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Overview of
Anti-Corruption
Laws in India
A Legal, Regulatory, Tax
and Strategic Perspective

January 2019

© Copyright 2019 Nishith Desai Associates www.nishithdesai.com


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

January 2019

anticorruption@nishithdesai.com

© Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

Contents
INTRODUCTION 01

1. LEGISLATIVE AND REGULATORY FRAMEWORK 03

I. The Indian Penal Code and the Prevention of


Corruption Act (including the Amendment Act) 03
II. POCA – An International Perspective 03

2. CIVIL SERVANTS AND GOVERNMENT SERVANTS 11

I. Civil Servants 11
II. Government Servant 11

3. LOBBYING 12

4. CENTRAL VIGILANCE COMMISSION AND


COMPTROLLER AND AUDITOR GENERAL 13

I. Central Vigilance Commission 13


II. Comptroller and Auditor General 13

5. REGULATORY CONCERNS 15

I. Competition Act 15
II. Companies Act 15

6. INCOME TAX ACT 17

I. Political Contributions 17
II. Illegal gratification 17

7. PUBLIC PROCUREMENT AND BLACKLISTING 18

I. Procurement Bill 18
II. Blacklisting 19
III. Central Public Procurement Portal 19

8. WHISTLE BLOWERS PROTECTION ACT 20

© Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

9. INTERNATIONAL STANDARDS – HOW INDIA’S LEGAL


AND REGULATORY FRAMEWORK COMPARES 22

I. United Nations Convention Against Corruption, UNCAC 22


II. OECD Guidelines 22
III. International Chamber of Commerce, Rules on Combating Corruption 23

10. STRATEGIC MEASURES TO MITIGATE RISK


OF DOING BUSINESS IN INDIA 24

I. Companies Act 24
II. Vigil Mechanism 24
III. Risk Management Policy 24
IV. Serious Fraud Investigation Office 25
V. Class Action Suit 25
VI. Reporting of Frauds by Auditor 26
VII. Independent Director 26

ANNEXURE I 27

© Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

Introduction
Behind every great fortune there is a crime1 resulting in unprecedented judicial orders
cancelling procurement contracts. 7 While
Corruption has been seen as an immoral these unprecedented judicial orders galvanised
and unethical practice since biblical times. the Government toward framing the Public
But, while the Bible condemned corrupt Procurement Bill, 2012, the same has since lapsed.
practices,2 Chanakya in his teachings considered The Finance Minister had mentioned a new public
corruption as a sign of positive ambition.3 procurement bill in his Annual Budget Speech in
Ironically, similar views are echoed by Mario 2015, however, this bill was not introduced.
Puzo in The Godfather!4
In India, the law relating to corruption is broadly
Historical incidents of corrupt practices and governed by the Indian Penal Code, 1860 (‘IPC’)
modern theories of regulation of economic and the Prevention of Corruption Act, 1988 (as
behaviour might evoke a sense of fascination, amended from time to time) (‘POCA’). The new
however, there can be no doubt that in modern amendments to POCA (‘POCA Amendment
business and commerce, corruption has a Act’) which provides for supply-side prosecution,
devastating and crippling effect. The annual among other key changes was passed by both
Kroll Global Fraud Report notes that India houses of Parliament and received the assent of
has among the highest national incidences of the President on July 26, 2018.8
corruption (25%). The same study also notes
In India, apart from the investigating agencies
that India reports the highest proportion
and the prosecution machinery, there is also
reporting procurement fraud (77%) as well as
the Comptroller and Auditor General (‘CAG’)
corruption and bribery (73%).5 According to
and the Central Vigilance Commission (‘CVC’)
the Transparency International Corruption
which play an important role due to Public
Perception Index, India is ranked 81 out of 180
Interest Litigations (‘PILs’) in India. For instance,
nations.6 These statistics do not help India’s
courts have directed that the CAG should audit
image as a destination for ease of doing business
public-private-partnership contracts in the
nor do they provide investors with an assurance
infrastructure sector on the basis of allegations
of the sanctity of Government contracts.
of revenue loss to the exchequer.9
In this decade, India has witnessed amongst the
Apart from the risk of criminal prosecution
worst scandals relating to public procurement
under POCA, there is also the

1. The Godfather, Mario Puzo, Signet, 1969.


2. Proverbs 29:4 – A just king gives stability to his nation, but
one who demands bribes, destroys it. 7. Supreme Court of India cancelled 122 licences which
resulted in prosecutions of various companies, politicians
3. Chanakya – His Teachings & Advice, Pundit Ashwani
and bureaucrats [see Timeline: 2G Scam, Livemint, February
Sharma, Jaico Publishing House, 1998:
3, 2012, at http://www.livemint.com/Home-Page/
In the forest, only those trees with curved trunks escape the
XI7sCDFXoT6KEXawTcPnuK/Timeline-2G-scam.html ] and
woodcutter’s axe. The trees that stand straight and tall fall to the
Indian Supreme Court cancels 214 coal scandal permits, BBC,
ground. This only illustrates that it is not too advisable to live in this
September 24, 2014, available at http://www.bbc.com/news/
world as an innocent, modest man.
world-asia-india-29339842 ]
4. Page 100, Mario Puzo, 1969 – The breaking of such regulations
8. Nishith Desai Associates Hotline on the Amendment Act,
was considered a sign of high-spiritedness, like that shown by a fine
http://www.nishithdesai.com/information/news-storage/
racing horse fighting the reins.
news-details/article/parliament-tightens-the-noose-on-
5. Global Fraud Report – Vulnerabilities on the Rise, Kroll, corruption.html .
2015-2016, available at http://anticorruzione.eu/wp-content/
9. Delhi High Court ruled that private electricity distribution
uploads/2015/09/Kroll_Global_Fraud_Report_2015low-
companies could be subject to CAG Audit – see Nishith Desai
copia.pdf.
Associates Hotline, Direction for CAG audit of DISCOMs quashed
6. Transparency International’s Corruption Perception Index private companies can be subject to CAG audit and Nishith Desai
available at https://www.transparency.org/news/feature/ Associates Hotline, Supreme Court Private telecom service
corruption_perceptions_index_2017.. providers under CAG scanner

© Nishith Desai Associates 2019 1


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risk of being blacklisted 10 and subject to A bill was introduced by a Member of Parliament,
investigation for anti-competitive practices. The Disclosures of Lobbying Activities Bill, 2013
Despite the lapsed Public Procurement Bill, in Lok Sabha in 2013 in the wake of the Nira
2012, different Government departments Radia controversy but the same has since lapsed.
have procurement rules, the contravention of This bill sought to regulate lobbying activities
which may result in prosecution. In relation to and the lobbyist itself. However, regulation
public procurement contracts, the Competition of lobbying activities is envisaged only on the
Commission of India (‘CCI’ / ‘Competition supply-side and such an approach may not
Commission’) has the power to examine satisfactorily address concerns of transparency
information suo moto and take cognizance of and constitutional ethics.
cases even without a complainant before the CCI.
This body of amorphous laws and regulations,
An issue of regulatory compliance that is often coupled with high risk to directors makes
raised along with corrupt practices is one compliance a matter of great significance.
related to lobbying. As such, lobbying is not In this paper, we examine the regulatory
an institution in India like certain European framework and law in relation to anti-
countries or USA and it is not mandatory for corruption laws and risks associated with non-
Government agencies the executive to consider compliance, in particular reference to possibility
the viewpoints of various stakeholders and of a change in the anti-corruption landscape
interested parties before formulating rules and with the passing of the POCA Amendment Act.
regulations. Further, generally there is no law Additionally, we also address opportunities for
which provides for prior consultation with companies to design preventive and compliance
affected persons before rules and regulations are mechanisms. Litigation entails considerable risk
framed by administrative authorities. In certain and costs (financial and reputational) and hence,
circumstances, prior consultation may be seen it is imperative that, in the absence of regulatory
as a mandatory requirement. and legislative clarity, companies take proactive
measures to address these risks.

10. See for instance, Nishith Desai Associates Hotline on


blacklisting, http://www.nishithdesai.com/information/
research-and-articles/nda-hotline/nda-hotline-single-view/
article/supreme-court-balances-power-to-blacklist-with-
principles-of-reasonableness.html.

2 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

1. Legislative and Regulatory Framework


Although the application of POCA was
I. The Indian Penal Code limited to public servants, courts have given
and the Prevention of an expansive interpretation to the expression
Corruption Act (including ‘public servant’. For instance, in Central Bureau
of Investigation, Bank Securities & Fraud Cell v.
the Amendment Act) Ramesh Gelli & Ors.15, the Supreme Court of
India (‘Supreme Court’) held that the chairman
and directors of a private bank would also be
A. Background – 1860 to 1988 ‘public servants’ for the purpose of POCA.
India’s legislation relating to corruption and
The POCA Amendment Act has now extended
corrupt practices includes a web of legislations
the scope of POCA to prosecute bribe givers,
and Government regulations. The IPC
commercial organizations and its officials.
criminalised various activities including taking
However, the POCA Amendment Act has failed
bribes11, influencing a public servant through
to bring within its ambit, corrupt practices
corrupt and illegal means,12 and public servants
among private entities inter se and illegal
accepting valuables from accepting gifts.13 All
gratification to foreign officials.
these provisions (Section 161 of the IPC to Section
165A of the IPC) were repealed by the POCA.
A war-time ordinance called the Criminal Law
II. POCA – An International
(Amendment) Ordinance, 1944 (Ordinance Perspective
No. XXXVIII of 1944) (‘1944 Ordinance’), was
enacted to prevent the disposal or concealment POCA does not compare favourably in respect
of property procured as a result of certain of standards of prosecution, guidelines or
specified offences. Thereafter the Prevention completeness, with corresponding laws in United
of Corruption Act of 1947 was enacted States of America (‘USA’). United Kingdom (‘UK’)
immediately after independence. or other international standards. A brief overview
of how POCA compares with others laws is set out
B. POCA – 1988 till 2018 in Annexure 1 at the end of this Paper.
In 1988 POCA was enacted to consolidate all laws The POCA Amendment Act falls short of
relating to offences by public servants. However, international standards in respect of failing
POCA prosecuted and criminalised only bribe- to expand its scope to include corrupt
taking and not bribe-giving. The erstwhile Section practices amongst private entities, providing
7, Section 8, Section 9, Section 10 and Section 11 of good corporate governance standards and
POCA criminalised various corrupt acts of public guidelines and other failings which have been
servants and middlemen seeking to influence dealt with in greater depth in this Paper.
public servants per se while excluding the bribe It does not provide for prosecution of offences
giver as well as private entities -taking bribes.14 relating to international public officials
or illegal gratification in transactions with
private companies. A perspective of foreign
11. Section 161. Public Servant taking gratification other than
legal remuneration in respect of an official act. law / international standards is also given in
12. Section 162. Taking gratification in order by corrupt or illegal relevant sections below.
means to influence public servant.
13. Section 165. Public servant obtaining valuable thing without
consideration from person concerned in proceeding or
business transacted by such public servant.
15. Central Bureau of Investigation, Bank Securities & Fraud Cell
14. Law Commission of India Report No. 254, February 2015, v. Ramesh Gelli & Ors., Crl. App. 1077-1081 of 2013 decided
paras 1.6 to 1.9. on February 23, 2016.

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As regards bribe-giving, POCA Amendment Act exercising discretion while passing sentence
has only now taken away the clear immunity based on specific facts of each case.20
given to the bribe-giver.16 Given the very
Prosecution of public servants under POCA
limited scope of POCA until the enactment
requires prior sanction of a competent
of the POCA Amendment Act, instances of
authority.21 Obtaining such sanction itself
prosecuting bribe givers has been fairly limited
in the past has been a hurdle to effective
and unless a bribe giver was shown to be a
enforcement of the law. Supreme Court noted
co-conspirator, giving bribes in itself, has not
the submissions of the Attorney General in
been subjected to prosecution.17 While the
Dr. Subramanian Swamy v. Dr. Manmohan
1944 Ordinance provided for attachment of
Singh22 that out of 319 requests, sanction was
tainted property, POCA itself made no provision
awaited in respect of 126.
for attachment of tainted property. While the
POCA Amendment Act has only now granted POCA does not have extra-territorial operation
the power to attach property, confiscate money unlike certain other laws and its application
or property and administrate property tainted is restricted to the territory of India. Unlike
by corrupt activities, the process of investigation anti-corruption laws in other jurisdictions,
and trial empowered the investigation agency, POCA does not recognise illegal gratification
in appropriate cases, to attach tainted property, paid to foreign government officials or
in the past as well. Another important aspect official of a public international organisation.
about POCA was that it prosecuted only Interestingly, POCA does not define the
offences related to corruption in public sector expressions ‘bribe’, ‘corruption’ or ‘corrupt
and involving public servants. Therefore, practices’. While the Standing Committee on
payments made beyond a contract, or payments Personnel, Public Grievances, Law and Justice
made to fraudulently secure contracts in the in August 2013 (‘Standing Committee’) that
private sector, were not covered by POCA. Such looked into the pending amendment bill at
offences could be prosecuted only under IPC.18 the time had recommended that these key
provisions be defined, POCA Amendment
Unlike laws in some other jurisdictions,
Act has left these terms undefined. The
POCA makes no distinction between an
ambiguity brought about as a result of the
illegal gratification and a facilitation
absence of key definitions and expansive
payment. A payment is legal or illegal.
meanings given to certain expressions by courts
This treatment applies to other laws and
is certainly contrary to India’s commitment
regulations in India as well.
under the United Nations Convention against
POCA Amendment Act now stipulates that trial Corruption (‘UNCAC’).
of offences covered under POCA should take place
In August 2013, the POCA Amendment Act was
on a day to day basis and that endeavour shall be
introduced in Parliament, thereafter passed by
made to conclude such trials within two years.19
both houses of Parliament and assented to by
POCA also does not provide compounding of an
the President in July, 2018 which provided for
offence, however, courts have been
substantial changes to POCA. These changes are
discussed in the relevant section below.

