By Akshita Alok
In February 2018, the Corruption Perception Index 2017 rankings were revealed, which ranked India at #81 amongst a group of hundred and eighty countries. This ranking in the year 2016 was at #79 for India, albeit the scores in both the years were roughly the same. India was also identified as one of the “worst offenders” in the Asia-Pacific region by these rankings. This index appropriately highlights that bribery and corruption continue to be an increasing focus of the state organisations around the world. While, for the most part, India has remained woefully behind in enforcing anti-corruption laws by largely keeping its watch-dog agencies toothless in terms of powers of prosecution, the country is now working with the stakeholders to create an even-playing field for companies as it competes for more investment and business from across the globe. India is catching up to the pace of other countries at last, and in line with its objective of curbing corruption and bribery, new laws are being passed and enforcement is increasing.
The most significant recent change in this regard has been the Prevention of Corruption (Amendment) Act, 2018 (“Amendment Act”), which was brought into effect from July 26, 2018 with its publication in the official gazette. Five years into the pipeline, this Amendment Act was introduced as the Prevention of Corruption (Amendment) Bill, 2013 (“Bill”) in the Rajya Sabha in August 2013. Thereafter, the Bill was considered by the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice, in its 69th Report and the Law Commission of India in its 254th Report and was also examined by the Select Committee of Rajya Sabha, which submitted its report on the Bill to the Rajya Sabha in August 2016. These recommendations were considered by the Central Government and official amendments were made to the Bill. The Bill was then passed by the Rajya Sabha and Lok Sabha in July 2018. These amendments to the Prevention of Corruption Act, 1988 (“POCA”) demonstrate India’s commitment to the UN Convention Against Corruption, 2005 (“UNCAC”) which India ratified in 2011.
We provide here an outline of the key provisions of the Amendment Act, which will affect all corporations doing business in India.
I. Definition of Commercial Organisation
The definition of a “commercial organisation” includes “(i) a body which is incorporated in India and which carries on a business, whether in India or outside India; (ii) any other body which is incorporated outside India and which carries on a business, or part of a business, in any part of India; (iii) a partnership firm or any association of persons formed in India and which carries on a business whether in India or outside India; or (iv) any other partnership or association of persons which is formed outside India and which carries on a business, or part of a business, in any part of India.” The term “business” includes a trade or profession or providing service.
Multinational companies whether incorporated in India or outside, carrying on business in India, are now under the purview of the POCA and can be punished with fine if any person on their behalf indulges in perpetrating any act of corruption. The offences also apply to partnership firms in India or abroad, carrying on business in India.
II. Recognising offences relating to bribing a public servant by commercial organisation
Section 9 of the amended POCA attempts to punish the commercial organisation if any person associated with such commercial organisation gives or promises to give any undue advantage to a public servant either with the intention of obtaining or retaining business or to obtain or retain an advantage in the conduct of business.
The term “undue advantage” includes any gratification other than legal remuneration paid or payable to the public servant in his service. A “person associated with the commercial organisation” is widely defined to mean any person who performs services for or on behalf of the commercial organisation and includes any employees, agent or subsidiary. These far-reaching definitions show that the commercial organisations are required to closely monitor the actions of its associates to ensure that no corruption is being carried on their behalf which could be traced back to the commercial organisation.
III. Introduction of ‘Adequate Procedures’ defence
Similar to the U.K. law on anti-corruption, i.e. the U.K. Bribery Act, Section 9 of the amended POCA also allows the company to raise a defence of having in place a robust compliance program which would essentially involve demonstrating that the company had in place adequate procedures in compliance of such guidelines as may be prescribed to prevent persons associated with it from undertaking any conduct which would be punishable under the POCA. The effect of this provision is that the companies now need to evaluate their procedures of preventing and detecting bribery and corruption. It further allows the companies to avoid prosecution if it can prove that it had good policies and procedures and an overall corporate environment that was built to prevent such acts.
IV. Guidelines by the Central Government
The Section 9 of the amended POCA also provides for certain guidelines to be drafted and notified by the Central Government, in consultation with the stakeholders, which would be aimed at preventing any persons associated with the commercial organisations from bribing any public servant. Once notified, the companies would have to ensure strict adherence of such guidelines.
V. Person responsible for offences by commercial organisation
If the offence committed under the Section 9 of the amended POCA is proved to have been committed with the knowledge or connivance of any director, manager, secretary or other officer of the commercial organisation, such director, manager, secretary or other officer shall be guilty of the offence and shall be proceeded against. The punishment prescribed ranges from imprisonment for three years to seven years in addition to levy of a fine. In the case of a firm, the term director shall mean the partner of such firm.
Conclusion
The Amendment Act brings about many more welcome changes such as (i) prescribing a maximum timeline of four years for trial under the POCA; (ii) including as an offence both the giving or taking of an undue advantage and abetting in the same; (iii) introducing provision of attachment and forfeiture of property; and (iv) making reasonable exceptions where so required.
Considering the rampant effect of corruption on the way business is conducted in India, the only solution to tackling the issue is by way of a methodical, systemic change in governance and legal measures such as the aforesaid framework. The Amendment Act has been much awaited and provides a lot of hope that steps are being taken in the right direction. With increased onus on the commercial organisations, it remains to be seen whether the amended POCA is able to translate into a success story for the country. For commercial organizations, it would be incumbent to have appropriate policies in place like “Anti-bribery Policy” and “Whistle-blower Policy” in place to address the situations of dealing with third-parties and/or government departments, schedule training sessions for employees to create awareness regarding the policies and have a committee to oversee the effective implementation.
