“ANTI CORRUPTION LAWS IN INDIA:NEED FOR

DETERRENCE”

A Project submitted in partial fulfilment of the course CRIMINAL LAW-I,

3rd SEMESTER during the Academic Year 2019-2020

SUBMITTED BY:
AESHNA RAGHUWANSHI
Roll No. - 1911
B.A, LL.B

SUBMITTED TO:
Dr. Fr. Peter Ladis F
Assistant Prof. of Criminal Law-I

August, 2019

CHANAKYA NATIONAL LAW UNIVERSITY, NAYAYA NAGAR,

MEETHAPUR, PATNA-800001
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 DECLARATION

I hereby declare that the work submitted in B. A. LL. B. (Hons.) Project report entitled “ANTI
CORRUPTION LAWS IN INDIA: NEED FOR A DETERRENCE” submitted at Chanakya
National Law University is an authentic record of my work carried out under the supervision of
Dr. Fr. Peter Ladis F. I have not submitted this work elsewhere for any other degree or
diploma. I am fully responsible for the contents of my project work.

SIGNATURE OF CANDIDATE:

NAME OF CANDIDATE: AESHNA RAGHUWANSHI

ROLL NO.: 1911

CHANAKYA NATIONAL LAW UNIVERSITY

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 ACKNOWLEDGEMENT

In the completion of this project, I would firstly like to thank Dr. Fr. Peter Ladis F, Faculty of
Law of Torts, whose guidance helped me a lot in structuring my project.

I owe the present accomplishment of my project to my friends, who helped me immensely

through materials throughout the project and without whom, I could not have completed it in the
present way.

I would also like to extend my gratitude to my parents and all those unseen hands who helped me
out at every stage of the project.

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 TABLE OF CONTENTS

INTRODUCTION .......................................................................................................................... 5

1. BRIEF OVERVIEW OF THE LAWS AND ENFORCEMENT REGIME ........................... 9

2. OVERVIEW OF ENFORCEMENT ACTIVITY AND POLICY........................................ 13

3. LAW AND POLICY RELATING TO ISSUES SUCH AS FACILITATION PAYMENTS

AND HOSPITALITY ................................................................................................................... 19

4. SUITABLE THEORY OF PUNISHMENT TO DEAL WITH CORRUPTION ................. 21

5. PROPOSED REFORMS IN ANTI CORRUPTION LAWS IN INDIA .............................. 24

6. CONCLUSION, CRITICISM AND SUGGESTION ........................................................... 26

BIBLIOGRAPHY ......................................................................................................................... 27

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 INTRODUCTION
Corruption has been seen as an immoral and unethical practice since biblical times. But, while
the Bible condemned corrupt practices,Chanakya in his teachings considered corruption as a sign
of positive ambition. Ironically, similar views are echoed by Mario Puzo in The Godfather!
Historical incidents of corrupt practices and modern theories of regulation of economic
behaviour might evoke a sense of fascination, however, there can be no doubt that in modern
business and commerce, corruption has a devastating and crippling effect. The annual Kroll
Global Fraud Report notes that India has among the highest national incidences of corruption
(25%). The same study also notes that India reports the highest proportion reporting procurement
fraud (77%) as well as corruption and bribery (73%). According to the Transparency
International Corruption Perception Index, India is ranked 81 out of 180 nations. These statistics
do not help India’s image as a destination for ease of doing business nor do they provide
investors with an assurance of the sanctity of Government contracts. In this decade, India has
witnessed amongst the worst scandals relating to public procurement 1. The Godfather, Mario
Puzo, Signet, 1969. Proverbs 29:4 – A just king gives stability to his nation, but one who
demands bribes, destroys it. Chanakya – His Teachings & Advice, Pundit Ashwani Sharma,
Jaico Publishing House, 1998: In the forest, only those trees with curved trunks escape the
woodcutter’s axe.The trees that stand straight and tall fall to the ground. This only illustrates that
it is not too advisable to live in this world as an innocent, modest man. 4. Page 100, Mario Puzo,
1969 – The breaking of such regulations was considered a sign of high-spiritedness, like that
shown by a fine racing horse fighting the reins1. Transparency International’s Corruption2
Perception Index resulting in unprecedented judicial orders cancelling procurement contracts.
While these unprecedented judicial orders galvanised the Government toward framing the Public
Procurement Bill, 2012, the same has since lapsed. The Finance Minister had mentioned a new
public procurement bill in his Annual Budget Speech in 2015, however, this bill was not
introduced. In India, the law relating to corruption is broadly governed by the Indian Penal Code,
1860 (‘IPC’) and the Prevention of Corruption Act, 1988 (as amended from time to time)
(‘POCA’). The new amendments to POCA (‘POCA Amendment Act’) which provides for

