India is often rated poorly in corruption perception indexes, particularly in relation to government dealings, with recent corruption and bribery scandals raising questions about India’s status as a leading developing economy. It is generally accepted that the principal reasons for the level of corruption and bribery in India include the lack of transparency in dealings with government entities, the slow paced judiciary and, significantly, a lack of any independent mechanism to investigate and try graft cases.

A newly formed political party recently surprised pundits by coming to power in the state of Delhi solely on an anti- corruption agenda.  Forced by this upsurge in public opinion, on January 1, 2014, India’s Parliament enacted the Lokpal and Lokayuktas Act, 20131 (the “Act”), which establishes an independent Lokpal (meaning “protector of the people” in Sanskrit) or anti-corruption ombudsman to investigate and try corrupt government officials at  the federal level. The Act also envisages appointment of Lokayuktas (meaning “appointed by the people” in Sanskrit) by the states for investigating and trying complaints of corruption at the state level.

For multinational firms operating in India, the passage of this new law will give rise to yet another local authority – in one of the largest markets in the world –  for the investigation and prosecution of corruption offenses, providing additional enforcement resources that also could lead to parallel proceedings in the United States, the United Kingdom, or other countries with trans-national anti-bribery regimes. Compliance personnel and in-house legal staff at companies doing or planning to do significant business in India therefore have an acute interest in this legislation, the main features of which are set out below.

Independence – Composition and Appointment of Members

The Lokpal will consist of up to eight members, half of whom shall be from the judiciary.2   The Lokpal cannot have members from Parliament, the Legislatures of any Indian state or union territory, or Indian local government bodies, or members with any connection to a political party.3  The chairperson either must be: (a) a present or former chief justice or judge of the Supreme Court of India, or (b) an eminent person of impeccable integrity having  special knowledge and expertise of not less than 25 years in matters relating to anti- corruption policy, public administration, vigilance, finance including insurance,

banking, law, and management.   The other judicial members can be present or former judges of the Supreme Court of India or chief justices of the various High Courts.5

The chairperson and members of the Lokpal will be appointed by the President of India on the recommendation of a selection committee consisting of the Prime Minister, the Speaker of the lower house of Parliament, the Leader of the Opposition in the lower house, the Chief Justice of India, and an eminent jurist.6   Such a diversely constituted appointment panel seeks to ensure that there is no favoritism, bias, or undue influence by the government. However, there is already controversy over the selection of the eminent jurist to the Lokpal, with disagreement over the right candidate between the Prime Minister and the Leader of the Opposition.

Until now, the general practice has been for the courts or the government to refer complaints/matters of corruption  to investigative agencies like the Central Bureau of Investigation, which were under the direct control of the government.  As a result of the Lokpal’s independence, it is expected that the government will have limited ability to influence or interfere in its investigations.

Jurisdiction

The Lokpal has been given extremely broad jurisdiction, including over allegations of corruption against the Prime Minister.  In particular, the Lokpal has the authority to investigate ministers of the state and central governments, current and former members of Parliament, and various officials of the government, as well as any employee or board member of any company, society, or trust established by an act of Parliament or wholly or partly financed by the central government.7   This brings all officers and directors of state owned enterprises under the Lokpal’s jurisdiction.

Preliminary Inquiry

Upon receipt of a complaint, the Lokpal has the discretion to have its inquiry wing conduct a preliminary inquiry or to refer the matter to a police agency to ascertain whether there is any prima facie case for proceeding in the matter.8

Speedy Investigations

The inquiry wing of the Lokpal or any other agency that the Lokpal asks to investigate a matter shall submit its report relating to the preliminary inquiry within 60 days,   but in no event later than 90 days.10   On the basis of this report, if the Lokpal decides to investigate further, it shall direct any agency to carry out additional investigation and submit another report within six months from the date of that order.11

Prosecution

Upon examining the preliminary investigation report, the Lokpal has the power to grant approval to initiate

prosecution against the alleged wrongdoer or to direct closure of the proceedings, as appropriate.12

Powers

The Lokpal has other wide ranging powers, including: supervision of certain investigating agencies;13 the authority to order search and seizures;14 powers akin to a civil court, such as issuing summons, discovery and production of documents, requisitioning public records, etc.;15  the power to provisionally attach assets for a maximum of 90 days;16  and the authority to recommend the transfer or suspension of a public servant in connection with alleged corruption.17

Special Courts

Special courts are to be set up to try cases under the Act.  These courts are required to ensure completion of trial within a period of one year from the date of filing the case.18 This is seen as a major step in expediting the process as going through the regular court system is often time consuming.

“The Lokpal has been given extremely broad jurisdiction, including over allegations of corruption against the Prime Minister.”

Punishment

Violations of the Act could invite imprisonment of up to seven years, which could increase to up to 10 years for criminal misconduct and habitually abetting corruption.

Penalty for False Complaints

Frivolous and false complaints may be punished criminally with imprisonment of up to one year and a fine of up to INR 100,000 (approximately US$ 1,700). Additionally, the public servant who has been targeted by such wrongful complaints may be entitled to receive compensation.19

Establishment of Lokyuktas

The Act mandates Indian states to set up Lokayuktas within a period of one year to deal with complaints of corruption against state officials.20   Although the Act broadly envisages the Lokpal at the federal level and the Lokayuktas at the state level, there potentially could be overlap or even conflict in practice, unless more detailed rules ultimately are framed.

Implications and Related Efforts to Fight Graft

While the Lokpal is a revolutionary step to bring greater accountability and transparency in government dealings in India, some have raised concerns that the Lokpal’s considerable authority could be used to harass honest government officials. Also, the precise interplay between the Act and other anti-graft laws in India like the Prevention of Corruption Act, 1988 (the “PCA”) remain to be seen.  It is vital that the government adopts relevant regulations and rules so that there is synchronization and synergy in the enforcement of relevant Indian laws.  Further, given political sensitivities around this Act, and the strong views of political parties regarding the measure, it remains to be seen how effectively the Act will be implemented and enforced.

It is also noteworthy that, in order to complete the anti-graft reform process, a bill was introduced in the upper house of Parliament in August 2013 to amend the PCA, India’s main anti-graft law.  This still-pending bill seeks to bring the PCA in line with other international anti-bribery legislation, including the UK Bribery Act.

Additionally, Parliament recently has cleared the Whistle Blowers Protection Bill, 2011, a law that seeks to offer protection to anyone who exposes corruption or willful misuse of discretion causing demonstrable loss to the government or commission of a criminal offense by a public servant.  The bill now awaits presidential assent and may turn  out to be an effective tool in India’s fight against corruption.