16. Before the POCA Amendment Act, Section 24 (Statement


by bribe giver not to subject him to prosecution) of POCA
granted immunity to the bribe-giver. The POCA Amendment
Act has now omitted Section 24 and has inserted a new
Section 8 which specifically prosecutes the bribe-giver.
17. Akilesh Kumar Vs. CBI & Anr. 2011 (4) KLJ 471 and
Shashikant Sitaram Masdekar and Ors. Vs. The State of
Maharashtra 2016 (1) BomCR (Cri) 421.
20. Gian Singh v. State of Punjab (2012) 10 SCC 303.
18. Section 420, IPC - Cheating and dishonestly inducing delivery
of property. 21. Section 17A of POCA Amendment Act.
19. Section 4(4) 22. (2012) 3 SCC 64.

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Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

A. Prevention of Corruption companies for offences under POCA. The


(Amendment) Bill 2013 and POCA Bill replaced Sections 7, 8 and 9 with new
provisions. However, LCI has also recommended
POCA Amendment Act several changes to these new sections.
After India ratified the UNCAC, the Government
The POCA Bill used the expression ‘undue
of India initiated measures to amend POCA to
financial or other advantage’ and LCI
bring it in line with international standards.
recommended that this be deleted and instead,
Accordingly, the Prevention of Corruption
the POCA Bill use the expression ‘undue
(Amendment) Bill, 2013 (‘POCA Bill’) was
advantage’ since usage of the expression
introduced in Parliament. Materially, the
‘undue financial or other advantage’ can lead
changes introduced by this bill included –
to ambiguity as there are no guidelines on
a. Prosecuting private persons as well for what may be a due financial or other advantage.
offences, LCI also reasoned that sexual gratifications
may not be considered an ‘other advantage’
b. Providing time-limits for completing trials,
and hence, it was important to give a wider
c. Attachment of tainted property, but clearer definition to illegal gratifications
obtained under POCA.
d. Prosecuting the act of offering a bribe
The proposed Section 7 of the POCA Bill related
The POCA Bill was referred to the Standing
to offences committed by a public servant
Committee. The Standing Committee submitted
and provided for obtaining financial or other
its report in February 2014. Thereafter, based
advantages in relation to a ‘relevant public
on the recommendations of the Standing
function’. LCI criticised this definition since
Committee, the POCA Bill was referred to the
in the context of a public servant, all functions
Law Commission of India (‘LCI’). LCI submitted
would essentially be public functions and
its report (Law Commission Report No. 254,
hence, the expression ‘relevant public function’
February 2015, (‘Law Commission Report’) in
was redundant.
February 2015. Thereafter, in November 2015,
further amendments to the POCA Bill were LCI recommended a cleaner and more succinct
circulated in Parliament.23 provision. The provision in the POCA Bill was
capable of creating ambiguity with respect to its
LCI recommended substantial changes to
application and interpretation. LCI’s criticism
the POCA Bill including dropping certain
of the POCA Bill as being a mere adoption of
amendments.24
provisions of UK Act as opposed to adapting
them for POCA, was justified.
B. POCA Bill and Law Commission The new Section 8, as proposed by the POCA
Report Bill used the expression ‘improperly’ in the
context of performance of a public duty. As the
The POCA Bill sought to adapt certain
Law Commission Report observed, this did not
provisions of the UK Bribery Act, 2010 (‘UK
account for instances where illegal gratifications
Act’) and also incorporated provisions to
are offered to a public servants to perform
criminalise bribe giving and prosecution of
routing functions ‘properly’. LCI had also
recommended that while illegal gratification
23. For a brief description of the legislative history see - http:// for properly performing routine functions
www.prsindia.org/billtrack/the-prevention-of-corruption- may be offered, immunity would be granted
amendment-bill-2013-2865/. Law Commission Report,
Standing Committee Report and Amendment Bill available
to the bribe giver only if the law enforcement
at http://www.prsindia.org/billtrack/the-prevention-of- authorities were given prior intimation.
corruption-amendment-bill-2013-2865/.
24. Law Commission Report available at http://www.prsindia.org/ One of the most worrying aspects of the POCA
uploads/media/Corruption/Law%20CommissionReport%20 Bill and one of the most severe criticisms of LCI
on%20Prevention%20of%20Corruption.pdf.

© Nishith Desai Associates 2019 5


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related to the proposed Section 9 and Section 10 manager, secretary or other office would be
of the POCA Bill. The POCA Bill provided for the liable to be prosecuted.
prosecution of ‘commercial organisation’ as well.
The denial of the benefit of due diligence
Section 9, as proposed by the POCA Bill, appears harsh and the clubbing of neglect
provided that a commercial organisation would with connivance appears unreasonable. Such
be guilty of an offence ‘if any person associated onerous provisions are capable of misuse
with the commercial organisation offers, promises and causing more harm than good to curtail
or gives a financial or other advantage to a public corruption in India.
servant…’. However, as per the bill, it would be
LCI had rightly highlighted these concerns and
a valid defence for the commercial organisation
suggested that the proposed Section 9 and 10
if it is able to prove that it had ‘adequate
be kept in abeyance pending notification of
procedures’ in place.
‘adequate procedures’.
As rightly noted by LCI, unlike in UK where
LCI had also made recommendations to
Guidance has been published to determine the
amend the provisions relating to attachment
adequacy of ‘procedures’, the POCA Bill provided
proceedings under the POCA Bill and had
no such guidelines. Absence of guidelines would
recommended that the attachment mechanism
lead to considerable uncertainty in respect of
presently under the Prevention of Money
what would be seen as ‘adequate procedures’
Laundering Act, 2002 (‘PMLA’), 1944 Ordinance
and also lead to considerable subjectivity in the
or the Lokpal and Lokayukta Act, 2013 be
enforcement of the statute.
adopted rather than have new attachment
Explanation 1 to this Section 9 provided that the proceedings / mechanism under the POCA
capacity in which the person performed services Bill. As rightly pointed out by LCI, it is
for or on behalf of the commercial organisation important to streamline such proceedings
would not matter and even if such individual and avoid multiple enforcement mechanisms.
worked in the capacity of an agent, employee
or subsidiary, the liability would follow. This
would place a commercial organisation
C. POCA Amendment Act
at considerable risk since illegal acts by Since its introduction in Parliament on August
employees even at the entry level could expose 19, 2013, the POCA Bill underwent changes
the commercial organisation to prosecution. based on the Law Commission Report. After
Similarly, a commercial organisation would also five long years since its introduction, the POCA
be exposed to any consequential prosecution Bill was passed by the upper house on June 19,
stemming from the illegal activities of an agent. 2018, followed by the lower house on June 24,
2018. The POCA Bill finally received the assent
Section 10 (1), as proposed by the POCA Bill
of the President on July 26, 2018 and the POCA
provided that if a commercial organisation
Amendment Act came to be enacted.
was found guilty of an offence under Section
9, every ‘person in charge’ of the commercial The following key changes have been introduced
organisation would also be liable to prosecution. to POCA by way of the POCA Amendment Act:
However, it would be a defence if such
person was able to prove that the offence was
committed without his knowledge and that
i. Bribe-giver is liable to be
despite due diligence, such person was unable to prosecuted
prevent the offence. Section 10 (2) (as proposed
Conceding to the recommendations of the LCI,
in the bill) however, provides that if an offence
the scope of POCA has now been extended to
can be attributed to the ‘consent or connivance
cover to those who give or promise to give ‘undue
of, or is attributable to, any neglect’ of any director,
advantage’ to a person with an intent to induce or
manager, secretary or other officer, then,
reward a public servant to perform their ‘public
notwithstanding Section 10(1), such director,

6 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

duty’ ‘improperly’, as per Section 8. The immunity to prosecute commercial organizations, ‘if
granted in terms of the erstwhile section 24 any person associated with such commercial
has now been deleted. Such offence would be organizations gives or promises to give any undue
punishable with the maximum imprisonment for advantage to a public servant…’ 27.
a period of seven years and / or fine. In addition, if any director, manager, secretary
or other officer of the concerned commercial
An immunity from prosecution has also been
organization is proven to have consented and
granted in favour of those who are compelled
/ or connived to commit the said offence, such
to give such undue advantage provided such
officer would be punishable with imprisonment
persons report the matter to law enforcement
for a term not less than three years and
authorities within seven days from the date of
extendable to seven years and also liable to fine.
giving the undue advantage.25
Same as the POCA Bill, the POCA Amendment
In a departure from the recommendations of Act too states that it would be a valid defense
the LCI, the term ‘improperly’ is undefined, for the commercial organization to prove that it
and no distinction has yet been made between had ‘adequate procedures’ in place.
facilitation payments and other forms of bribery.
POCA Amendment Act failed to prescribe
Supply side prosecution was imperative to bring
guidelines to determine what would be seen
our anti-corruption laws in consonance with
as ‘adequate procedures’, as was recommended
international standards and act as a deterrent
by the LCI. India, unlike other jurisdictions
for private persons who bribed with impunity.
has faced severe criticisms for abuse of process
However, the ambiguity on the aspect of
despite laws being in place, therefore such
‘improper discharge of public duty’, could pose
provisions could lead to harassment for
more concerns and abuse of the process and
individuals within companies even if not
cause for concern leading to protracted litigation.
responsible/involved in the illegal act. It also
Given that recently the Supreme Court of potentially defeats the principle of ‘corporate
India has expanded the scope of ‘public veil’ and hence requires safeguards to be put in
official’,26 clarifications in respect of these place before implementation of these provisions
key expressions would have provided much to avoid harassment of professionals. While
needed certainty. This is particularly important the provision contemplates prosecution of an
considering non-compliance or a violation individual if the offence under the Bill is ‘proved
attracts criminal prosecution. Therefore, it is in the court to have been committed with the
imperative to have objective standards for the consent or connivance’ of any director, as a
expression ‘improperly’. The expression ‘public matter of practice, investigating authorities
official’, although defined in POCA, required ordinarily do not prosecute companies without
clarification in light of Supreme Court’s ruling making a director a party as well. Consequently,
and to negate possibility of expansion of private innocent directors / officers could be prosecuted
entities which are in collaborative projects with and subject to investigation.
government / state owned enterprises.
Companies need to introduce compliance
programs, manuals and guidance notes to ensure
ii. Commercial organizations liable that employees and consultants are adequately
to be prosecuted educated about obligations under POCA, as done
in other developed jurisdictions. Failure to do so
The POCA Amendment Act has largely retained might exacerbate liabilities under POCA.
the edict of the POCA Bill and grants the power
The UK Bribery Act’s Six Principles provide
an outline for an anti-corruption compliance
25. Section 8 system that establishes ‘adequate procedures’
26. Central Bureau of Investigation, Bank Securities & Fraud Cell
v. Ramesh Gelli & Ors., Crl. App. 1077-1081 of 2013 decided
on February 23, 2016 27. Section 9

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to prevent a person from bribing on the and the checks and balances introduced in the
company’s behalf including: proportionality, amendment should protect such public officials.
tone at the top, risk assessment, due diligence,
communication, monitoring and review, used iv. Attachment of tainted property
as a valid defence. India needs to follow the path
POCA Amendment Act has added a new chapter -
without any further delay and publish guidelines
Chapter IV A to POCA, which grants the power to
to determine the adequacy of ‘procedures’.
attach property, confiscate money or property and
administrate property tainted by corrupt activities.
iii. Prior permission to be sought Adhering in spirit to LCI’s recommendations, the
before initiating investigation provisions of the Criminal Law Amendment
Ordinance, 1944 is now applicable to such
Considering the sensitive nature of a public
attachment proceedings. Earlier, tainted property
servant’s role, POCA Amendment Act makes
could be attached through measures under anti-
it mandatory for police officers to seek prior
money laundering laws.
approval before conducting an enquiry into any
offence committed by incumbent and retired It was important to streamline proceedings and
public servants. The approval would have to avoid multiple enforcement mechanisms. POCA
be sought from the relevant union or state Amendment Act has introduced the new chapter
government in whose employment the accused to help authorities recover proceeds of crime
‘public servant’ committed the offence expeditiously. It may also be possible that victims
in discharge of his official functions and duties. of such crimes can seek restorative justice.
The introduction of such provisions are in
accordance with other jurisdictions which require
prior sanction for all offences and for all persons.
v. Time limit for trial
The Bill now requires trial of offences to be held
While POCA Amendment Act binds such
on a day to day basis and endeavor to conclude it
approving authority to pass its decision within
within two years.
three months, further extendable by a month, this
may dilute the power of investigating authorities A time bound trial would certainly help expedite
from effectively prosecuting guilty officials. the process of effective prosecution and would
act as a powerful deterrent for habitual offenders.
However, such prior sanction would not be
required in the cases of arrest of officials caught
‘red-handed’ accepting or attempting to accept D. Other Important Principles
any undue advantage for himself or for any under POCA
other person.
With a view to protect honest public servants,
POCA Amendment Act has sought to restrict
i. Public duty and Public servant
the scope of offences proposed to be covered Public duty is defined as ‘a duty in the discharge
under the POCA by identifying ‘criminal of which the State, the public or the community
misconduct’. This restricted definition no at large has an interest’.28 The expression ‘state’
longer takes into account, previously covered also has an inclusive definition. The significance
grounds such as disregarding public interest, of the definition accorded to ‘public duty’ is that
abusing his / her position, using illegal means, persons who are remunerated by Government
etc. The element of criminal intent is added to for public duties 29 or otherwise perform public
lend more objectivity to enforcement. duties ,30 may also be public servants for POCA.
Requirement of prior sanction for retired
public officials and change of scope of 28. Section 2(b)
‘criminal misconduct’ would encourage 29. Section 2(c)(i) of POCA
retiring bureaucrats to take faster decisions 30. Section 2(c)(viii) of POCA

