Since the beginning of 2022, India Inc has seen the unfolding of several high-profile corporate scams and scandals. In January 2022, the Supreme Court ruled on the Devas Multimedia-Antrix deal and called it a “fraud”. February saw the AGB Shipyard scam, which can easily be regarded as India’s biggest bank fraud. In the same month, the Central Bureau of Investigation revived its probe on NSE’s co-location scam after SEBI issued its order implicating the former NSE CEO, Ms Chitra Ramakrishna. Further, the proceedings against Rana Kapoor, founder of Yes Bank, for his role in the DHFL scam are underway.
In India, the primary anti-graft legislation is the Prevention of Corruption Act, 1988. The PC Act was amended in 2018 to criminalise giving and accepting of bribes. Section 8 of the PC Act which deals with the offence of bribing a public servant, provides for punishment of up to seven years imprisonment or a fine or both.
However, when the offence is committed by a commercial organisation, it is punishable only with a fine under Section 9 of the PC Act, except if the offence has been committed with the consent or connivance of any director, manager, secretary or other officer of the commercial organisation, in which case all such people can be held guilty and can be punished with imprisonment and fine.
Accused persons can defend themselves by proving that they were compelled to provide the undue advantage only if they report the matter to the authorities within seven days.
Section 14 says that habitual offenders can be punished with imprisonment between five and ten years, along with a fine.
Bribes to foreign officials
Although the Act extends to the whole of India and to Indian citizens outside India, it has limited extraterritorial reach as it does not cover bribes made to foreign officials. In this context, India’s Institute of Company Secretaries has come out with the Corporate Anti-Bribery Code, 2017, which covers the bribery of foreign public officials, and can be voluntarily adopted by companies.
That said, the Act defines a commercial organisation to include a body corporate, partnership firm or any other association of persons, which is incorporated or formed outside India and carries on business in India. Given this, Section 9 read with Section 10 of the PC Act can lead to imposition of liability on the foreign directors, managers, secretaries and other officers of a commercial organisation.
For instance, in the Louis Berger International case, a bribe was paid to public officials in India to secure water projects in Goa and Guwahati. A PIL was filed before the Guwahati High Court (Bhaben Handique vs State of Assam) seeking an enquiry under the PC Act. The Guwahati High Court ordered the CBI to probe the matter. While the CBI has been investigating the matter since 2017, the Goa police have also filed a chargesheet against and arrested several persons, including the international vice president of Louis Berger. This case evidences the need for directors and officers of foreign entities to be mindful of the risk of proceedings under the Act despite its limited extraterritorial applicability.
In Cadbury Limited and Mondelez International, Cadbury India, a subsidiary of the global multinational, engaged an agent to interact with Indian government officials to obtain licences and approvals for a chocolate factory in India. However, the subsidiary did not accurately and fairly reflect the nature of the services rendered by the agent in its books and records. The CBI assisted the US Securities Exchange Commission in its investigation and also registered a case against Cadbury India under the Act. The charges were settled in 2017 between the entities and the SEC.
What companies must do
Navigating the breadth and contours of the various domestic and international anti-corruption legislations can be a challenging task, and any trip-up can have significant reputational and monetary consequences. To mitigate these risks, companies with or without international presence, must monitor their compliances on a global-level (even in relation to their procurement and sales).
The companies should adopt a comprehensive anti-bribery policy, which should, include provisions to ensure full compliance of the PC Act and other applicable anti-bribery legislations, deal with anonymous complaints made on a good faith basis, on petty cash disbursements, on contributions to bona fide charities, on adequate internal accounting control, and to deal with third party contractors.
Companies should set up a hotline to report any non-compliances. Further, they should undertake annual anti-bribery training programmes for their employees, contractors and other personnel; companies should undertake periodic audits and interviews of their senior management.
(The author is Partner and Head of the Disputes and White-Collar Practice, Majmudar & Partners)