1
Global Fraud Report – Vulnerabilities on the Rise, Kroll, 2015-2016, available at http://anticorruzione.eu/wp-
content/ uploads/2015/09/Kroll_Global_Fraud_Report_2015lowcopia.pdf.
2
https://www.transparency.org/news/feature/ corruption_perceptions_index_2017

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supply-side prosecution, among other key changes was passed by both houses of Parliament and
received the assent of the President on July 26, 2018.3 In India, apart from the investigating
agencies and the prosecution machinery, there is also the Comptroller and Auditor General
(‘CAG’) and the Central Vigilance Commission (‘CVC’) which play an important role due to
Public Interest Litigations (‘PILs’) in India. For instance, courts have directed that the CAG
should audit public-private-partnership contracts in the infrastructure sector on the basis of
allegations of revenue loss to the exchequer.

Corruption threatens people and their people and their government. It makes society unfair.
Corruption is universal it is present in development and developing countries in the bureaus of
public or private sector, and in non profit or charitable organization.

While anti-corruption laws are fairly stringent corruption is not uncommon in India. Over the
past five to six years there has been a strong public sentiment against corruption and high-profile
instances of corruption have become key political and election issues.

The past few years have seen a change in attitude of enforcement agencies, which have started
enforcing anti-corruption laws aggressively in India, and have been supported in their efforts by
the judiciary which has taken up an active role in monitoring corruption cases. When the
majority of people operated under such a system individuals have no incentive to try to change it
or to refrain from taking part in it.

3
Ibid.

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 OBJECTIVES OF STUDY

1 Detailed study of the corruption in India and its roots

2 Discussion of the changes and corruption laws in India established so far

3 To understand the implementation of these laws and their effects

4 To understand the proposed reforms and the need to enforce them in public good

5 To understand the individual liability for creating a difference

HYPOTHESIS

1 Punishment for corruption should follow the deterrent theory of punishment

2 Anti corruption laws do not exist in India

3 The corruption is prevailing everywhere in our country not only in business but also in
professions and politics and it is difficult to identify and punish such criminals under present
laws

RESEARCH METHODOLOGY

The researcher has adopted the doctrinal method of the research. The researcher has also made
the extensive use of the books, transcripts and historical documents etc. The researcher has also
used internet sources.

SOURCES OF DATA

In order to complete the research study, the researcher will collect the material through various
primary and secondary sources of data.

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PRIMARY SOURCES such as History books, Transcripts and more Historical documents and
Documentaries.

SECONDARY SOURCES reviewing the internet and different websites which preserve
historical documents and put them up for knowledge distribution.

LIMITATION OF THE STUDY

Since the researcher is a student of law, she has access to a limited area and knowledge. The
researcher having only a preliminary knowledge of the subject could understand the problem
clearly but was faced with constraints.

The researcher has limited time for the project. The need and background is also necessary for
having a bird’s eye view of the particular topic and it gets developed only by effective and
extended reading over a long period of time.

However, the researcher only has access to limited amount of work that is available in the
library. The researcher has a restricted access to information and sources for reasons beyond her
control. But the researcher will still attempt to take out the best possible work.

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 1. BRIEF OVERVIEW OF THE LAWS AND ENFORCEMENT
REGIME
Corruption laws in India4

Public servants in India can be penalized for corruption under the Indian Penal Code, 1860 and
the Prevention of Corruption Act, 1988. The Benami Transactions (Prohibition) Act, 1988
prohibits benami transactions. The Prevention of Money Laundering Act, 2002 penalises public
servants for the offence of money laundering. India is also a signatory (not ratified) to the UN
Convention against Corruption since 2005. The Convention covers a wide range of acts of
corruption and also proposes certain preventive policies.