8 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

POCA defines public servant in a wide and ii. Taking gratification, influencing
expansive manner. The expression is not public servant and acceptance
restricted to instances set out in the definition
clause and courts have also adopted an
of gifts
interpretation which enables more persons to Section 7, Section 8, Section 9 and Section 11 of
be included within its ambit. 31 The definition POCA, as substantially amended by way of the
of public duty and public servant was examined POCA Amendment Act, provide for instances
in P.V. Narasimha Rao v. State.32 Although the of taking gratification, influencing public
case related to a Member of Parliament, the servants or accepting gifts. These sections are
Supreme Court’s ruling made it clear that both amended substantially keeping in mind India’s
public duty and public servant would be given obligations under the UNCAC.
a wide interpretation. Applying these principles
In respect of offences under Sections 7, 11
in Ram Gelli’s case, even though the concerned
and 13, the court has held these to be an
individuals were not employees of State or its
abuse of office by the relevant public servant.
instrumentalities, in view of the public duty
Transactions which contravene provisions of
element and nature of work performed by bank
POCA necessarily contemplate a public servant
managers, the Supreme Court came to the
and illegal gratification in connection with
conclusion that for the purpose of POCA, such
securing a favour from the public servant or as
officers would be public servants..
an incentive or reward to the public servant.
In Bhupinder Singh Sikka v. CBI 33 the Delhi
It is equally important that there should be
High Court ruled that an employee of an
a demand of such sum made by the public
insurance company that was created by an act of
servant and the mere fact that the individual has
Parliament was automatically a public servant
a valuable thing, in the absence of proof of such
and further, no evidence was required to be led
demand, may not result in a conviction under
in respect of the same.
Section 7 of POCA.35 It has also been held that
The expansive definitions being adopted an offence under Section 7 is an abuse of office36
by Supreme Court can lead to a state of and that the acts of the concerned individuals
unpredictability and uncertainty in the law. have the colour of authority.
In Ram Gelli’s case, Section 46A of the Banking
Regulation Act, 1949 (‘Banking Act’) that E. Investigation, trial and
provided that certain officers 34 would be settlement
deemed public servant for IPC, was held also
applicable in respect of POCA. However, it Investigation of offences under POCA takes
leaves open the question of the role of directors place as per the procedure set out in the Code
and key managerial personnel in infrastructure of Criminal Procedure, 1973 (‘Criminal Code’).
projects and other projects of a public nature, or POCA does not provide for a settlement or
of national importance. compounding mechanism.37 The Criminal
Code provides for cases in respect of which
compounding is possible.38 However, even
though offences under POCA are not mentioned
in Section 320 of the Criminal Code, the
31. Section 2 (c) of POCA. See also Ram Gelli case above. Supreme Court has held that in certain cases
32. (1998) 4 SCC 626.
33. Crl. App. No. 124 of 2001, Delhi High Court, decided on
March 25, 2011. 35. P. Satyanarayana Murthy v. The District Inspector of Police
(2015) 10 SCC 152.
34. S. 46A Banking Act - Every chairman who is appointed on
a whole-time basis, managing director, director, auditor, 36. Parkash Singh Badal, above.
liquidator, manager and any other employee of a banking
37. Settlement or any form of plea bargaining.
company shall be deemed to be a public servant for the
purposes of Chapter IX of the Indian Penal Code (45 of 1860). 38. Section 320 of Criminal Code.

© Nishith Desai Associates 2019 9


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which do not involve moral turpitude and FCRA has defined ‘foreign contribution’ to
are more commercial in nature, it would be include the donation, delivery or transfers of any
permissible for parties to settle the dispute. currency or foreign security. Section 3(2) (a) of
Supreme Court has observed: the FCRA extends this prohibition to persons in
India and citizens of India residing outside India
In respect of serious offences, including those
receiving foreign contributions on behalf of the
under IPC or offences of moral turpitude under
aforementioned categories of persons.
special statutes, like POCA, offences committed
by public servants while working in that Section 6 of the FCRA regulates the acceptance
capacity may not be sanctioned for settlement of foreign hospitality by a member of a
between offender and victim.39 Legislature or an office-bearer of a political party
or Judge or Government servant or employee
of any corporation or any other body owned
F. Foreign Contribution Regulation or controlled by the Government. It mandates
Act that these persons shall not accept any foreign
hospitality while visiting any country outside
Foreign Contributions Regulation Act, 2010
India except with prior permission of the
(‘FCRA’) regulates foreign contribution and
Central Government save for medical aid in the
acceptance of foreign contributions and foreign
event of contracting sudden illness while abroad.
hospitality by certain specified persons. Section
3 of the FCRA prohibits certain categories of A proposed amendment to FCRA on the
persons from accepting foreign contributions. definition of ‘foreign source’ is pending in
These persons include, among others, Parliament.40
candidates for election, judges, Government
servants, employees of Government owned
or controlled bodies, members of Legislature,
political parties or political organizations.

39. Gian Singh, above. 40. Cl. 233 of the Finance Act, 2016.

10 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

2. Civil Servants And Government Servants


I. Civil Servants II. Government Servant
Civil Servants in the employment of Central Central Civil Services (Conduct) Rules 1964
Government are subject to the terms and (‘Central Services Rules’) are applicable
conditions of the All India Services Act, 1951 to Government Servants, who are persons
(‘Services Act’). The Services Act empowers the appointed by Government to ‘any civil service
Central Government to make rules regarding or post in connection with the affairs of the Union
terms of service of employees belonging to the and includes a civilian in a Defence Service’. The
All India Services.41 Central Services Rules are therefore wider in its
application but apply, substantially, the same
Standards of integrity and right / ability of
definitions as the Services Rules. The Central
member of the Service42 to participate in
Services Rules have the same standard in respect
activities outside employment with the Central
of gifts46 (however, monetary limits are different
Government, including accepting gifts are
for Government Servants at different grades)
provided for in the All India Services (Conduct)
and general integrity.47
Rules, 1968 (‘Services Rules’). Restrictions in the
Services Rules includes restrictions of a member The Central Services Rules also have restrictions
of family43 accepting employment with an NGO on a Government Servant’s connections with
or a private undertaking having official dealings press or media48 and prohibit a Government
with the Government.44 Servant from owning (whole or part) and being
part of the management of a newspaper or
The Services Rules enjoins a member of the
other publication. Central Services Rules also
Service to ensure standards of integrity and duty
have restrictions on Government Servants
in respect of his employment.45 A member of
accepting gifts from foreign dignitaries. There
the Service may accept gifts from a member
are restrictions with respect to the monetary
of family, provided that a disclosure will have
value of such gifts and these are regulated by the
to be made to the Government if the value of
Government from time to time.49
‘such gift’ exceeds Rs. 5,000. The Services Rules
explains ‘gift’ to include transport, boarding, While the rules set out above apply in respect of
other service or pecuniary advantage when employees of Central Government departments
provided by a person other than ‘a near relative and undertakings, similar rules apply in
or personal friend having no official dealing with respect of employees of State Governments and
the member of the Service but does not include a Statement Government owned entities.
casual meal, casual lift or other social hospitality’.

41. All India Service includes services mentioned in Section 2


and Section 2A of the Services Act.
42. Member of the Service is defined in Rule 2(c) as a member of
an All India Service as defined in section 2 of the All India Services
Act, 1951 (61 of 1951). 46. Rule 13 of Central Services Rules.
43. Member of family is defined in Rule 2(b) of Services Rules. 47. Rule 3(1) of Central Services Rules.
44. Rule 4 (2)(b) Services Rules. 48. Rule 8 of Central Services Rules.
45. Rule 3 (2) Services Rules. 49. Rule 12(4) and Rule 12(5) of Central Services Rules.

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3. Lobbying
A private Member’s bill, The Disclosures of General Clauses Act, 1897, provides that where
Lobbying Activities Bill, 2013 was introduced a law contemplates prior publication of rules /
in Lok Sabha in 2013 in the wake of the Nira regulations, such rules / regulations shall first
Radia controversy50 but the same lapsed. be published in a manner prescribed and that
The bill sought to regulate lobbying activities objections to the draft legislation shall also be
and the lobbyist itself. However, regulation invited. Several other laws such as the erstwhile
of lobbying activities is envisaged only on the Central Tea Board Act (since repealed), Section
supply-side and such an approach may not 30 (3) of the Chartered Accountants Act, Section
satisfactorily address concerns of transparency 43 of Co-operative Societies Act contemplate
and constitutional ethics. prior publication.
As such, making representations to the However, it is possible that in the future, a law
Government or to Government agencies in on lobbying is enacted by the Parliament.
respect of policies is not prohibited under Indian
law. Stakeholders making representations about
proposed regulations is not illegal or unethical
provided that there is transparency in respect
of the process and representations. Several laws
provide for pre-consultation prior to enactment
of delegated legislation. Section 23 of the

50. R.N. Tata v. Union of India (2014) 1 SCC 93.

12 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

4. Central Vigilance Commission and


Comptroller and Auditor General
I. Central Vigilance Commission A Committee of the Prime Minister, the Home
Minister, and the Leader of the Opposition are
The CVC was set up in February 1964 on tasked with making appointments to the CVC
the recommendations of the Santhanam under Section 4(1) of CVC Act. Section 8 of CVC
Committee on the prevention of corruption Act lays out the powers and functions of the CVC
to advise and guide the Central Government which include exercising superintendence over
agencies on the issue of vigilance.51 On 25th the Delhi Special Police Establishment for the
August, 1998, it received statutory status by the examination of offences under POCA, inquire
promulgation of an Ordinance by the President. or cause an investigation to be made on the
Perhaps not ironically, legislative actions were recommendation of the Central Government
precipitated after a PIL was filed seeking the for offences under POCA, review the progress of
intervention of the Supreme Court due to investigations conducted by the Delhi Special
inaction by the Central Bureau of Investigation Police Establishment, etc. CVC will have the
(‘CBI’) in relation to certain corruption cases.52 same powers as a civil court to summon and
enforce attendance, receive evidence on affidavits,
The CVC is only an investigating agency and
etc. Section 12 clarifies that the proceedings
does not have power to formulate or make policy.
before the Commission are deemed to be judicial
The Central Vigilance Commission Bill was proceedings. At the close of the year 2014, a
introduced in Parliament and was passed in total of 13,659 complaints were pending with
2003. The statement of objects and reasons in the Central Vigilance Officers concerned for
the Central Vigilance Commission Act, 2003 investigation, out of which 6,499 complaints
(‘CVC Act’) states that it is an act to inquire or were pending beyond a period of six months.54
cause inquiries to be conducted into offences
alleged to have been committed under POCA II. Comptroller and Auditor
by certain categories of public servants of the General
Central Government, corporations established
under any Central Act, Government companies,
as well as societies or local authorities owned A. Background
or substantially controlled by the Government.
The CAG is a constitutional authority created
Section 3(2) of the CVC Act lays out the
under Article 148 of Constitution of India, 1950
constitution of the CVC as consisting of a Central
(‘Constitution’). The role of CAG has assumed a
Vigilance Commissioner who is the Chairperson,
lot of significance in the past few years since CAG
as well as two Vigilance Commissioners
Reports have been subject matter of scrutiny by
that act as Members. These three persons are
courts and have been at the heart of public interest
appointed from persons who have either been
litigations in relation to government contracts.
in the All India Service or similar service with
The Delhi High Court and Supreme Court have
background on administration, including policy
held that even private companies may be subject
administration, banking, finance, law, vigilance
to CAG audit in certain circumstances. 55
and investigation.53

54. http://cvc.nic.in/ar2014.pdf
51. Website of Central Vigilance Commission, available at, 55. See Nishith Desai Associates Regulatory Hotline, Direction
http://cvc.gov.in/cvc_back.htm. for CAG audit of DISCOMs quashed; private companies can be
subject to CAG audit, November 2015. See also Nishith Desai
52. Vineet Narain & Ors. v. Union of India (1998) 1 SCC 226.
Associates Dispute Resolution Hotline, Supreme Court: Private
53. Section 3 of CVC Act. Telecom Service Providers under CAG Scanner, April 2014.

© Nishith Desai Associates 2019 13


Provided upon request only

As per Article 149 of the Constitution, CAG is B. Enforceability of CAG Audit


to perform functions and duties as specified Reports and judicial scrutiny
by Parliament and for this purpose, Parliament
enacted the Comptroller Auditor-General’s A report of CAG is tabled before Parliament
(Duties, Powers and Conditions of Services) and proceedings before Parliament, including
Act, 1971 (‘CAG Act’). Section 10 of the CAG debates, are not open to judicial scrutiny.
Act provides that the CAG shall be responsible However, Supreme Court has often relied
for compiling accounts and keeping accounts on CAG reports while issuing directions to
in relation to the Union and the States and Government Departments. In the case relating
that these accounts are to be tabled before the to implementation of NREGA56 reliance was
President or the Governor. Section 18 empowers placed on a CAG reports to issue directions
CAG to make necessary enquiries in connection for investigation. In Centre for Public Interest
with such audits. These include powers of Litigation and Ors. v. Union of India and Ors.57
inspection of premises, questioning persons reliance on the CAG report was contested and
etc. CAG has the power and duty to carry out Supreme Court did not look into the CAG
audits in respect of expenditure, transactions, report as the same was pending before a Joint
trading, manufacturing, profit and loss account Parliamentary Committee. Therefore, even
and balance sheet and subsidiary accounts though under law the CAG reports cannot
maintained by departments of Union or of be enforced, the same can be used in PILs
the State. CAG has similar duties with respect while seeking relief and a court has power
to public companies and bodies/authorities to appropriately mould relief in terms of
substantially financed by the Government. the report of CAG.
CAG also has the power to audit grants or loans
It is interesting to note that the National
given to authorities and bodies. As per Article
Commission to Review the Working of the
151 of the Constitution, such reports are to
Constitution (‘NCRWC’) made recommendations
be tabled before each House of Parliament/
to provide more teeth to CAG and that findings of
Legislature of State as the case may be.
CAG should be better enforceable.58
Therefore, the powers of CAG with respect to
audit of receipts, expenditure and transaction of
Government Departments and bodies are fairly
significant. Although the Constitution and
CAG Act empower CAG to carry out transaction
related audits, neither the Constitution nor
CAG Act makes it mandatory for Parliament
to implement the recommendations or accept
the recommendations of the CAG. Under the
present law, no report of CAG can per se be
enforced. Parliament cannot be compelled to act
on the recommendations of CAG.

56. Centre for Environment and Food Security vs. Union of India
(UOI) and Ors.
57. (2012) 3 SCC 104.
58. Report of the National Commission to Review the Working
of the Constitution, available at http://lawmin.nic.in/ncrwc/
finalreport/v1ch11.htm.

