has now been further appealed to the Supreme Court, which has stayed the SAT’s orders pending proceedings.

Update and trends

Key developments of the past year

Please highlight any recent significant events or trends related to your national anti-corruption laws.

Key developments of the past year39 Please highlight any recent significant events or trends related to your national anti-corruption laws.

The key recent developments that related to Indian anti-corruption laws are as follows:

  • appointment of the first Lokpal in March2019;
  • recent amendments to the PMLA, which expand the definition of proceeds of crime, remove the requirement to file an FIR for a scheduled offence as a prerequisite for the ED to initiate proceedings under the PMLA and declare all offences under the PMLA as cognisable and non-bailable;
  • the former chairman of United Spirits Limited being declared as India’s first Fugitive Economic Offender under the Fugitive Economic Offenders Act 2018;
  • recent forensic investigation activity in relation to the affairs of the Amrapali directors, Moser Baer India Limited and Infosys Limited, based on alleged fraud and mismanagement in the affairs of the relevant entities;
  • the SEBI’s initiative to reward whistle-blowers for cases involving companies whose securities are listed on stock exchanges in India;
  • initiation of proceedings before the Supreme Court, which will ultimately decide the retroactive applicability of the PMLA to cases of fraud under section447 of the 2013 Act that have occurred prior to April2018;
  • the ED’s prosecution against PChidambram, HDIL and its promoters and Moser Baer India Limited and Ratul Puri, for allegations of money-laundering;
  • the prosecution by the Ministry of Corporate Affairs against the directors, management and the statutory auditors of Infrastructure Leasing and Financial Services;
  • proceedings before the Supreme Court of India in relation to the ban imposed by the SEBI against Pricewaterhouse Coopers for its alleged involvement in the fraud committed by the management of Satyam Computer Services Limited; and
  • proceedings initiated by the SFIO against the lenders and the promoters of Bhushan Steel alleging that the senior officials of 13 banks were involved in the bank fraud committed by the promoters against the relevant banks.