To Bribe or Not To Bribe in India

A Brief Note on Corruption, and laws relevant laws, in India by Sajai Singh,
Partner, J. Sagar Associates
Highlights (read Lowlights)

The Government (its power and authority) comes with excessive levels of
discretion
Politics (and politicians and parties) come with a perceived assumption of
corruption
Indias has a vast, yet poorly paid Government bureaucracy
There is a need to fund expensive elections of the largest democracy in
the world
Several transactions are conducted on a cash basis, making monitoring
fund flows difficult
Lack of clarity whether facilitation payments are permitted, legal and
allowed
India has a culture where corruption is accepted!
The Corruption Perception Index (2010), published by Transparency
International, ranked India the 87th (out of 178 countries)
There has been a significant increase (or maybe more are being
reported) in bribery and corruption cases in India
Corruption in India appears to be more widespread in the construction
industry, especially in large infrastructure projects for power, telecom,
etc.
Public services like regional transport offices, railways and municipal
corporations suffer from the middlemen menace
Hospitals, civil supplies, urban development, electricity, and water
supplies have shown a remarkable turnaround, following e-governance
IT, ITES and BPO (business processing outsourcing) industries tend to be
less subject to bribery, since they have minimal exposure to taxes where
corruption is rampant
Bribes take the form of Harassment Bribes (where there is a demand for
money, to do or not to do an act, by a public servant) or Non-Harassment
Bribes (all other bribes, where there is no harassment to pay, like the
kinds of bribery that are believed to occur when government awards
large value contracts)
Lack of awareness of (and a need exists for conduct of compliance
programmes on) global anti-corruption laws (US Foreign Corrupt
Practices Act FCPA, and the UK Bribery Act), and their extraterritorial
reach, among Indian companies

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Bribery and corruption pose a serious threat to the sustained economic

progress of India and the operation of a free market
The
work
of
the
not-for-profit
organization,
Janaagraha
(http://www.ipaidabribe.com/), needs to be mentioned here, as it
illustrates how Indians are often compelled to give a bribe

Laws that Exist (at least on paper)

India has its set of anti-corruption laws; however, there are some interesting
features of these laws. These include:

No extra-territorial reach of Indian anti-corruption laws, unlike say the

UK Bribery Act or the US FCPA
Indian laws focus on the public sector and not to private sector
Indian laws endeavour to punish the bribe receiver (while punishment, at
similar levels, is prescribed for the bribe giver, usually the bribe giver is
considered just an abettor of the crime of bribery)
Indian laws also have a focus on the public servant / official, and who
falls within that category is often a matter of much debate
The primary legislation in this context is the Prevention of Corruption
Act, 1988. There are certain other legislations too, and these have been
discussed in the next section

Corruption featuring in Indian Statutes

Prevention of Corruption Act, 1988 (POCA)

Gratification taken by a public servant, other than his legal

remuneration, with respect to an official act or to influence its outcome,
is liable to minimum punishment of 6 months and maximum punishment
of 5 years imprisonment and fine. The public servant is also liable to the
same punishment if he accepts a valuable thing without paying for it, or
paying inadequately, from a person with whom he is involved in a
business transaction, in his official capacity.
POCA also penalizes a public servant for taking gratification to influence
the public by illegal means and for exercising his personal influence with
a public servant.
This statute punishes the bribe taking by a public servant, as well as the
bribe giving. The conviction may result, in both cases, in punishment of
anywhere between 6 months and 5 years imprisonment and fine.
While for most part the act of giving and taking a bribe are treated on
par, it is the general application of Section 12 that punishes the bribe
giver. The Section states - whoever abets any offence [pertaining to
bribery], whether or not that offense is omitted in consequence of the

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abetment, shall be punishable with imprisonment or a team which shall

be not less than 6 months but which may extend up to 5 years and shall
also be liable to fine. However, there is an exception to bribe giving or
abetment under Section 241, as - notwithstanding anything contained in
any law for the time being in force, a statement made by a person in any
proceeding against a public servant for an offence under Sections 7 to 11
or under Section 13 or Section 15, that he offered or agreed to offer any
gratification (other than legal remuneration) or any valuable thing to the
public servant, shall not subject such person to a prosecution 2 under
Section 12. Thus it would not be incorrect to state that the focus of the
statute is really the public servant expecting or taking a bribe.
The common perception that a bribe giver has immunity from
prosecution under POCA has an interesting fallout - more people are
willing to give bribes!
Who is a public servant? The definition under POCA is wide, including
within its purview any person who holds office by which they are
authorized or required to perform a public duty, including persons in
government service, judicial capacities, officers of registered local
authorities, office bearers of cooperative societies receiving financial aid
from the government, employees of universities, Public Service
Commission and banks.
For prosecution of a public servant, prior sanction from the Federal or
State Government is required.