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Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

5. Regulatory Concerns
committee. Companies Act itself seeks to set higher
I. Competition Act standards of corporate governance for companies.
Anti-competitive practices are prohibited under
the Competition Act, 2002 (‘Competition Act’) A. Political Contributions
and the CCI has the power to take cognisance
Section 182(1) of Companies Act, 2013
of cases suo moto and direct investigations in
(‘Companies Act’) provides that neither
respect of matters which CCI concludes are
government companies nor companies that
prima facie anti-competitive.59
have been in existence for less than three years
The Competition Act prohibits anti-competitive are permitted to make political contributions.
behaviour including abuse of dominance by The Companies Act does not provide for a
an entity that enjoys dominance in a relevant definition of what constitutes a ‘contribution,’
market.60 Entities are also prohibited from however Section 182 (2) specifies that a
imposing unfair and discriminatory terms of donation, subscription or payment caused to
sale, purchase of goods or services.61 There is fair be given by a company on its behalf or on its
degree of nexus between certain kinds of anti- account to a person who, to its knowledge, is
competitive practices and possibilities of corrupt carrying on any activity which can reasonably
practices and there is precedence for at least one be regarded as likely to affect public support
such instance when CCI took cognisance on the for a political party shall also be considered
basis of reports of CAG.62 In this particular case, a contribution. Additionally, the amount of
CAG had prepared a report on procurement in expenditure incurred, directly or indirectly,
defence contracts and CCI took cognisance on by a company on an advertisement in any
the ground that bidders were indulging in cartel- publication – i.e., a souvenir, brochure, tract,
like behaviour. In this case, while CAG gave an pamphlet or the like – by, on the behalf or for
adverse finding against some of the employees of the advantage of a political party shall also be
certain Ordnance Factories, it is important to note considered as a contribution. Eligible companies
that in certain scenarios, investigations by one may make a contribution in any financial
agency can also lead to investigation by another. year provided that such contribution shall not
exceed 7.5% of its average net profits during the
Consequently, a company that is facing allegations
three immediately preceding financial years.63
relating to corrupt practices may also be
investigated for anti-competitive behaviour such as Additionally, there must be a resolution passed
abuse of dominance and cartel like behaviour. at a Board of Directors meeting authorizing
such contribution under Section 182 (1) of the
Companies Act. Section 182 (3) prescribes that
II. Companies Act such contribution must be disclosed in the
profit and loss account of the company with
Political contributions are not per se prohibited
the amount and the name of the political
and may be made subject to fulfilment of
party. The penalty for non-compliance with
certain conditions in the Companies Act, 2013
a provision of the section which could be 5 times
(‘Companies Act’). The Companies Act also
the amount so contributed and each officer
provides for a vigil mechanism and an audit
of the company would be punishable with
imprisonment for a term of 6 months and a fine
which could be 5 times the amount contributed.
59. Section 19(1) of Competition Act.
60. Section 4(1) of Competition Act.
61. Section 4(2) of Competition Act.
62. Suo Moto Case No. 4 of 2013. 63. Section 182 (1) of Companies Act.

© Nishith Desai Associates 2019 15


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B. Vigil Mechanism While Companies Act provides that certain


class of companies should have a vigil
Section 177(9) of the Companies Act provides
mechanism, Companies Act does not provide
for the establishment of a vigil mechanism
for consequences if a vigil mechanism is in place.
for directors and employees to report genuine
In any event, companies may adopt measures
concerns in such manner as may be prescribed.
provided in international documents. It is
Section 179(1) also provides that there shall be
important to note, however, that Independent
safeguards against victimisation of persons who
Directors and the company have to abide by
use the vigil mechanism.
certain standards of integrity and ethical norms
This whistle blowing mechanism applies to which are set out in Schedule IV of Companies
every listed company or such class or classes of Act. Schedule IV provides for both subjective and
companies, as may be prescribed. Rule 7 of the objective criteria for an Independent Director.
Companies (Meetings of Board and its Powers)
Rules, 2014, prescribes the classes of companies
as listed companies, companies which accept
deposits from the public, and Companies which
have borrowed money from banks and public
financial institutions in excess of fifty crore
rupees. Rule 7(4) provides additionally that the
vigil mechanism shall provide for adequate
safeguards against victimisation of employees
and directors who avail of the vigil mechanism.

16 © Nishith Desai Associates 2019


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A Legal, Regulatory, Tax and Strategic Perspective

6. Income Tax Act


Income Tax Act, 1961 (‘IT Act’) provides for
deductions in respect of items of expenditure
II. Illegal gratification
incurred by a tax payer. IT Act also provides
Unlike anti-corruption laws in other
for contributions to political parties and
jurisdictions, all illegal payments will be
deduction of such contributions from the total
disallowed and no deduction in respect of the
income of the tax payer. IT Act also provides for
same may be claimed by a tax payer.64 The
disallowance of any illegal payments made.
explanation to Section 37 (1) of the IT Act
provides that any expenditure incurred by
I. Political Contributions a tax payer for any purpose which is an offence
or which is prohibited by law shall not be
Section 80 GGC and Section 80 GGB of the deemed to have been incurred for the purpose
IT Act provides for deductions towards of business and no deduction shall be made in
contributions made to political parties by respect of such expenditure.
eligible tax payers. Deduction will be allowed
in respect of contributions which are made
(non-cash) and eligible tax payers exclude local
authority and artificial juridical persons wholly
or partly funded by Government.

64. Maddi Venkatraman & Co. (P) Ltd. v. Commissioner of


Income Tax (1998) 2 SCC 95.

© Nishith Desai Associates 2019 17


Provided upon request only

7. Public Procurement and blacklisting


In the wake of the Supreme Court order the bidder for breach of the code of integrity
cancelling 2G spectrum licences65 and the such as exclusion from the procurement
subsequent challenge to allocation of coal process, debarment from participation in future
blocks,66 Government of India introduced the procurements, etc. In addition, the Central
Public Procurement Bill, 2012 in Parliament Government may notify an offsets policy which
(‘Procurement Bill’). However the bill has will be mandatory for procuring entities to
since lapsed. In his Union Budget Speech for implement during the procurement process.70
the year 2015-2016, the Finance Minister stated
In accordance with its object of improving
that a new public procurement bill consistent
transparency and efficacy in the procurement
with UNCITRAL would be designed, however,
process, the Procurement Bill makes a provision
Parliament would need to take a decision in
for mandatory publication of certain
respect of the same.67 As on date, there is no
information on a Central Public Procurement
new bill in respect of public procurement. The
Portal. This information consists of invitations
Government would do well to avoid multiple
by procuring entity to invite bids in case of an
laws and superfluous layers of enforcement.
open competitive bidding,71 the decision on an
However, most developed jurisdictions have
award of a public contract,72 the exclusion of
a public procurement law and such a law
certain bids,73 as well as pre-bid clarifications.74
engenders confidence in participants, ensures
The list of registered bidders for a given subject-
transparency, accountability and has a well-
matter of procurement must also published on
defined grievance redress mechanism.
the Procurement Portal.75
The Procurement Bill penalizes both the
I. Procurement Bill acceptance of a bribe as well as the offering of
a bribe with imprisonment of not less than 6
The Procurement Bill lays out the
months but which could extend to 5 years along
responsibilities of the procuring entities for
with a fine. 76 It also penalizes a person who
ensuring transparency and efficiency, fair and
interferes with the procurement or influences
equitable treatment to bidders, promotion of
the procuring entity that has made a wrongful
competition, fixing reasonable prices consistent
gain or caused an unfair disadvantage with
with quality required, as well as mechanisms
imprisonment of up to 5 years and a fine of up
to avert corrupt practices.68 To this effect, the
to 10% of the value of the procurement. 77
Central Government may prescribe a code of
The Procurement Bill also vests with the
integrity for procuring entities and the bidders,
Central Government the power to debar
containing provisions for prohibiting anti-
a bidder from public procurement for three
competitive practices and bribery, among other
years for breach of the POCA or IPC.78
things, as well as provisions on disclosures.69
The Procurement Bill empowers the procuring
entity to take appropriate measures against
70. S. 17 of Procurement Bill.
71. S. 30 (5) of Procurement Bill.
65. Nishith Desai Associates Telecom Hotline, Supreme Court
cancels 122 telecom licences with good intentions, February 2012. 72. S. 25 (3) of Procurement Bill.
66. Nishith Desai Associates Regulatory Hotline, Coal allocations 73. S 22(4)(b) of Procurement Bill.
cancelled!, October 2014.
74. 18 (3) and 18(4) of Procurement Bill.
67. Budget Speech of the Union Finance Minister for the year 2015-
75. 14(5) of Procurement Bill.
2016, available at http://www.thehindu.com/news/resources/
full-text-of-budget-201516-speech/article6945026.ece. 76. S. 44 of Procurement Bill.
68. S 5(1) of Procurement Bill. 77. S. 45 of Procurement Bill.
69. S. 6 of Procurement Bill. 78. S. 49 (1) of Procurement Bill.

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A Legal, Regulatory, Tax and Strategic Perspective

II. Blacklisting India, set up the Portal to act as a single access


point for information related to procurements
There is no law on blacklisting in India. made by various Government ministries and
Government Departments and State Owned departments. To this effect, the Portal carries
Enterprises (‘SOEs’) have their own public out two primary functions- publishing of
procurement code. The General Financial Rules information relating to procurement as well
(‘GFR’) developed by the Ministry of Finance as acting as a medium for the procurement
establish principles and procedures for government process. It is mandatory for all ministries and
procurement. All government purchases must departments of central and state governments
follow the principles outlined in the GFRs. GFR as well as central public sector enterprises and
and the regulations formulated by government autonomous statutory bodies to publish tender
departments and SOEs include powers to make enquiries on the Portal.82
inquiries and blacklisting suppliers.
The Portal puts in the public domain all Notices
The issue of blacklisting has been challenged Inviting Tenders, details of archived tenders,
before the Supreme Court several times, bid award details and tender documents. User
however, Supreme Court has upheld the registration is not required to view all the
practice of blacklisting.79 Supreme Court information published on the Portal. The
has balanced the rights of suppliers to not be Portal aims to provide transparency to the
deprived of their livelihood and their right procurement process as well initiate a move
to participate in government contracts with towards adopting ‘electronic procurement
the power to blacklist by SOEs and weed out solutions.’ In addition, it seeks to be both cost
corruption in its rulings.80 and time effective, to reach a wide base of
bidders, to minimize human discretion during
In the absence of a comprehensive legal
the procurement cycle, as well as provide
and regulatory framework, it is a moot
access to a complete audit and evidential data
debate to consider how effective practices
pertaining to the procurement process.
such as blacklisting would be. Given the
poor enforcement and conviction in cases The Portal has links for active tenders where
relating to economic fraud and corruption, a search can be customized to be state wise,
it might be more purposeful for the product category wise, and date wise. Tenders
Government to think out-of-the-box in its have tender ID’s generated, and these ID’s along
approach to weeding out corruption.81 with tender titles, the name of the organization,
and descriptions of the tender can be used as
keywords to further enhance the search facility
III. Central Public on the Portal. The Portal also publishes a sector/
Procurement Portal ministry wise list of bidders along with the
particulars of such bidders.
The Central Public Procurement Portal (‘Portal’)
Since there is no law in force as regard public
consist of a National Portal as well as a ‘Mission
procurement, it is the GFR (as amended from time
Mode Portal’ which acts as a state portal. The
to time) which substantially applies to tenders.
Department of Expenditure, Government of

79. Erusian Equipment and Chemicals Ltd. State of West Bengal


& Anr. (1975) 1 SCC 70.
80. Kulja Industries Limited v. Chief General Manager W.T. Proj.
BSNL & Ors. 2013 (12) SCALE 423.
81. Anti-corruption laws – It’s time to think out of the box, Alipak
Banerjee and M.S. Ananth, Business Standard, October 2,
2014, available at http://www.business-standard.com/article/
opinion/alipak-banerjee-m-s-ananth-anti-corruption-laws-it- 82. Portal available at https://eprocure.gov.in/cppp/
s-time-to-think-out-of-the-box-114100200851_1.html. rulesandprocs.

© Nishith Desai Associates 2019 19


Provided upon request only

8. Whistle Blowers Protection Act


The Whistle Blowers Protection Act, 2014 another authority under law (a court or other
(‘Whistleblowers Act’) seeks to establish authority) may be seized of the matter.90
a mechanism to receive complaints relating
Upon receipt of a complaint, the Competent
to corruption or wilful misuse of power or
Authority will decide if the matter is one which
discretion by public servants, to inquire into
needs investigation. If it determines it does, it
those complaints, and prevent the victimization
shall conduct a discreet inquiry to ascertain
of the complainants.83 The definition of public
if there is a basis to proceed. If this is so, it
servant is the same as the definition provided
shall seek an explanation or a report from the
under POCA.84 Disclosure has been defined
concerned Head of Department. If, on receipt of
under Whistleblowers Act as a complaint
the concerned Head of Department’s comments,
relating to an attempt/commission of an offence
explanation, or inquiry, it finds that there has
under POCA, the wilful misuse of power or
been a wilful misuse of power or discretion, or
discretion causing loss to the Government, or
an act of corruption, it will recommend taking
an attempt to commit, or a commission of,
measures including, the imitation of proceedings
a criminal offence by a public servant, that made
or taking corrective measures against the public
in writing or electronic mail against a public
servant to the concerned public authority.91 The
servant before a Competent Authority.85
public authority then takes a decision, within
The complainant may be any public servant,
three months of receiving the recommendation,
or any person, and may include an NGO.86
on whether a given course of action should be
The Whistleblowers Act makes it mandatory for pursued. If it decides in the negative, it will record
the identity of the complainant to be disclosed its reasons for electing not to take action.
to the Competent Authority and stipulates
To safeguard the inquiry process,
that no action will be taken if the identity of
Whistleblowers Act prescribes a host of
the complainant proves to be false.87 However,
penalties. Making mala fide or false disclosures
the Competent Authority shall conceal the
can warrant imprisonment for up to two
identity of the complainant except in the
years and a fine of INR 30,000 under the
narrow circumstance that disclosure to a Head
Whistleblowers Act.92 If reports are not
of Department is necessary while making an
furnished to the Competent Authority during
inquiry. Even when this is so, written consent
an inquiry, the person may face a fine of INR
from the complainant is mandatory, and the
250/- per day till the reports are submitted,
Head of Department shall be directed not to
up to a sum of INR 50,000.93 The penalty for
disclose the identity of the complainant.88
revealing the identity of a complainant has
The Whistleblowers Act also makes it
been prescribed as imprisonment for a period
mandatory for the disclosure to be accompanied
of up to three years accompanied by a fine of
by full particulars and supporting documents.89
INR 50,00094 and knowingly providing false
The Whistleblowers Act provides for certain
or incomplete information to a Competent
classes of complaints which the Competent
Authority can sanction a penalty of INR 50,000.95
Authority need not take cognizance of, since

90. Section 6 of Whistleblowers Act.


83. Statement of objects and reasons.
91. Section 3(h) of Whistleblowers Act defines public authority as any
84. Section 3(i) of Whistleblowers Act.
authority/body/institution falling within the jurisdiction of the
85. Section 3(c) of Whistleblowers Act. Competent Authority.
86. Section 4(1) of Whistleblowers Act. 92. Section 17 of Whistleblowers Act.
87. Section 4(6) of Whistleblowers Act. 93. Section 15 (a) of Whistleblowers Act.
88. Section 5(4) of Whistleblowers Act. 94. Section 16 of Whistleblowers Act.
89. Section 4(4) of Whistleblowers Act. 95. Section 15 (b) of Whistleblowers Act.