[The author is a Senior Associate in Corporate Advisory practice, Lakshmikumaran & Sridharan, Bangalore]
In February 2018, the Corruption Perception Index 2017 rankings were revealed, which ranked India at #81 amongst a group of hundred and eighty countries. This ranking in the year 2016 was at #79 for India, albeit the scores in both the years were roughly the same. India was also identified as one of the “worst offenders” in the Asia-Pacific region by these rankings. This index appropriately highlights that bribery and corruption continue to be an increasing focus of the state organisations around the world. While, for the most part, India has remained woefully behind in enforcing anti-corruption laws by largely keeping its watch-dog agencies toothless in terms of powers of prosecution, the country is now working with the stakeholders to create an even-playing field for companies as it competes for more investment and business from across the globe. India is catching up to the pace of other countries at last, and in line with its objective of curbing corruption and bribery, new laws are being passed and enforcement is increasing.
The most significant recent change in this regard has been the Prevention of Corruption (Amendment) Act, 2018 (“Amendment Act”), which was brought into effect from July 26, 2018 with its publication in the official gazette. Five years into the pipeline, this Amendment Act was introduced as the Prevention of Corruption (Amendment) Bill, 2013 (“Bill”) in the Rajya Sabha in August 2013. Thereafter, the Bill was considered by the Parliamentary Standing Committee on Personnel, Public Grievances, Law and Justice, in its 69th Report and the Law Commission of India in its 254th Report and was also examined by the Select Committee of Rajya Sabha, which submitted its report on the Bill to the Rajya Sabha in August 2016. These recommendations were considered by the Central Government and official amendments were made to the Bill. The Bill was then passed by the Rajya Sabha and Lok Sabha in July 2018. These amendments to the Prevention of Corruption Act, 1988 (“POCA”) demonstrate India’s commitment to the UN Convention Against Corruption, 2005 (“UNCAC”) which India ratified in 2011.
We provide here an outline of the key provisions of the Amendment Act, which will affect all corporations doing business in India.
I. Definition of Commercial Organisation
The definition of a “commercial organisation” includes “(i) a body which is incorporated in India and which carries on a business, whether in India or outside India; (ii) any other body which is incorporated outside India and which carries on a business, or part of a business, in any part of India; (iii) a partnership firm or any association of persons formed in India and which carries on a business whether in India or outside India; or (iv) any other partnership or association of persons which is formed outside India and which carries on a business, or part of a business, in any part of India.” The term “business” includes a trade or profession or providing service.
Multinational companies whether incorporated in India or outside, carrying on business in India, are now under the purview of the POCA and can be punished with fine if any person on their behalf indulges in perpetrating any act of corruption. The offences also apply to partnership firms in India or abroad, carrying on business in India.
II. Recognising offences relating to bribing a public servant by commercial organisation
Section 9 of the amended POCA attempts to punish the commercial organisation if any person associated with such commercial organisation gives or promises to give any undue advantage to a public servant either with the intention of obtaining or retaining business or to obtain or retain an advantage in the conduct of business.
The term “undue advantage” includes any gratification other than legal remuneration paid or payable to the public servant in his service. A “person associated with the commercial organisation” is widely defined to mean any person who performs services for or on behalf of the commercial organisation and includes any employees, agent or subsidiary. These far-reaching definitions show that the commercial organisations are required to closely monitor the actions of its associates to ensure that no corruption is being carried on their behalf which could be traced back to the commercial organisation.
III. Introduction of ‘Adequate Procedures’ defence
Similar to the U.K. law on anti-corruption, i.e. the U.K. Bribery Act, Section 9 of the amended POCA also allows the company to raise a defence of having in place a robust compliance program which would essentially involve demonstrating that the company had in place adequate procedures in compliance of such guidelines as may be prescribed to prevent persons associated with it from undertaking any conduct which would be punishable under the POCA. The effect of this provision is that the companies now need to evaluate their procedures of preventing and detecting bribery and corruption. It further allows the companies to avoid prosecution if it can prove that it had good policies and procedures and an overall corporate environment that was built to prevent such acts.
IV. Guidelines by the Central Government
The Section 9 of the amended POCA also provides for certain guidelines to be drafted and notified by the Central Government, in consultation with the stakeholders, which would be aimed at preventing any persons associated with the commercial organisations from bribing any public servant. Once notified, the companies would have to ensure strict adherence of such guidelines.
V. Person responsible for offences by commercial organisation
If the offence committed under the Section 9 of the amended POCA is proved to have been committed with the knowledge or connivance of any director, manager, secretary or other officer of the commercial organisation, such director, manager, secretary or other officer shall be guilty of the offence and shall be proceeded against. The punishment prescribed ranges from imprisonment for three years to seven years in addition to levy of a fine. In the case of a firm, the term director shall mean the partner of such firm.
Conclusion
The Amendment Act brings about many more welcome changes such as (i) prescribing a maximum timeline of four years for trial under the POCA; (ii) including as an offence both the giving or taking of an undue advantage and abetting in the same; (iii) introducing provision of attachment and forfeiture of property; and (iv) making reasonable exceptions where so required.
Considering the rampant effect of corruption on the way business is conducted in India, the only solution to tackling the issue is by way of a methodical, systemic change in governance and legal measures such as the aforesaid framework. The Amendment Act has been much awaited and provides a lot of hope that steps are being taken in the right direction. With increased onus on the commercial organisations, it remains to be seen whether the amended POCA is able to translate into a success story for the country. For commercial organizations, it would be incumbent to have appropriate policies in place like “Anti-bribery Policy” and “Whistle-blower Policy” in place to address the situations of dealing with third-parties and/or government departments, schedule training sessions for employees to create awareness regarding the policies and have a committee to oversee the effective implementation.
[The author is a Senior Associate in Corporate Advisory practice, Lakshmikumaran & Sridharan, Bangalore]