Key Features of the Acts related to corruption Indian Penal Code, 1860:

• The IPC defines “public servant” as a government employee, officers in the military, navy or
air force; police, judges, officers of Court of Justice, and any local authority established by a
central or state Act.

• Section 1695 pertains to a public servant unlawfully buying or bidding for property. The public
servant shall be punished with imprisonment of upto two years or with fine or both. If the
property is purchased, it shall be confiscated.

• Section 409 pertains to criminal breach of trust by a public servant. The public servant shall be
punished with life imprisonment or with imprisonment of upto 10 years and a fine. The
Prevention of Corruption Act, 1988.6

• In addition to the categories included in the IPC, the definition of “public servant” includes
office bearers of cooperative societies receiving financial aid from the government, employees of
universities, Public Service Commission and banks.

4
https://en.wikipedia.org/wiki/Benami_Transactions_(Prohibition)_Act,_1988
5
Indian penal code,1860.
6
https://en.wikipedia.org › wiki › Prevention_of_Corruption_Act,_1988

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• If a public servant takes gratification other than his legal remuneration in respect of an official
act or to influence public servants is liable to minimum punishment of six months and maximum
punishment of five years and fine. The Act 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

. • If a public servant 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, he shall be
penalized with minimum punishment of six months and maximum punishment of five years and
fine.

• It is necessary to obtain prior sanction from the central or state government in order to
prosecute a public servant. The Benami Transactions (Prohibition) Act, 1988.7

• The Act prohibits any benami transaction (purchase of property in false name of another
person who does not pay for the property) except when a person purchases property in his wife’s
or unmarried daughter’s name.

• Any person who enters into a benami transaction shall be punishable with imprisonment of
upto three years and/or a fine.

• All properties that are held to be benami can be acquired by a prescribed authority and no
money shall be paid for such acquisition. The Prevention of Money Laundering Act, 2002.8

• The Act states that an offence of money laundering has been committed if a person is a party
to any process connected with the proceeds of crime and projects such proceeds as untainted
property. “Proceeds of crime” means any property obtained by a person as a result of criminal
activity related to certain offences listed in the schedule to the Act. A person can be charged with
the offence of money laundering only if he has been charged with committing a scheduled
offence.

• The penalty for committing the offence of money laundering is rigorous imprisonment for
three to seven years and a fine of upto Rs 5 lakh. If a person is convicted of an offence under the

7
supra note 4.
8
https://en.wikipedia.org/wiki/Prevention_of_Money_Laundering_Act,_2002

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Narcotics Drugs and Psychotropic Substances Act, 1985 the term of imprisonment can extend
upto 10 years.

• The Adjudicating Authority, appointed by the central government, shall decide whether any of
the property attached or seized is involved in money laundering. An Appellate Tribunal shall
hear appeals against the orders of the Adjudicating Authority and any other authority under the
Act.

• Every banking company, financial institution and intermediary shall 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 the specified authorities. Process followed to investigate and
prosecute corrupt public servants.9

• The three main authorities involved in inquiring, investigating and prosecuting corruption
cases are the Central Vigilance Commission (CVC), the Central Bureau of Investigation (CBI)
and the state Anti-Corruption Bureau (ACB). Cases related to money laundering by public
servants are investigated and prosecuted by the Directorate of Enforcement and the Financial
Intelligence Unit, which are under the Ministry of Finance.

• The CBI and state ACBs investigate cases related to corruption under the Prevention of
Corruption Act, 1988 and the Indian Penal Code, 1860. The CBI’s jurisdiction is the central
government and Union Territories while the state ACBs investigates cases within the states.
States can refer cases to the CBI.

• The CVC is a statutory body that supervises corruption cases in government departments. The
CBI is under its supervision. The CVC can refer cases either to the Central Vigilance Officer
(CVO) in each department or to the CBI. The CVC or the CVO recommends the action to be
taken against a public servant but the decision to take any disciplinary action against a civil
servant rests on the department authority.

Prosecution can be initiated by an investigating agency only after it has the prior sanction of the
central or state government. Government appointed prosecutors undertake the prosecution
proceeding in the courts.

9
Ins. by Act 16 of 2018, s. 2 (w.e.f. 26-7-2018).

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• All cases under the Prevention of Corruption Act, 1988 are tried by Special Judges who are
appointed by the central or state government.