20 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

The Whistleblowers Act also provides for The Whistleblowers Protection (Amendment)
safeguards against complainants making Bill, 2012 has introduced ten categories of
disclosures, as well as people making disclosures information in respect of which there is
during the inquiry process. Section 11 a prohibition on reporting or making disclosures.
provides that a person shall not be victimized These are the sovereignty, strategic, scientific,
or proceeded against merely on the ground or economic interests of India, records of
that he has made a disclosure or rendered deliberations of the Council of Ministers,
assistance to an inquiry. If a person is being anything that is forbidden to be published by
victimized, he may make an application to a court, anything relayed in a fiduciary capacity,
the Competent Authority which will take personal or private matters, information
action following a hearing with the public received by a foreign government, breach of
authority and the victim. This action can legislative privilege, anything that could impede
include restoring the victim to its original an investigation, commercial confidence/trade
position, and imposing a fine of INR 30,000 secrets/intellectual property, as well as anything
in the event of non- compliance with any that could endanger a person’s safety.98
orders issued by the Competent Authority.96
Moreover, if the Competent Authority is under
the impression that the complainant needs
to be protected, it may issue directions to the
concerned government authorities to protect
such persons.97

96. Section 11 of Whistleblowers Act.


97. Section 12 of Whistleblowers Act. 98. New clause 4.1.A

© Nishith Desai Associates 2019 21


Provided upon request only

9. International Standards – how India’s legal


and regulatory framework compares
I. United Nations Convention Government would do well to have a mechanism
Against Corruption, UNCAC to ensure that no claims under bilateral
investment treaties are made against India.
The UNCAC is a comprehensive convention
that provides for domestic rules and treatment II. OECD Guidelines
of transactions with foreign officials as well.
It provides for treatment of transactions of OECD Guidelines for Multinationals, 2011
public sector, private sector, preventive action, (‘OECD Guidelines’), provides for guidelines for
attachment etc. enterprises to combat bribery, bribe solicitation
and extortion. The measures provided in
As mentioned above, while the UNCAC has
the OECD Guidelines relate to substantive
defined certain key expressions, POCA and the
provisions in an anti-bribery legislation and
POCA Amendment Act do not. Further, despite
preventive measures to be adopted by
the recommendation of the Standing Committee,
a multinational enterprise. However it will be
there were no definitions even in the subsequent
seen that while even the OECD Guidelines lay
amendments of 2015. The POCA Amendment
stress on preventive measures, in India there
Act also do not provide for prosecution of
isn’t a unified code of conduct for companies (or
offences in the private sector even though
commercial organisations) to comply with the
a specific provision has been made in the UNCAC.
best anti-corruption practices.
UNCAC provides for liability of legal persons.
The OECD Convention on Combating Bribery
While LCI rightly noted that the absence
of Foreign Public Officials in International
of guidelines in respect of prosecution of
Business Transactions (‘OECD Bribery
commercial organisation and its officers
Convention’) mandates that every Party shall
under the POCA Bill was a matter of concern,
take measures in respect of criminalising
the POCA Amendment Act failed to address
offering of bribes to a foreign public official.
this concern of the LCI. While commercial
As mentioned above, POCA and POCA
organisations and key officers should be
Amendment Act do not provide for this
prosecuted, there needs to be certainty and
provision at all. Interestingly, the OECD
clarity in relation to the scope of such provisions.
Bribery Convention uses the expression ‘undue
As discussed in the sections above, UNCAC uses pecuniary or other advantage’. However, the
the expression ‘undue advantage’, which is also OECD Bribery Convention does define key
recommended by LCI. The usage of this expression provisions which are not defined in POCA.
is cleaner and capable of less ambiguity, whereas
Interestingly the OECD Bribery Convention
the expression ‘financial or other advantage’
and UNCAC provide that every Party shall
used in the POCA Amendment Act, may have
take measures to disallow deductions in
unintended consequences in its enforcement.
respect of illegal gratifications paid under the
An important provision of UNCAC that is domestic taxation statute. This disallowance
missing in India’s corruption laws is preventive is there. India’s laws also have clear provisions
anti-corruption policies and practices. Another in relation to contributions to political parties,
important provision of UNCAC that is missing disclosures and treatment.
in all the laws mentioned above is the right of an
aggrieved party to seek compensation / damages
for loss caused due to corrupt practices. The

22 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

However, as mentioned above, an area The 2011 ICC Rules have policies for compliance
where there is a conspicuous gap in India’s and these policies would go a long way in
legislative and regulatory framework, is in ensuring compliance with anti-corruption laws
relation to public procurement, prosecution of and ensuring preventive measures.
illegal gratifications in the private sector and
Apart from certain reporting obligations under
satisfactory preventive measures.
auditing standards and Companies Act, there
are no legally enforceable and binding standards
III. International Chamber of compliance. POCA, the POCA Amendment
of Commerce, Rules on Act and the proposed amendments of 2015 and
the Standing Committee unfortunately do not
Combating Corruption address this very crucial aspect.

The International Chamber of Commerce


(‘ICC’) published its Rules of Conduct to
Combat Extortion and Bribery in 1977 (‘ICC
Rules’). ICC Rules have been revised from time
to time and the latest are rules of 2011.

© Nishith Desai Associates 2019 23


Provided upon request only

10. Strategic Measures to mitigate risk of


doing business in India
I. Companies Act companies belonging to the following class
or classes for their directors and employees to
Companies Act has placed a lot of emphasis on report their genuine concerns or grievances-
Corporate Governance. In the wake of certain
ƒthe Companies which accept deposits from
scams related to mismanagement of a company,
the public;
Government was keen to incorporate checks
and balances in the Companies Act to protect ƒthe Companies which have borrowed money
shareholders and ensure compliance with laws. from banks and public financial institutions
in excess of fifty crore rupees;
Matters related to administration, management
and functioning of a company is provided for The Board or Audit Committee, wherever
in the Companies Act. The Companies Act also applicable oversee the Vigil Mechanism.
provides for rights, obligations and duties of
The Vigil Mechanism also aims to provide
directors. There are also checks and balances
adequate safeguards against victimization of
to ensure transparency in decision making
employees and directors who avail of the Vigil
process and accountability to the Board of
Mechanism and also provide for direct access
Directors (‘Board’) in respect of decisions taken.
to the Chairperson of the Audit Committee or
Additionally, certain persons are also charged
the director nominated to play the role of Audit
with responsibility for compliances under the
Committee by the Board.
Companies Act.
Companies Act provides for following
measures to ensure compliance, transparency
III. Risk Management Policy
and accountability:
Risk management is the process of making and
ƒVigil Mechanism, carrying out the decisions that will minimize
the adverse effects of the accidental losses of
ƒRisk Management Policy,
a company. The Companies Act is clear that
ƒSerious Fraud Reporting Office, the onus is on the Board to take responsibility
to identify the elements of risks and that in the
ƒClass Action Suit,99
opinion of the Board such risk may or may not
ƒReporting by Auditor(s), and, threaten the company.

ƒIndependent Directors appointment. Pursuant to Section 134(3) (n) of the Companies


Act the Board’s Report of an Indian company
Companies Act does not provide a Vigil
should contain a statement indicating
Mechanism itself – companies are at liberty to
development and implementation of a risk
draft a suitable policy depending on its needs.
management policy for the Company including
identification therein of element of risk, if any,
II. Vigil Mechanism which in the opinion of the Board may threaten
the existence of the company.
Section 177 of Companies Act introduced ‘Vigil
Thus it is a mandatory requirement for the
Mechanism’ for every listed company and the
Board of Directors to comment on the risk
management policy of the Company in their
99. The provisions relating to Class Action Suits have not yet Report i.e. Board’s Report and the Board should
been notified by Central Government. Therefore, as on date, ensure that a risk management policy is in
these provisions are not enforceable.

24 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

place. For better corporate governance, Risk Central Government may assign the investigation
management policy should also be approved into affairs of a company to the SFIO:
by the Board
ƒon receipt of a report of the Registrar or
The presence of a comprehensive policy may be inspector,
seen to demonstrate bona fides of a company. In
ƒon intimation of a special resolution passed
the event of any investigation or prosecution,
by a company that its affairs are required to
a company may be able to demonstrate that it
be investigated,
did what was reasonably possible by sensitising
employees, having workshops and even ƒin the public interest, or,
a compliance audit to ensure that employees
ƒon request from any Department of the
across the company, were aware of rights,
Central Government or a State Government.
obligations and duties under the law and in
respect of business transactions. Such measures No other investigating agency shall proceed
must however be aggressively and continuously with investigation in a case in respect of any
monitored, updated and implemented.100 offence under Companies Act, once the case has
been assigned to SFIO. The SFIO has power to
For instance, the Competition Commission in
arrest individuals if it has reason to believe that
a case101 directed a party (the Karnataka Film
he is guilty based on the material in possession.
Chamber of Commerce and other respondents
SFIO shall submit a report to the Central
in the proceeding) to have a compliance manual
Government on conclusion of investigation.
in place and to ensure that its members were
adequately educated about the law and their
obligations under the Competition Act. Further, V. Class Action Suit
parties were also directed to file a compliance
report within six months of the Competition The concept of Class Action Suit was
Commission’s order. recommended by J.J Irani Committee Report.
The concept of Class Action is new in Indian
context. Recently, class action suit were of
IV. Serious Fraud relevance in the context of the allegations of
Investigation Office fraud in Satyam in 2009. While investors in
India could only take recourse under ordinary
Section 211 of the Companies Act empowers civil law, investors in foreign jurisdictions
the Central Government to establish an office could claim compensations from the company
called Serious Fraud Investigation Office through class action suits or a similar litigious
(‘SFIO’) to investigate frauds relating to remedy. Section 245 of Companies Act provides
companies. Until the above mentioned SFIO that certain members or depositors or any class
is in place, the Serious Fraud Investigation of them are of the opinion that the management
Office set-up by the Central Government in or conduct of the affairs of the company are
terms of the Government of India Resolution being conducted in a manner prejudicial to
No. 45011/16/2003-Adm-I, dated the 2nd July, the interests of the company or its members
2003 shall be deemed to be the Serious Fraud or depositors, file an application before the
Investigation Office for this purpose. Tribunal on behalf of the members or depositors.
Unlike the provisions relating to prevention of
oppression and mismanagement under Section
100. Comply or Suffer: CCI Highlights Importance of Compliance
Manuals, by Abigael Bosch, Payer Chatterjee, M.S. Ananth 241 to 244, in a class action suit application
and Pratibha Jain, Nishith Desai Associates, International can be filed against the company, its Officers,
Financial Products & Services Committee, October 2015,
Volume 4, Issue 3. auditors, audit firm, any expert or advisor or
101. Kannnada Grahakara Koota & Anr. v. Karnataka Film consultant or any other person for any incorrect
Chamber of Commerce & Ors. Case No. 58 of 2012, decided or misleading statement made to the company
on July 7, 2015.

