India - Thought Paper On Extension Of Anti-corruption Laws To Commercial Establishments.

The Prevention of Corruption Act, 1988 (“Act”), as amended by the Prevention of Corruption (Amendment) Act, 2018 (“Amendment Act”), has come into effect from 26 July 2018 which has made several crucial amendments. The purpose of the present note is to highlight the key takeaways and underline the issues that need to be flagged post this amendment from the stand point of a foreign / multi-national company. Some of the key takeaways are as follows:

  • The act of giving a bribe has, for the first time, been recognised as a distinct and stand-alone offence;

  • Specific provisions making companies (including foreign companies), firms and associations of persons culpable for bribe-giving.

More elaborately, some of the key changes brought about by the Amendment Act are discussed below. Meaning of 'commercial organisations' Sections 8, 9 and 10 of the Act specifically bring 'commercial organisation' within the ambit of the Indian anti-corruption law. Section 9(3)(a) defines “commercial organisation” under two broad heads, i.e. incorporated bodies and partnerships or associations of persons, as stipulated below: a)  Bodies, whether incorporated in India or outside, which are carrying on their business or any part of their business in India are included under the definition. Pertinently, a body which is incorporated in India but is only operating abroad, is also included within the definition b)  Partnership firms or association of persons, whether formed inside India or outside, are also included within the definition, if they are carrying on any part of their business in India. However, analogous to the provision pertaining to incorporated bodies, partnerships and associations formed in India are also included within the definition if they are only operating abroad. c)  Therefore, the definition only excludes from within its ambit, companies and partnerships which are not incorporated in India or formed in India and are not operating in India.  The act of giving a bribe has been made a culpable offence: Section 8 of the Act has, for the first time, defined bribe giving as a separate offence. a)  Culpability: Culpability for this offence can ensue either (a) from promising a bribe to a public servant; or (b) actual payment of a bribe to the public servant to improperly perform a public duty; or (c) from a payment made after the improper performance of a public duty. Bribe or 'undue advantage' as defined under section 2(d) of the Act is not limited to pecuniary gratification. Bribe paid or received through a third party is immaterial and will make the bribe giver culpable under this provision. b)  Defence of coercion: A person who is compelled to give a bribe is not culpable under the section if such a person reports the matter to the law enforcement authority c)  Protection of whistle-blowers: Persons who offer the bribe to assist law enforcement after informing the enforcement agency are protected under the provision. d)  Punishment: Imprisonment for a term which may extend to 7 years or a fine or both. However, commercial organisations will be punishable solely with a fine. Culpability of 'commercial organisations' Section 9 of the Act makes payment of bribes by 'commercial organisations' a separate offence. It is important to note that under this section, a 'commercial organisation' is culpable for the acts of persons associated with it. a)  Offence: The promise to give or giving of any 'undue advantage' to a public servant by any person associated with a commercial organisation with a view to obtain or retain business or an advantage in the conduct of business. b)  Third parties: Third parties performing any service for or on behalf of commercial organisations have also been included within the purview of the provision and actions of such third parties can also constitute an offence under this provision. c)  Presumption in case of employees: Employees are presumed to be acting on behalf of the commercial organisation unless the contrary is proved. d)  Defence: Having in place, firstly, guidelines to prevent persons associated with it from giving bribe and, second, adequate procedures in compliance of such guidelines is a defence to this offence. Moreover, the provision further provides that the Central Government should formulate such guidelines after consultation with all concerned stakeholders and departments which can be put in place by 'commercial organisations'. e)  Punishment: This offence is punishable with fine only. Person in-charge of a commercial organisation is culpable for commission of an offence under Section 9: Under section 10, personal culpability has been fixed on an officer of a 'commercial organisation' like director, partner, manager, secretary or other officer for commission of an offence under section 9 on grounds of connivance or consent. Unlike section 8, section 10 prescribes a punishment consisting of a mandatory prison term of 3 years which can be extended to 6 years and a fine. Liability of Directors of a company: a) In Sunil Bharti Mittal v CBI reported in (2015) 4 SCC 609, the Supreme Court has restated the circumstances under which officers of a company can be held vicariously liable under criminal law. As clarified by the Court, criminal liability is not attributed vicariously to the officers of a company unless the statute under which liability is sought to be imposed specifically attracts the principle i.e. provides for vicarious liability under its provisions. The second circumstance under which vicarious liability will be attracted under criminal law is in case of sufficient evidence regarding active role coupled with criminal intent against the person who is alleged to have perpetrated an offence on behalf of a company. In India, the statutes falling under the first category include inter alia the Negotiable Instruments Act, 1881; Essential Commodities Act, 1955; and the Employees' Provident Funds and Miscellaneous Provisions Act, 1952  b)  To the extent section 10 of the Act imposes criminal liability on the officers of a company based on their consent as opposed to active participation, it has expanded the ambit of the principles for holding such officers culpable under criminal law. Instances of acquiescence or negligent oversight can today constitute the basis of allegations under section 10. However, keeping in mind the trend of judicial interpretation in this area, it can be asserted that the courts are likely to interpret consent under section 10 strictly and to mean approval pursuant to application of mind. c)  Today, imprisonment of directors and other officers of a company is a real concern in India due to the significant enhancement of the regime for criminal liability by the amendments to the Act. The amendments to the Act have also paved the way for domestic sanctions within India in case of prosecutions under the Foreign Corrupt Practices Act, 1977 (“FCPA”). As the FCPA prohibits payment of bribes to foreign officials anywhere in the world and also applies to foreign firms which cause any act in furtherance of a corrupt payment to take place within the territory of the United States, the evidence for prosecutions under the FCPA can trigger investigations under the Act against Indian or foreign companies and firms.  For further information, please contact:   Souvik Ganguly, Partner, Acuity Law

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