Service rules for government officials

Government officials in India are also bound to conduct themselves in accordance with the
service rules applicable to different class of officials . Service rules prohibits the government
officials from receiving gifts, hospitality, transport , or any other pecuniary advantage that
exceeds certain specified thresholds from individuals other than near relatives. A contravention
of the service rule can lead to initiation of disciplinary proceedings against the concerned official

Foreign contribution regulation act

The foreign contribution regulation act 2010 prohibits the acceptance of hospitality from foreign
sources by persons including legislatures, political parties, government servants and employees
of bodies owned or controlled by government. The FCRA defines the term foreign source to
include any foreign citizen, company, entity, multinational corporation, trust. Further non-
governmental organisations receiving contributions from a foreign source are required to be
registered under FCRA and report such contributions.

Right to information act, 200510

The Right to information act, 2005 allows Indian citizensb to obtain information held by any
public authority, subject to specified, exceptions for national interest, legislative privilege and
the right to privacy. Further, the RTI act requires public authorities to publicly disclose certain
types of information relating to their functions. The information requested by a citizen is
required is required to be provided in a timely manner. In recent years the RTI act has proved to
be a key tool in the fight against corruption in government tenders and public procurement
programs . The RTI act promotes transparency in the government and bureaucracy which ensures
that any lapse are brought into public eye.11

10
https://en.wikipedia.org/wiki/Right_to_Information_Act,_2005
11
Right of information act, 2005.

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 2. OVERVIEW OF ENFORCEMENT ACTIVITY AND
POLICY
In July 2018 the Prevention of Corruption (Amendment) Act 201812 was passed by Parliament,
which amended and brought about significant changes to the extant Prevention of Corruption Act
1988. Among other changes, the Amendment Act has made bribe giving a specific offence and
has introduced the concept of corporate criminal liability for acts of bribery. Corporates may
claim a defence if it can be proven that adequate procedures were in place to prevent persons
associated with it from undertaking anything which may be an offence under the Prevention of
Corruption Act. Such procedures must comply with guidelines, which are yet to be prescribed by
the government.

The Amendment Act has introduced a new provision wherein police officers now require prior
approval from the relevant government authority to investigate an offence alleged to have been
committed by a public servant under the Prevention of Corruption Act13. This provision has been
challenged in the Supreme Court of India and awaits judgment.

In the wake of numerous scams being unearthed in India over the past decade, enforcement
agencies have also been proactive in terms of monitoring compliance under relevant anti-
corruption and bribery laws and taking action against violations.

In 2016 the government announced demonetisation of Rs500 and Rs1000 bank notes in its
attempt to combat unethical practices such as hoarding black money outside the formal economic
system, tax evasion and using illicit or counterfeit cash to fund illegal activities. Consequently,
on basis of information received from banks, the tax authorities and other anti-corruption bodies
have identified suspicious persons and entities and initiated action against them.

In 2017 the Ministry of Corporate Affairs voluntarily struck off 224,000 shell companies and
imposed restrictions on the usage of their bank accounts and transference of company property.
Action was taken to disqualify directors who failed to comply with specific requirements under

12
Ibid.
13
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-its-time-to-think-out-of-the-box-114100200851_1.html.

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the Companies Act 201314. The ministry also announced that if any director or other authorised
signatory of a struck-off company tried to siphon off money from the company’s bank account,
he or she will be punished with a prison term of between six months and 10 years, and where the
fraud involved public interest, the minimum prison term will be at least three years and may also
involve a fine of up to three times the amount involved. The prime minister's office has created a
special task force to oversee the drive against such defaulting companies with the help of various
enforcement agencies. Further, in 2018 an ordinance to the Companies Act 2013 was
promulgated reintroducing the requirement to declare the commencement of business for newly
incorporated companies, which may restrict the opening of shell companies.

The Central Vigilance Commission (CVC) has also taken certain proactive actions recently, such
as advising all central government departments on quicker disposal of pending corruption cases.
The CVC has an online complaint management system where individuals can register complaints
in this regard.