© Nishith Desai Associates 2019 25


Provided upon request only

or for any fraudulent, unlawful or wrongful act or duties and responsibilities of Independent
conduct or any likely act or conduct on his part. Directors towards the company and
shareholders and stakeholders. Among all
Among all other matters, an application under
corporate governance duties, an Independent
Class Action Suit may also be filed to restrain
Director is also required to report the concerns
company from committing any future action
about unethical behaviour, actual or suspected
which is ultra vires the memorandum and
fraud or violation of the company’s code of
articles of association of the company and
conduct or ethics policy. Additionally, the Code
to restrain the company from taking action
also requires the Independent Director to hold
contrary to any resolution passed by its members.
separate meeting at least once in every year to
review the performance of non-independent
VI. Reporting of Frauds by directors and the Board as a whole.
Auditor The adherence to this Code by Independent
Directors and the fulfilment of their
By introducing Section 143 of the Act, the responsibilities in a faithful manner is expected
Central Government requires the Auditor(s) of to promote the confidence of the investors,
the Company to maintain transparency and as stakeholders, minority shareholders, regulators
well as the interests of shareholders at large. in the company.
Section 143 (12) read with Section 143(15) of It is to be noted that Companies Act places
the Companies Act and its Rules require an several obligations and duties on the Board and
auditor of a company including branch auditor, individual directors as well. These are designed
cost accountant and company secretary in to ensure maximum corporate governance,
practice to report immediately to the Central accountability and transparency. In respect of
Government in the course of the performance of certain measures, such as transactions with
their respective duties has reason to believe that related parties, apart from disclosures to the
an offence involving fraud is being or has been Board, disclosures are also to be made in annual
committed against the company by officers or accounts and to shareholders regarding direct
employees of the company. and indirect interest of directors. Corrupt
practices may manifest in opaque forms and
indirectly. Indian law, including proposals to
VII. Independent Director amend the law, do not provide for prosecuting
private transactions are corrupt practices.
Section 149 (6) of Companies Act makes a special
Corrupt practices may manifest in opaque forms
provision for appointment of ‘Independent
and in an indirect manner. Internationally, the
Director’ to the following class of companies in
line may blur between a corrupt practice and
addition to a company listed on a stock exchange:
a commercial fraud, however, the two are quite
in India due to the law in force in India.
ƒPublic companies having paid up capital of
rupees ten crore or more or Experience shows that brands and goodwill that
are built over decades can be frittered away by
ƒPublic companies having turnover of rupees
careless employees and it is important to guard
one hundred crore or more or
against such acts of indiscretion or other wilful
ƒPublic companies having in aggregate lapses. Investors and directors would need to
outstanding loans, debentures and deposits ensure that the company and other directors
exceeding rupees fifty crore or more rigorously adhere to the highest standards of
integrity and accountability.
Section 149 also provides that the Independent
Directors should abide Code for Independent
Directors as specified in Schedule IV of
Companies Act (‘Code’). The Code states the

26 © Nishith Desai Associates 2019


Annexure I
Comparison of laws of US, UK, Singapore and European Union

© Nishith Desai Associates 2019


Provision India UK USA Singapore European Union
Anti – ƒ Prevention of Corruption Act, ƒ Bribery Act, US Foreign Corrupt ƒ Prevention of Corruption ƒ German Criminal
Corruption 1988 (‘POCA’) (amended most 2010 (‘UK Practices Act, Act, 1960 (‘Singapore Code
Legislation/ recently by way of the Prevention of Act’) 1977 (‘FCCPA’) POCA’) ƒ Council of Europe
Legal Corruption (Amendment) Act, 2018 (‘Convention’)
(“Amendment”) ƒ Companies Act, ƒ The Penal Code (‘PC’) Criminal Law
Framework 2006
ƒ The Parliament (Privileges Convention on
ƒ Indian Penal Code, 1860 (‘IPC’) ƒ Common law Immunities and Powers Corruption
ƒ Foreign Contributions Regulation Act offence of Act)
bribery ƒ Civil Law Convention
(‘FCRA’) on Corruption
ƒ The Political Donations
ƒ Representation of People Act, 1951 Act
ƒ Civil Law provides
(‘RPA’) for compensation
ƒ The Customs Act
ƒ All India Civil Service (Conduct) Rules for loss suffered
& Central Civil Service (Conduct) Rules due to corrupt
(collectively, “Conduct Rules’) practices, state
liability, liability of
ƒ Benami Transactions (Prohibition) Act, parties, validity of
1988 contracts affected
ƒ Prevention of Money Laundering Act, by corruption,
2002 requirement of
audit and accounts,
ƒ Companies Act, 2013 protection of
ƒ Lokpal and Lokyukta Acts employees and
interim measures.

27
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
28
Scope of Public servant under the IPC and POCA. Can be private Foreign official The Singapore POCA and the Criminal Law
Legislation (see The Amendment now extends the scope citizen or public (broader than Penal Code do not specifi- Convention
section on third of POCA to cover natural persons and officer ‘public servant’) cally deal with the bribery of on Corruption
parties and corporate entities engaging in providing a ‘foreign public official’, the Implementation of
intermediaries) bribes. statutes do not define this Program of Action
term, but the statute refers to against Corruption
‘Member of Parliament’ and
‘Member of Public Body’.
Important Under POCA Improper ƒ Issuers – ƒ Under Singapore POCA “Public official” shall
Definitions / Performance– Publically Gratification: given a be understood by
ƒ Gratification: means bribe, and is not Defined in traded very broad definition to reference to the
Interpretations limited to pecuniary gratification or to
sections 3, 4, and companies that include money or any definition of “official”,
gratifications estimable in money (s.7b
5. In summary, are registered gift, loan, fee, reward, “public officer”, “mayor”,
read with Section 2)
this means under commission, valuable “minister” or “judge” in
ƒ Undue advantage: means any performance the 1934 security or other property the national law of
gratification whatever, other than legal which amounts Securities and or interest in property; the State in which the
remuneration (s. 2d) to a breach of Exchange Act any office, employment person in question
an expectation or contract; any part or performs that function
ƒ Commercial organization: means: (a) that a person will ƒ Corruptly – full payment, release and as applied in its
a body which is incorporated in India Must have a
act in good faith, or discharge from any criminal law.
and which carries on a business, corrupt intent
impartially, or in obligation or other
whether in India or outside India; (b) The term “judge”
accordance with a ƒ Anything liability; any other service,
any other body which is incorporated referred to in sub-
position of trust. of value – favour or advantage
outside India and which carries on a paragraph above shall
interpreted of any description
business, or part of a business, in any include prosecutors
To assess whether broadly and whatsoever; and any offer,
part of India; (c) a partnership firm or and holders of judicial
an act is improper, can include undertaking or promise of
any association of persons formed in offices.
the test is of what a payment any such gratification.
India and which carries on a business
reasonable person of money, In the case of

© Nishith Desai Associates 2019


whether in India or outside India; or (d)
in the UK would provision proceedings involving a
any other partnership or association of
expect in relation of gifts and public official of another
persons which is formed outside India
to the performance entertainment, State, the prosecuting
and which carries on a business, or
of the type of travel, jobs, State may apply the
part of a business, in any part of India
function or activity internships, etc. definition of public
(as defined in s. 9(3) and applicable to
concerned. (Section official only insofar
s. 9 and s. 8 of POCA.
5(1) of the Bribery as that definition is
Act) compatible with its
national law.
Provided upon request only
Under FCRA ƒ Foreign ƒ Public body: defined “Legal person” shall
Official– broad broadly to include any mean any entity having
ƒ Foreign Contribution: means, inter interpretation. corporation, board, such status under the
alia, any donation, delivery, or transfer
Any type of council, commissioners applicable national
made by any ‘foreign source’ of any
government or other body which law, except for States
article.
official at any has power to act under or other public bodies
ƒ Foreign source: includes a foreign level and for the purposes of in the exercise of

© Nishith Desai Associates 2019


Government, foreign company or trust, any written law relating State authority and
as well as a citizen of a foreign country. ƒ Obtain or retain to public health, or to for public international
business – also
undertakings or public organisations.
ƒ Foreign company: includes a foreign defined broadly.
utility, or otherwise to
company under Companies Act, Anything that
administer money levied
subsidiary of a foreign company, furthers a
or raised by rates or
registered office/principle place of US person’s
charges in pursuance of
business of a foreign company, and interest, such
any written law.
an MNC as payments to
gain a contract,
ƒ Foreign hospitality: An offer, not being secure lower
casual, made in cash or kind
cost of import,
ƒ Relevant Person: A candidate for etc.
election, a newspaper columnist,
government servant, member of
legislature, political party/ its
office bearer, company engaged in
production or broadcast of audio
news/ audio visual/electronic news,
correspondent of company engaged
in news
Key Offences Offences under POCA: Section1 – Active Three categories of Section 5&6 of Singapore Art. 2 and Art. 3 –
Corruption (bribing) offenders: POCA – General prohibition Active and passive
Accepting, obtaining, attempting to obtain, on giving, promising or bribery of domestic
Section 1 makes ƒ Issuers
or agreeing to accept: offering, soliciting, accepting officials.
it an offence for a
Domestic or agreeing to receive a
Section 7 – obtaining or attempting to person (‘P’) to offer, ƒ Art.5 – Bribery of
concerns gratification in either the
obtain an undue advantage with an intent promise or give a foreign public officials.
public or private sector.
to perform a public duty improperly / financial or other
Art. 7 and Art. 8 –
dishonestly Under PC (s161- 165)
Active and passive
bribery in private sector.

29
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
30
Section 8 – giving or promising to give advantage to Certain other Scenarios that are covered Art. 9 – bribery of
an undue advantage to another person another person in persons that by the Penal officials in International
to induce / reward a public servant to one of two cases: are not issuers/ organisations.
Code include a public
perform their public duty improperly domestic concerns
Case 1 applies servant (including any Art. 10 – Bribery
that are acting
Section 9 – commercial organizations where P intends the person expecting to be a of members of
while in the US
shall be punishable with a fine, if persons advantage to bring public servant) taking a international
associated with such organizations give or about the improper Bribery Offence gratification, other than legal parliamentary
promise to give any undue advantage to a performance by Prohibits US remuneration, in respect assemblies.
public servant another person of a companies and of an official act; a person
Art. 11 – Bribery of
relevant function or individuals, US taking a gratification in
Section 10 – directors, managers, judges and officials of
activity or to reward issuers, and order to influence a public
secretaries or other officers of a international courts.
such improper anyone acting in servant by corrupt or illegal
commercial organization which have
performance. the US from: means; and a person taking Art. 18 – Provides for
consented or connived to commit an
a gratification for the exercise liability of companies
offence under s. 9, will also be liable for Case 2 applies Corruptly offering,
of personal influence with a as well.
punishment and fine where P knows or promising,
public servant.
believes that the authorizing or
Section 11 – obtaining undue advantage
acceptance of the paying, anything Parliament (Privileges,
without consideration
advantage offered, of value to any Immunities and Powers) Act-
Section 12 – those who abet offences promised or given foreign official, to
Prohibits Members of
under POCA will also be liable for in itself constitutes obtain and retain
Parliament from benefiting
punishment and fine the improper business, or to
from a debate in the
performance of a secure any other
Section 17 – Prior approval of relevant House in which they have a
relevant function or improper business
body in whose employment said offence pecuniary interest. (Section
activity advantage
was committed, to be taken before 32).
commencing Inquiry / investigation Section 2 – Passive
FCPA also prohibits
Corruption (being Customs Act-
Section 18A – attachment and forfeiture the payment of
bribed)

© Nishith Desai Associates 2019


of tainted property bribes indirectly Customs Act Specifically
Section 6 – Active
through a third provides for penalties
Offences under IPC (Chapter IX) Offences bribery of a foreign
person for receiving bribes, and
by or related to Public Servants (similar official
presumes monies in the
to POCA offences) Offences relating to The FCPA, unlike
The offence is possession of a Customs
Elections – section 171B defines briber the Bribery Act,
committed where officer which cannot be
as – Whoever gives a gratification to any requires a ‘corrupt
a person offers, accounted for to be corruptly
person to induce or reward the “exercise intent’ Accounting
promises or gives obtained. (Section 138).
of electoral rights” Offence
a financial or other
advantage
Provided upon request only
Offences under the FCRA (predominantly to a foreign Section 78(b) (2) of Distinctive Features
supply side) public official with the FCPA provides
S 9 of Singapore POCA: An
the intention of for an accounting
Prohibits certain categories of persons accepter of gratification can
influencing the obligation
from receiving foreign contributions be considered guilty even
official in the applicable to
if he does not intend to,
Section 3 (1) – For Relevant Person to performance of issuers. This
or does not in fact, return
accept a Foreign Contribution Section 3(2) his or her official provision requires
the favour, or if he doesn’t

© Nishith Desai Associates 2019


(a) – For Indian resident or Indian citizen functions. issuers to both
have the power, right, or
outside India, on behalf of any maintain books,
The person offering, opportunity to return the
records and
political party or a Relevant Person, to promising or giving favour
accounts that are
accept a Foreign Contribution 3(2)(b) – the advantage
fair and accurate,
See Position on Intermediaries* must also intend S 23 of Singapore POCA:
as well as maintain
to obtain or Expressly disallows
a system of
retain business admission of evidence
internal accounting
or an advantage to show that any alleged
controls.
in the conduct gratification is customary in
of business by any profession or trade
doing so. However,
Section 24 Singapore POCA:
the offence is
Allows pecuniary resources
not committed
that can’t be accounted for
where the official
to be admissible as evidence
is permitted or
in Court.
required by the
applicable written
law to be influenced
by the advantage.

Section 7- Company
failing to prevent
bribery (corporate
offense) (strict
liability)
A commercial
organisation
will be liable to
prosecution if a
person associated
with it bribes

31
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
32
another person
intending to obtain
or retain business
or an advantage
in the conduct of
business for that
organization
Common Law
Offence
No universal
definition, agreed
upon components
include:
Offering, giving or
receiving – Any
undue reward – By
or to any person
whatsoever in a
public office – In
order to influence
his behaviour in
office and incline
him to act contrary
to the known rules
of honesty and
integrity.
Under Representation of the People Act, Political Donations Act- Apart from any measure

© Nishith Desai Associates 2019


Anti –
Corruption 1951 Requires candidates of each Party, Art. 10
Legislation standing for political and Art. 11 of Criminal
Section 29B identifies conditions under
relating to elections to declare the Law Convention
which political parties are entitled to
Public Office donations they receive. on Corruption also
accept contributions both outside and
provide for bribing
during election cycles Section 11(b) punishes
parliamentary
bribery by Member of
assemblies and
Under FCRA – see above Parliament and Section 12(b)
judges and officials of
Under the Companies Act 1956 punishes Bribery by Member
international courts.
of Public Body.
Provided upon request only
Government companies (more than 50%
shareholding is Government of India), and
companies that have been in existence for
less than three years are not permitted
to make political contributions. Total
contribution by company should not

© Nishith Desai Associates 2019


exceed 7.5% of the company’s average net
profit during the three preceding financial
years.
Section 171 of IPC provides that whoever
gives a gratification to any person to
induce or reward the ‘exercise of electoral
right’ commits the offence of bribery
Type of Benefit Pecuniary/Non Pecuniary Pecuniary/Non Pecuniary/Non pecuniary Active and passive.
Pecuniary Criminal Law
Convention on
Corruption uses the
expression ‘undue
advantage’ under
Articles 2, 3, 8 and 12.
Whether Attempt to influence a public servant is FCRA does not Under section 9 of Singapore Convention does not
success also an offence under Section 9 of POCA. require that POCA, an acceptor of contemplate success
necessary a corrupt act gratification can be as a necessity.
succeed in its considered guilty even if
purpose – it covers he does not intend to, or
attempted bribery does not in fact, return the
and conspiracy to favour, or even if he does
bribe not have the power, right
or opportunity to return the
favour.