Indian Penal Code, 1860 (IPC)

IPC, under Section 169 addresses the issue of a public servant unlawfully
buying or bidding for property. In such a case, the public servant is
punishable with imprisonment of up to 2 years or with fine or both. If the
property is purchased, it is liable to be confiscated.
Section 409 of IPC deals with criminal breach of trust by a public
servant. Here, the public servant may be punished with life
imprisonment or with imprisonment of up to 10 years and a fine.

1 Following Bharadwaj Media Private Limited v. State, 2008 146 DLT 108 (Del): 2008(1)
CCR 11:2008(2) Crimes 244, it is common knowledge that Section 24 is frequently used
by those wanting to carry out a sting operation to trap a public servant in the act of
bribe taking and seeking protection from the law.
2 In the matter of Bhupinder Singh Patel v. CBI, 2008 (3) CCR 247 at p. 261 (Del): 2008 Cri LJ
4396, it was held that this exemption would apply only if the bribe giver could establish that the
bribe was given unwillingly and in order to get the public servant trapped.

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Who is a public servant? The IPC definition includes government

employees; officers in the military, navy or air force; police, judges,
officers of Court of Justice; and officers / employees of any local authority
established by a Federal or State statute.

The Benami Transactions (Prohibition) Act, 1988 (Benami Act)

A benami transaction relates to a purchase of property under a false

name (of another person who does not pay for the property).
The Benami Act prohibits any benami transaction, except when a person
purchases property in his wifes or unmarried daughters name.
Persons entering into benami transactions are liable to be punished with
imprisonment of up to 3 years and a fine.
Confiscation of benami properties has also been provided for.

The Prevention of Money Laundering Act, 2002 (PMLA)

An offense of money laundering is committed if a person is a party to any

process connected with the proceeds of crime and projects such
proceeds as untainted property. Every banking company, financial
institution and intermediary is required to maintain a record of all
transactions of a specified nature and value, and verify and maintain
records of all its customers, and furnish such information to specified
authorities (similar to the KYC provisions that most banks across the
world follow).
The penalty for committing an offence of money laundering is
imprisonment for 3 to 7 years and a fine of up to Rs 5,00,000.
What are proceeds of crime? Basically any property obtained by a person
as a result of criminal activity related to certain offences listed in the
schedule to PMLA. A person may be charged with an offence of money
laundering only if he has been charged with committing an offence listed
in the schedule.
If the crime committed relates to an offence under the Narcotics Drugs
and Psychotropic Substances Act, 1985, the term of imprisonment may
extend up to 10 years.

Foreign Contribution Regulations Act, 2010 (FCRA)

The FCRA allows the Ministry of Home Affairs, Government of India, to

better control the ultimate use of funds received from abroad. This
statute regulates the acceptance and use of foreign contributions by
Indian entities.

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The purpose of FCRA inter alia is to increase compliance and to ensure

foreign funds are not routed to politicians, bureaucrats and public
servants.
FCRA applies to Indian citizens overseas, as well as to foreign associate
branches or foreign subsidiaries of Indian companies and bodies.
Banking and financial institutions have a statutory role and reporting
obligations (reporting the source and manner of foreign remittances).
This statute bars a range of persons from accepting foreign
contributions, including electoral candidates, members of the media, civil
servants, members of the judiciary, legislators, as well as political parties
and organizations.
What is foreign contribution? FCRA defines foreign contribution to
include any articles or currency, and also any securities as defined under
Section 2(h) of the Securities Contracts Regulation Act, 1956, and any
foreign securities as defined in Section 2(o) of the Foreign Exchange
Management Act, 1999.

UN Convention against Corruption

India is a signatory to (though India has yet to ratify) the UN Convention

against Corruption, since 2005. This Convention covers a wide range of
acts of corruption and also propounds several policy changes and
recommendations.