The Serious Fraud Investigation Office (the investigative arm of the Ministry of Corporate
Affairs) has increased the pace of its investigations over the past couple of years. As per the
information available on its website, it has completed investigation in 312 cases to date, 87 of
which were completed during 2016 to 2017.Moreover, the Supreme Court has expanded the
ambit of the definition of ‘public servant’ (under the Prevention of Corruption Act 1988) to
include all officials of private banks, as their duties are public in nature (Central Bureau of
Investigation, Bank Securities and Fraud Cell v Ramesh Gelli15, 23 February 2016) thereby
bringing them under the purview of anti-corruption laws.

Are there plans for any changes to the law in this area?

In 2018 Parliament passed the Prevention of Corruption (Amendment) Act introducing changes
to the existing anti-corruption law. Significant changes include:

 the inclusion of bribe giving as a specific offence;

 that commercial organisations can be liable for bribe giving;

14
The provisions relating to Class Action Suits have not yet been notified by Central Government. Therefore, as on
date, these provisions are not enforceable.
15
Central Bureau of Investigation, Bank Securities & Fraud Cell v. Ramesh Gelli & Ors., Crl. App. 1077-1081 of
2013 decided on February 23, 2016

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  the introduction of a fixed timeline of two years for the conclusion of a trial – extendable
up to four years;

 the removal of the protection given to bribe givers who appear as witnesses; and

 the introduction of stricter punishments for perpetrators of bribery.

In addition, Parliament has also passed the following laws in recent years:

 the Lokpal and Lokayukta (Amendment) Act 201616, which primarily requires public
servants to declare their assets and liabilities and those of their spouses and dependent
children;

 the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act
2015, which penalises the concealment of foreign income and assets and any related tax
evasion;

 the Benami Transactions (Prohibition) Amendment Act 2016, which empowers the
competent authorities to attach and confiscate benami properties (ie, any property which
is held by or transferred to or for benefit of a person, and the consideration for which has
been provided or paid by another person);

 the Companies (Amendment) Act 2017, by virtue of which the existing penalty
provisions for the commission of corporate fraud have been modified. If any person is
found guilty of fraud involving an amount less than Rs1 million or 1% of the turnover of
the company (whichever is lower) and which does not involve public interest, such
person will be punishable with a maximum five-year prison term, a fine of up to Rs2.5
million or both. For other instances of fraud, the penalty remains the same (ie, six months
to 10 years’ imprisonment and a fine of up to three times the amount involved in the
offence); and

 the Whistleblowers Protection (Amendment) Bill 201517, which aims to prohibit the
reporting of corruption-related disclosures (by a whistleblower) if it falls under any of the

16
Law Commission of India Report No. 254, February 2015, paras 1.6 to 1.9
17
Section 165. Public servant obtaining valuable thing without consideration from person concerned in proceeding
or business transacted by such public servant.

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 10 prescribed categories. However, the government has indicated that the Whistleblowers
Protection Act may require further amendments before it is brought into effect.

Which authorities are responsible for investigating bribery and corruption in respective
jurisdiction?

The primary regulatory authorities responsible for monitoring and investigating corruption and
bribery in India are as follows:

 The Central Vigilance Commission (CVC)18 is the nodal statutory body that supervises
investigation of corruption (under the Prevention of Corruption Act 1988 and the Penal
Code 1860) in central government departments, government companies and local
government bodies, and among public servants. The CVC can refer cases to either the
central vigilance officer of the relevant government department or the Central Bureau of
Investigation (CBI) for investigation.

 The CBI and the Anti-corruption Bureau (ACB) are also investigative authorities for
corruption under the Prevention of Corruption Act 1988 and the Penal Code 1860. While
the CBI’s jurisdiction covers the central government and union territories, the ACB
investigates cases within the states.

 The Serious Fraud Investigation Office (SFIO) is set up under the Ministry of Corporate
Affairs and investigates the affairs of companies based on an order from the central
government:

o on receipt of an application from the competent regulatory authority or

government department;

o at the request of the concerned company; or

o in cases of public interest on a suo moto basis (ie, of its own accord).

18
Website of Central Vigilance Commission, available at, http://cvc.gov.in/cvc_back.htm.

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If a matter is handled by the SFIO, no other investigatory agency is entitled to proceed with a
parallel investigation. The Ministry of Corporate Affairs has recently conferred the power of
arrest (of any person, including those associated with foreign companies) on the SFIO on the
grounds of commission of the offence of corporate fraud under the Companies Act 2013.