33
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
34
Penalty Under POCA, imprisonment ranges from Under section For violating anti- Under the Singapore P.O.C.A., As per domestic law.
3 to 7 years and also legislates for fine to 11, the maximum bribery provision any person found guilty of
be imposed penalties that can an offence shall be liable
be imposed on an ƒ FCPA to conviction to a fine or to
provides that
individual convicted imprisonment, or both.
corporations
of an offence under
and other
section 1, 2 or 6 is Under S.13 (1), Singapore
business
an unlimited fine P.O.C.A., the Court shall also
entities are
and imprisonment order him to pay a penalty
subject to a
for up to 10 years. equivalent to the amount of
fine of up to $2
bribes received.
million.
ƒ Individuals, The Corruption, Drug
including Trafficking and Other Serious
officers, Crimes (Confiscation of
directors, Benefits) Act, under S.29 of
stockholders, the Act allows the Court to
and agents confiscate properties and
of companies, pecuniary resources from
are subject to corrupt offenders, if the
a fine of up to said properties are found
$250,000 and to be benefits of corruption
imprisonment offences.
for up to five
years.
For violating
accounting
provision

© Nishith Desai Associates 2019


ƒ FCPA
provides that
corporations
and other
business
entities are
subject to a
fine of up to
$25 million
Provided upon request only
ƒ Individuals are
subject to a
fine of up to
$5 million and
imprisonment
for up to 20
years

© Nishith Desai Associates 2019


Under the
Alternative Fines
Act, courts may
impose significantly
higher fines than
those provided by
the FCPA—up to
twice the benefit
that the defendant
obtained by
making the corrupt
payment, as
long as the facts
supporting the
increased fines
are included in the
indictment and
either proved to
the jury beyond
a reasonable
doubt or admitted
in a guilty plea
proceeding
Enforcement ƒ Under the new Lokpal and Lokyukta The Serious Fraud ƒ The ƒ The Corrupt Practices Under Articles 20 and
Agencies Acts, a Lokpal, an ombudsman has Office (SFO) Department Investigation Bureau 21 of the Criminal
been appointed at the central and of Justice is (“CPIB”) (primary Law Convention on
state levels, respectively, to serve as responsible for watchdog) Corruption.
a public watchdog at the Central and FCPA violations
State Levels ƒ Attorney-General’s
Chambers (“AGC”).

35
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
36
ƒ It has wide powers to prosecute all ƒ The Securities ƒ Commercial Affairs
offending politicians, ministers, and and Exchange Department (“CAD”).
senior civil servants, including the Commission
Prime Minister. ƒ Monetary Authority of
Singapore (“MAS”).
ƒ The Central Vigilance Commission ƒ The Singapore Exchange
ƒ The Auditor and Comptroller General Limited (“SGX”).
of India
Territorial India and to foreign payments from abroad Has widest extra – The FCPA also Extra – territorial jurisdiction Applies to members
Application in India. territorial reach. applies to certain can be exercised against under Article 34 of
foreign nationals Singapore citizens the Criminal Law
An offence may
or entities that committing corruption Convention on
be prosecuted
are not issuers or offences outside Singapore. Corruption.
when any act or
domestic concerns.
omission forming
This may be either Under s.37 of Singapore
part of the offence:
directly or through POCA, where any Singapore
Takes place in
an agent that citizen commits a corruption
the UK Done by
engages in any act offence outside Singapore,
a person with a
in furtherance of a he may be dealt with in
‘close connection’
corrupt payment (or respect of that offence as if
with the UK (s.
an offer, promise, it had been committed within
12)2)c)) Close
or authorization Singapore.
connection- place
to pay) while in
of incorporation,
the territory of the
place of residence,
United States.

citizenship However, Also, officers,

© Nishith Desai Associates 2019


no requirement of directors,
a close connection employees, agents,
with the UK for s. 7 or stockholders
offence. acting on behalf
of such persons
or entities may
be subject to the
FCPA’s anti-bribery
prohibitions.
Provided upon request only
Private bribery Under POCA: Both ‘bribe-givers’ and ‘bribe Covers bribery on a Does not cover Nowhere mentioned in the Applies to members
takers’ are liable for punishment and fine. private level bribery on a private Prevention of Corruption under Articles 7 &
level, although Act that it applies to the 8 of the Criminal
Under IPC: Covers private persons under
some articles Private Sector, but as per Law Convention on
criminal breach of trust provisions
suggest that it can the information on the Corruption.
be prosecuted / Government Website of
enforced under Singapore, “The Corruption

© Nishith Desai Associates 2019


other US legislation Practices Investigation
Bureau (C.P.I.B.) is
investigates all corruption
cases, whether it involves
public or private sector
individuals or members of
the public. Regardless of the
person’s rank, seniority and
political affiliations, no one is
exempted from the law”.
Position on No exemption provided. Any payment No exception The FCPA’s S.12(a)(ii) of the Singapore Where mentioned,
Facilitation made or benefit provided to a public provided under the bribery prohibition POCA prohibits facilitation cannot be found.
payments servant to influence him or her in their Bribery Act (Some contains a payments
official capacity or expedite an official articles suggest narrow exception
process would amount to bribery under that it depends for “facilitating
the POCA. on the facts and or expediting
circumstances of payments” made
the case) in furtherance
of routine
governmental
action. The
facilitating
payments
exception applies
only when a
payment is made
to further “routine
governmental
action” that

37
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
38
involves non-
discretionary
acts.160 Examples
of “routine
governmental
action” include
processing visas,
providing police
protection or
mail service, and
supplying utilities
like phone service,
power, and water.
Position On Gifts ƒ Can trigger the On Hospitality Public Prosecutor v Soh The Criminal Law
on Gifts/ Section 6 & 7 Cham Hong [2012] SGDC 42 Convention in European
ƒ Governed by the Conduct Rules The Department
Hospitality offence by a The Singapore courts have Union discusses Active
which set specific guidelines on the of Justice and
business if not held that questionable and Passive Bribery.
value of gifts that may be accepted Securities
reasonable and payments made pursuant to
in furtherance of local or religious Exchange
proportionate industry norms or business
customs Commission
to the norms of customs will not constitute a
Resource Guide to
ƒ The Central Vigilance Commission also the industry defence to any prosecution
the FCPA (“Guide”)
has its own gift policy brought under Singapore
ƒ Question states that the
POCA
ƒ Definition of gift provided under s.11 of fact and FCPA does not
and s.13 of Conduct Rules circumstance penalize providing
genuine hospitality
ƒ Under Conduct Rules, gifts may be Bona fide
if there is no
accepted by government servants hospitality and
corrupt intent.
from close ones with who the servant promotional

© Nishith Desai Associates 2019


has no official dealings on special expenditure is not This applies for
occasions (weddings, funerals) in caught by the Act. low cost hospitality
accordance with prevailing practice (beverages, snacks,
promotional
ƒ However, report must be made if gift items) as much
exceeds a certain amount (25,000 in
as it applies for
case of servants covered by All India
hospitality that has
Service Rules).
a more substantial
cost.
Provided upon request only
On Gifts
ƒ For gifts received on other occasions/ On the subject of
not from close ones, threshold is Rs.
gifts, the Guide
5000/-.
states that It is
ƒ POCA bars public servants from appropriate to
obtaining valuables without provide reasonable
consideration under s11. gifts to foreign

© Nishith Desai Associates 2019


officials as tokens
ƒ Gift covered under Conduct Rules may of esteem or
be gratification under IPC.
gratitude. However,
On Hospitality it is important that
such gifts
ƒ Conduct Rules state that a member
of the service shall avoid “accepting ƒ be made
lavish hospitality or frequent openly and
hospitality from persons having transparently
official dealings with them or from
industrial or commercial firms or other ƒ be properly
recorded in
organizations”
a company’s
ƒ India has “Guidelines regarding books and
Foreign Travel of Ministers and State records
Government Officials” to address
foreign travel of ministers and state ƒ given only
where
government officials – prescribe cases
appropriate
in which clearance from Ministry of
under local law
Home Affairs is needed
ƒ customary
ƒ Section 6 of FCRA prescribes that no where given
members of legislature, office bearer,
judge, government servant, or any ƒ reasonable for
other govt. controlled body shall accept the occasion
foreign hospitality when travelling
abroad without prior permission

39
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
40
Position on Under FCRA Section 1(5) of the The FCPA also S.5 of Singapore POCA As regards the
Intermediaries* Bribery Act states prohibits the position in European
ƒ Section 3(2)(b) – For any Indian that the section payment of bribes Union , the Criminal
and third resident (or any Indian citizen outside
parties applies whether indirectly through Law Convention on
India) to deliver to any person any
the advantage is a third person. For Corruption contains
currency which has been accepted
offered, promised, these payments, the following provision
by a ‘foreign source’ if the resident/
or given directly or coverage arises pertaining to
overseas citizen has reasonable cause
via a third party where the payment intermediaries-
to believe/knows that such other
is made while
person intends to deliver the currency ƒ 22. The European
“knowing” that all
to a political party or Relevant Person. Union Convention
or a part of the
on the fight
ƒ Thus, third party intermediaries’ payment will be
against corruption
resident in India are explicitly passed on to a
involving officials
prohibited from giving or acting as foreign official.
of the European
intermediaries with respect to giving of
The Foley- MZM Communities or
such contributions.
Guide states that officials of Member
Under POCA use of third parties States of the
can present European Union
ƒ POCA prohibits other persons from: additional FCPA (Council Act of 26
ƒ taking undue advantage by corrupt risks, as bribes May 1997) defines
or illegal means to influence a public made by third active corruption
servant and parties in India as “the deliberate
(agents, brokers. action of whosoever
ƒ As a motive or reward for inducing, by Consultants, sales promises or gives,
exercise of personal influence, any
reps, etc.) can directly or through
public servant
cause the US an intermediary, an
ƒ Also, as stated above, the abetment of company to be held advantage of any
public servants is also an offence liable if they are for kind whatsoever

© Nishith Desai Associates 2019


the benefit of the to an official for
company and its himself or for a
subsidiaries. third party for him
to act or refrain
from acting in
accordance with
his duty or in the
exercise of his f
Provided upon request only
unctions in breach
of his official duties”
(Article 3). Passive
corruption is defined
along the same lines.
ƒ 23. The Convention
on Combating

© Nishith Desai Associates 2019


Bribery of Foreign
Public Officials in
International Busi-
ness Transactions
(adopted within the
OECD on 17 Decem-
ber 1997) defines,
for its part, active
corruption, as the
act by any person of
“intentionally to offer,
promise or give any
undue pecuniary
or other advantage,
whether directly or
through intermedi-
aries, to a foreign
public official, for
that official or for a
third party, in order
that the official
act or refrain from
acting in relation to
the performance
of official duties,
in order to obtain
or retain business
or other improper
advantage in the
conduct of interna-
tional business”.

41
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
42
42. “Receiving” may
for example mean
the actual taking the
benefit, whether by the
public official himself
or by someone else
(spouse, colleague,
organisation, political
party, etc) for himself or
for someone else. The
latter case supposes
at least some kind of
acceptance by the
public official. Again,
intermediaries can
be involved: the fact
that an intermediary is
involved, which would
extend the scope
of passive bribery
to include indirect
action by the official,
necessarily entails
identifying the criminal
nature of the official’s
conduct, irrespective of
the good or bad faith
of the intermediary

© Nishith Desai Associates 2019


involved.
Accounting/ There is an obligation under the Companies Act FCPA provisions The Companies Act No specified
Books of Companies Act to state ‘true and fair 2006 includes an that apply only to requires keeping of proper legislation, but under
Record accounts’, which could be violated in offence of failing issuers. corporate books and records, Financial Reporting,
these cases, entailing personal criminal to keep adequate maintaining of proper the European Union
The FCPA requires
liability for officers of the company. accounting records accounting records (including has introduced
publically traded
the profit and loss accounts rules to promote
companies ‘make
and balance sheet of the the convergence of
and keep books,
company), appointment of accounting standards
external auditors, and filing of at global level and to
Provided upon request only

annual returns.
records, and ensure consistent and
accounts, which, comparable financial
in reasonable reporting across the EU.
detail, accurately
Under EU rules, listed
and fairly reflect
companies (those
the transactions
whose securities are
and dispositions of
traded on a regulated

© Nishith Desai Associates 2019


the assets to the
market) must prepare
issuer.
their consolidated
financial statements
in accordance
with a single set
of international
standards called IFRS
(international financial
reporting standards).
Other requirements
apply to non-listed
companies and small
businesses.
Companies with
limited liability doing
business in the EU,
whatever their size,
have to prepare annual
financial statements
and file them with
the relevant national
business register.
Groups have to prepare
consolidated financial
statements.

43
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
44
Financial statements
have to include – as a
minimum – the balance
sheet, the profit and
loss account and a
certain number of
notes to the financial
statements. Large
and medium-sized
companies also have
to publish management
reports.
The rules companies
have to follow when
preparing financial
statements are laid
down in directive
2013/34/EU, known
as the ‘accounting
directive’. The aim
of this directive is to
harmonise national
requirements about
ƒ Presentation and
content of annual
or consolidated
financial statements

© Nishith Desai Associates 2019


ƒ Presentation
and content of
management
reports
ƒ The measurement
basis companies
use to prepare their
financial statements
Provided upon request only
ƒ Audit of financial
statements
ƒ Publication of
financial statements
ƒ The responsibility of
management with

© Nishith Desai Associates 2019


regards to all above
The accounting
directive also aims
at reducing the
administrative burden
for small companies.
It allows a simplified
reporting regime for
small and medium-
sized enterprises and
a very light regime for
micro-companies (those
with less than 10
employees).
The directive includes
a definition of micro,
small, medium and
large companies
based on thresholds
concerning turnover,
total assets and
number of employees.
These thresholds are
periodically updated to
keep pace with inflation.
A further simplifies can
also be found here on
this link.

45
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
46
Tax treatment Payments with an illegal purpose cannot Although, the European
be deducted as expenses under Indian tax Union does not have
laws. Therefore, recording such payments a direct role in raising
as expenses, and recording fictitious taxes or setting tax
expenses, could be construed as tax rates. The amount of
evasion. tax you pay is decided
by your government, not
the EU.
The EU’s role is to over-
see national tax rules
– to ensure they are
consistent with certain
EU policies, such as:
ƒ Promoting economic
growth and job
creation
ƒ Ensuring the free
flow of goods,
services and capital
around the EU (in
the single market)
ƒ Making sure
businesses in one
country don’t have
an unfair advantage
over competitors in

© Nishith Desai Associates 2019


another
ƒ Ensuring taxes don’t
discriminate against
consumers, workers
or businesses from
other EU countries.
Furthermore, EU
decisions on tax
matters require
Provided upon request only
unanimous agreement
by all member
governments. This
ensures that the
interests of every single
EU country are taken
into account.