To Investigate or Not To Investigate

Authorities

Enquiry, investigation and prosecution of corruption complaints is

conducted by 3 main authorities. These are:
o The Federal Central Vigilance Commission (CVC);
o The Federal Central Bureau of Investigation (CBI); and
o The State Anti-Corruption Bureau (ACB).
Complaints related to money laundering by public servants are
investigated and prosecuted by the Federal Directorate of Enforcement
and the Financial Intelligence Unit, under the Ministry of Finance,
Government of India.
Ombudsman - various States have a lokayuktha or Ombudsman
empowered to improve governance and public administration at the
State level. Powers of lokayuktas includes investigation into bribery
allegations.

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CVC, a statutory body, supervises corruption cases in Government

departments. CVC may refer matters to either to the Central Vigilance
Officer (CVO) in each department or to the CBI.
While the CVC / CVO may recommend the action to be taken against a
corrupt public servant, however, the final decision to take or not to take
any disciplinary action against such a person rests on the Government
department.
The Federal CBI and various State ACBs investigate cases related to
corruption under the POCA and IPC. States often refer cases to the CBI,
who steps in to assist the ACB.
To initiate prosecution, the investigating agency requires prior sanction
of the Federal or State prosecutors, appointed by the Government,
thereafter undertake the prosecution process in appropriate courts.
POCA cases are tried by special Judges who are appointed by the Federal
or State Governments.

To Protect or Not to Protect Whistleblowers

The CVC has powers to act on information obtained from whistle blowers.
However, this avenue for disclosure of acts of bribery has not been of much
use. This is primarily because whistleblowers are hesitant to come forth. Lack
of protection available to whistleblowers is the reason for this hesitation.
While there has been much discussion on the subject and a Whistleblower
Protection Bill (based on the recommendations of the Law Commission of
India) is pending before Parliament, as we speak India does not have any
statute protecting whistleblowers.
Prevention of Bribery of Foreign Public Officials and Officials of Public
International Organizations
Another pending anti-corruption legislation, before the Indian legislature, is
The Prevention of Bribery of Foreign Public Officials and Officials of Public
International Organizations Bill. This would be Indias response to US FCPA
and the UK Bribery Act.
India and the Foreign Corrupt Practices Act
FCPA prohibits making, and offering to make, payments to foreign public
officials, including members of political parties, to further business interests. It
also requires that accurate books and records be kept for all transactions. This
statute impacts any US entity doing business, directly or indirectly, in India.

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Multi-national companies doing business in India, and their subsidiaries and

Joint Ventures routinely undertake several steps in order to secure FCPA
compliance, including:

Periodic / Routine due diligence.

Robust internal audit functions.
Strong internal training and education programs, including for vendors
and others dealing with the company.
Electronic-search techniques using key words or data-anomaly tests and
data mining through the accounting system are being used to help
expedite investigation.
Follow-up interviews of employees, vendors, customers, distributors and
suppliers help reveal violations.
Employee Policies / Code of Conduct, containing clear and concise FCPA
compliance procedures.

M&A with an Indian entity requires a crucial determination of any pre-existing

FCPA violations, since post transaction the US affiliate (usually parent) entities
would be held responsible for the actions of their Indian affiliate (subsidiary).
This is true even if the behavior occurred prior to the M&A transaction being
concluded.
The unique issue with FCPA vigilance is the fact that there is no threshold for
the dollar amount of infractions, and even small bribes may result in large
penalties. The two parts of FCPA may be referenced here:

The first, enforced by the Department of Justice (DOJ), prohibiting US

persons / firms, or those listed on a US stock exchange, from making and
offering to make payments to foreign government officials to obtain, or
retain, business or a business advantage; and
The second, enforced by the Securities and Exchange Commission (SEC),
requiring companies to maintain accurate books and records.

Both the above provisions may have a civil or criminal component; however,
the SECs focus is on the civil side. Penalties can include fines and
disgorgement of profits that an entity may have realized from its unlawful
conduct. Expensive monitors, which are also invasive and distracting from day
to day business activities, may be imposed on offending companies for lengths
of time. Fixing problems may often damage reputations.
To Conclude or Not To Conclude!
While concluding a deal with an Indian company, avoiding FCPA violations can
be a daunting task. However, continuing to do business in corruption-rich India
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can be equally challenging. A firm wide culture to abhor the concept of

corruption and bribery is key for any company planning on doing business in
India.
For more information, feel free to reach out to:
Sajai Singh
Partner, J. Sagar Associates
2 Frontline Grandeur
14 Walton Road
Bangalore 560001, Karnataka, India
Telephone: +91-9845078666

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