© Nishith Desai Associates 2019


Defences Under section 7 The FCPA’s
anti-bribery
There is a defence
provisions contain
if the relevant com-
two affirmative
mercial organization
defenses: (1) that
had in place ade-
the payment was
quate procedures
lawful under the
designed to prevent
written laws of the
persons associated
foreign country
with the commer-
(the “local law”
cial organization
defense), and (2)
from undertaking
that the money
such conduct.
was spent as part
Under Section 13 of demonstrating
a product or
(1) It is a defence
performing a
for a person
contractual
charged with a
obligation (the
relevant bribery
“reasonable and
offence to prove
bona fide business
that the person’s
expenditure”
conduct was
defense).
necessary for— (a)
Because these
the proper exercise
are affirmative
of any function
defenses, the
of an intelligence
defendant bears
service, or (b) the
the burden of
proper exercise of
proving them
any function of the
(See facilitating
armed forces when
payments for an-
engaged on active
other defence)

47
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India

service.
48
Landmark •
ƒ ƒ (Private citizen) Former The On-Going European
cases/ 2G Scam National University of Budget Fraud-EU
scandals •
ƒ Singapore (NUS) law budget fraud has
Coal Allocation Scam professor, Tey Tsun Hang historically taken
(Tey) was first charged in a wide range of
July 2012 with six counts forms, from farmers
of corruptly obtaining seeking payments for
gratifi cation from his climatically impossible
former student. These sugar cane cultivation
six charges consisted to the channelling of
of receiving sexual funds for immigration
favours and gifts, as projects to what some
an inducement for Tey have labelled terrorist
to show favour in his groups.
assessment of his
student’s academic All types of EU budget
grades. fraud probably stem
from inadequate
ƒ (Public officer) Peter Lim, budgetary control
the Chief of Singapore
measures. This partly
Civil Defence Force
comes from factors
favoured IT related
inherent in the EU’s
government tenders
structure, such as the
to certain companies
‘Own Resources’ system
in exchange for sexual
for funding the EU
favours.
and the decentralized
implementation system
which puts the bulk

© Nishith Desai Associates 2019


of the responsibility
for collecting and
distributing EU funds on
the member states.
Despite much
anti-fraud work and
reinforced internal
controls within the EU
and the member states,
successive
Provided upon request only
scandals have surfaced
that have led to an
impression among
the public that there
is an unwillingness or
inability to take action
against malpractice,

© Nishith Desai Associates 2019


fraud and corruption,
which undermines
public support for the
EU.
The 2011 Cash for
Influence Scandal-The
former Austrian MEP
Ernst Strasser was
convicted of attempting
to change laws in the
European Parliament
on behalf of a business
offering to pay him
€100,000 a year.
Strasser, a former
minister who was
said to have used
his role as an MEP
to work secretly as a
lobbyist, was exposed
during an undercover
investigation by The
Sunday Times three
years ago.

49
A Legal, Regulatory, Tax and Strategic Perspective
Overview of Anti-Corruption Laws in India
50
He was jailed for three
years after being found
guilty of corruption by a
court in Vienna. It was
the second time he
had been convicted of
the same offence. An
earlier verdict had been
overturned on appeal.
Bills/ un Public Procurement Bill (lapsed)
notified Acts
Position in CPI Rank 81 Rank 10 Rank 16 7 (2015) & 6 (2017) Germany- 11 (2015) &
Index, 2017. 12 (2017)

© Nishith Desai Associates 2019


Provided upon request only
Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

About NDA
At Nishith Desai Associates, we have earned the reputation of being Asia’s most Innovative Law Firm
– and the go-to specialists for companies around the world, looking to conduct businesses in India
and for Indian companies considering business expansion abroad. In fact, we have conceptualized
and created a state-of-the-art Blue Sky Thinking and Research Campus, Imaginarium Aligunjan, an
international institution dedicated to designing a premeditated future with an embedded strategic
foresight capability.
We are a research and strategy driven international firm with offices in Mumbai, Palo Alto
(Silicon Valley), Bangalore, Singapore, New Delhi, Munich, and New York. Our team comprises
of specialists who provide strategic advice on legal, regulatory, and tax related matters in an
integrated manner basis key insights carefully culled from the allied industries.
As an active participant in shaping India’s regulatory environment, we at NDA, have the expertise
and more importantly – the VISION – to navigate its complexities. Our ongoing endeavors in
conducting and facilitating original research in emerging areas of law has helped us develop
unparalleled proficiency to anticipate legal obstacles, mitigate potential risks and identify new
opportunities for our clients on a global scale. Simply put, for conglomerates looking to conduct
business in the subcontinent, NDA takes the uncertainty out of new frontiers.
As a firm of doyens, we pride ourselves in working with select clients within select verticals on
complex matters. Our forte lies in providing innovative and strategic advice in futuristic areas of
law such as those relating to Blockchain and virtual currencies, Internet of Things (IOT), Aviation,
Artificial Intelligence, Privatization of Outer Space, Drones, Robotics, Virtual Reality, Ed-Tech,
Med-Tech & Medical Devices and Nanotechnology with our key clientele comprising of marquee
Fortune 500 corporations.
The firm has been consistently ranked as one of the Most Innovative Law Firms, across the globe.
In fact, NDA has been the proud recipient of the Financial Times – RSG award 4 times in a row,
(2014-2017) as the Most Innovative Indian Law Firm.
We are a trust based, non-hierarchical, democratic organization that leverages research and knowledge
to deliver extraordinary value to our clients. Datum, our unique employer proposition has been
developed into a global case study, aptly titled ‘Management by Trust in a Democratic Enterprise,’
published by John Wiley & Sons, USA.
A brief chronicle our firm’s global acclaim for its achievements and prowess through the years –

ƒChambers and Partners Asia Pacific 2019: Band 1 for Employment, Lifesciences, Tax and TMT
ƒIFLR1000 2019: Tier 1 for Private Equity and Project Development: Telecommunications Networks.
ƒAsiaLaw 2019: Ranked ‘Outstanding’ for Technology, Labour & Employment, Private Equity,
Regulatory and Tax

ƒRSG-Financial Times: India’s Most Innovative Law Firm (2014-2017)


ƒMerger Market 2018: Fastest growing M&A Law Firm
ƒIFLR: Indian Firm of the Year (2010-2013)
ƒLegal 500 2018: Tier 1 for Disputes, International Taxation, Investment Funds, Labour &
Employment, TMT

© Nishith Desai Associates 2019 51


Provided upon request only

ƒAsia Mena Counsel’s In-House Community Firms Survey 2018- Only Indian Firm for Life Science
Practice Sector

ƒLegal 500 (2011, 2012, 2013, 2014): No. 1 for International Tax, Investment Funds and TMT
ƒIDEX Legal Awards 2015: Nishith Desai Associates won the “M&A Deal of the year”,
“Best Dispute Management lawyer”, “Best Use of Innovation and Technology in a law
firm” and “Best Dispute Management Firm”

52 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

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contents of this report.

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For any help or assistance please email us on ndaconnect@nishithdesai.com
or visit us at www.nishithdesai.com

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Provided upon request only

The following research papers and much more are available on our Knowledge Site: www.nishithdesai.com

Fund Formation: Social Impact The Curious Case


Attracting Global Investing in India MUMBA I SI LI C ON VALLE Y BAN G ALO RE S I N G A P ORE MU MBAI BKC N E W DE L H I MU NIC H N E W YO RK

of the Indian
Investors Gaming Laws
The Curious Case
of the Indian
Gambling Laws
Legal Issues Demysitified

February 2018

March 2018 © Copyright 2018 Nishith Desai Associates www.nishithdesai.com

July 2018 February 2018

Corporate Social Incorporation of Outbound


Responsibility & Company LLP in Acquisitions by
MU M BA I SI LI C O N VALLE Y BAN G A LO RE SI N G A P O RE M UMBAI BKC NEW DELHI MUNICH N E W YO RK

Corporate Social
Social Business India India-Inc
Responsibility & Social
Business Models in India Models in India
A Legal & Tax Perspective

March 2018

September 2014
© Copyright 2018 Nishith Desai Associates www.nishithdesai.com

March 2018 April 2017

Internet of Things Doing Business in Private Equity


India and Private Debt
Investments in
India

September 2018
January 2017 March 2018

NDA Insights
TITLE TYPE DATE
Blackstone’s Boldest Bet in India M&A Lab January 2017
Foreign Investment Into Indian Special Situation Assets M&A Lab November 2016
Recent Learnings from Deal Making in India M&A Lab June 2016
ING Vysya - Kotak Bank : Rising M&As in Banking Sector M&A Lab January 2016
Cairn – Vedanta : ‘Fair’ or Socializing Vedanta’s Debt? M&A Lab January 2016
Reliance – Pipavav : Anil Ambani scoops Pipavav Defence M&A Lab January 2016
Sun Pharma – Ranbaxy: A Panacea for Ranbaxy’s ills? M&A Lab January 2015
Reliance – Network18: Reliance tunes into Network18! M&A Lab January 2015
Thomas Cook – Sterling Holiday: Let’s Holiday Together! M&A Lab January 2015
Jet Etihad Jet Gets a Co-Pilot M&A Lab May 2014
Apollo’s Bumpy Ride in Pursuit of Cooper M&A Lab May 2014
Diageo-USL- ‘King of Good Times; Hands over Crown Jewel to Diageo M&A Lab May 2014
Copyright Amendment Bill 2012 receives Indian Parliament’s assent IP Lab September 2013
Public M&A’s in India: Takeover Code Dissected M&A Lab August 2013
File Foreign Application Prosecution History With Indian Patent
IP Lab April 2013
Office
Warburg - Future Capital - Deal Dissected M&A Lab January 2013
Real Financing - Onshore and Offshore Debt Funding Realty in India Realty Check May 2012

54 © Nishith Desai Associates 2019


Overview of Anti-Corruption Laws in India
A Legal, Regulatory, Tax and Strategic Perspective

Research @ NDA
Research is the DNA of NDA. In early 1980s, our firm emerged from an extensive, and then pioneering,
research by Nishith M. Desai on the taxation of cross-border transactions. The research book written by him
provided the foundation for our international tax practice. Since then, we have relied upon research to be the
cornerstone of our practice development. Today, research is fully ingrained in the firm’s culture.
Our dedication to research has been instrumental in creating thought leadership in various areas of law and
public policy. Through research, we develop intellectual capital and leverage it actively for both our clients and
the development of our associates. We use research to discover new thinking, approaches, skills and reflections
on jurisprudence, and ultimately deliver superior value to our clients. Over time, we have embedded a culture
and built processes of learning through research that give us a robust edge in providing best quality advices and
services to our clients, to our fraternity and to the community at large.
Every member of the firm is required to participate in research activities. The seeds of research are typically
sown in hour-long continuing education sessions conducted every day as the first thing in the morning. Free
interactions in these sessions help associates identify new legal, regulatory, technological and business trends
that require intellectual investigation from the legal and tax perspectives. Then, one or few associates take up
an emerging trend or issue under the guidance of seniors and put it through our “Anticipate-Prepare-Deliver”
research model.
As the first step, they would conduct a capsule research, which involves a quick analysis of readily available
secondary data. Often such basic research provides valuable insights and creates broader understanding of the
issue for the involved associates, who in turn would disseminate it to other associates through tacit and explicit
knowledge exchange processes. For us, knowledge sharing is as important an attribute as knowledge acquisition.
When the issue requires further investigation, we develop an extensive research paper. Often we collect our own
primary data when we feel the issue demands going deep to the root or when we find gaps in secondary data. In
some cases, we have even taken up multi-year research projects to investigate every aspect of the topic and build
unparallel mastery. Our TMT practice, IP practice, Pharma & Healthcare/Med-Tech and Medical Device, practice
and energy sector practice have emerged from such projects. Research in essence graduates to Knowledge, and
finally to Intellectual Property.
Over the years, we have produced some outstanding research papers, articles, webinars and talks. Almost on daily
basis, we analyze and offer our perspective on latest legal developments through our regular “Hotlines”, which go
out to our clients and fraternity. These Hotlines provide immediate awareness and quick reference, and have been
eagerly received. We also provide expanded commentary on issues through detailed articles for publication in
newspapers and periodicals for dissemination to wider audience. Our Lab Reports dissect and analyze a published,
distinctive legal transaction using multiple lenses and offer various perspectives, including some even overlooked
by the executors of the transaction. We regularly write extensive research articles and disseminate them through
our website. Our research has also contributed to public policy discourse, helped state and central governments
in drafting statutes, and provided regulators with much needed comparative research for rule making. Our
discourses on Taxation of eCommerce, Arbitration, and Direct Tax Code have been widely acknowledged.
Although we invest heavily in terms of time and expenses in our research activities, we are happy to provide
unlimited access to our research to our clients and the community for greater good.
As we continue to grow through our research-based approach, we now have established an exclusive four-acre,
state-of-the-art research center, just a 45-minute ferry ride from Mumbai but in the middle of verdant hills of
reclusive Alibaug-Raigadh district. Imaginarium AliGunjan is a platform for creative thinking; an apolitical eco-
system that connects multi-disciplinary threads of ideas, innovation and imagination. Designed to inspire ‘blue
sky’ thinking, research, exploration and synthesis, reflections and communication, it aims to bring in wholeness
– that leads to answers to the biggest challenges of our time and beyond. It seeks to be a bridge that connects the
futuristic advancements of diverse disciplines. It offers a space, both virtually and literally, for integration and
synthesis of knowhow and innovation from various streams and serves as a dais to internationally renowned
professionals to share their expertise and experience with our associates and select clients.

We would love to hear your suggestions on our research reports. Please feel free to contact us at
research@nishithdesai.com

© Nishith Desai Associates 2019


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Overview of Anti-Corruption Laws in India

© Copyright 2019 Nishith Desai Associates www.nishithdesai.com

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