 The Lokpal, which comprises a chairperson and up to eight members, is a nodal

ombudsman authority which investigates and prosecutes cases of corruption involving:

o the prime minister;

o the council of ministers;

o members of Parliament;

o public servants and other central government employees, other than members of
armed forces;

o employees of companies funded or controlled by the central government; and

o private persons who have abetted in the commission of relevant offences.

The Lokpal19 also has the power of superintendence over the CBI, if it refers any case to the CBI.
Members of the first Lokpal office have yet to be appointed. Lokayuktas are state-level
counterparts of the Lokpal, and certain Indian states have already appointed officers for this
position.

 The Enforcement Directorate is established under the Ministry of Finance to investigate

and prosecute cases relating to the Prevention of Money Laundering Act 2002 and the
Foreign Exchange Management Act 1999. The Enforcement Directorate also cooperates
with foreign countries in matters relating to money laundering and restitution of assets in
accordance with their respective local laws.

19
Ibid

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  The Income Tax department has been appointed as the authority in cases pertaining to
the Benami Transactions (Prohibition) Act20, by virtue of which it can attach and
confiscate benami properties.

20
Supra note 1.

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 3. LAW AND POLICY RELATING TO ISSUES SUCH AS
FACILITATION PAYMENTS AND HOSPITALITY

This policy does not prohibit normal business hospitality, so long as it is reasonable, appropriate,
modest, and bona fide corporate hospitality, and if its purpose is to improve our company image,
present our products and services, or establish cordial relations. Gifts and Hospitality:

 Must be duly approved. Normal business hospitality must always be approved at the
appropriate level of Company management.21

 Must not be intended to improperly influence. Associates should always assess the purpose
behind any hospitality or entertainment. Hospitality or entertainment with the intention of
improperly influencing anyone's decision-making or objectivity, or making the recipient feel
unduly obligated in any way, should never be offered or received. Associates should always
consider how the recipient is likely to view the hospitality. Similarly associates must also decline
any invitation or offer of hospitality or entertainment when made with the actual or apparent
intent to influence their decisions22.

 Must not have the appearance of improper influence. Gifts can in some cases influence, or
appear to influence, decision-making, for example by persuading the recipient to favour the
person who made the gift over his own employer. Associates should think very carefully before
making, or receiving, gifts. Gifts can occasionally be offered to celebrate special occasions (for
example religious holidays or festivals or the birth of a child) provided such gifts do not exceed
USD $40 (or local equivalent) in value, and are occasional, appropriate, totally unconditional,
and in-fitting with local business practices. No gift should be given or accepted if it could
reasonably be seen improperly to influence the decision-making of the recipient.

21
See Nishith Desai Associates Regulatory Hotline, Direction for CAG audit of DISCOMs quashed; private
companies can be subject to CAG audit, November 2015. See also Nishith Desai Associates Dispute Resolution
Hotline, Supreme Court: Private Telecom Service Providers under CAG Scanner, April 2014.
22
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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 Certain gifts are always prohibited. Some types of gifts are never acceptable including gifts
that are illegal or unethical, or involve cash or cash equivalent (e.g. loans, stock options, etc).
Furthermore, by way of non-exhaustive example, an invitation to his/her family to join him on a
foreign business trip, or the extension of a trip at the customer's expense to include a holiday, are
at all times unacceptable, and associates should not participate in such practices.

 Modest promotional gifts are permitted. It is acceptable to offer modest promotional materials
to contacts e.g. branded pens. Use of one’s position with the Company to solicit a gift of any
kind is not acceptable. However, the Company allows associates occasionally to receive
unsolicited gifts of a very low intrinsic value from business contacts provided the gift is given
unconditionally and not in a manner that could influence any decision-making process

.  Personal payment does not cure. Associates may never pay on their personal account for gifts
or hospitality in order to avoid this policy23. In some cultures / countries, it may be seen as an
insult to reject a gift, and refusals may adversely affect business relationships. In these
circumstances, and if the gift is anything other than moderate, the gift should be reported to the
reporting manager who will decide whether such gift will be retained or returned. If your
reporting manager is uncertain how to treat the gift, s/he should seek clarification from his/her
relevant Human Resource (HR) contact. Gifts and Hospitality can put the Company at risk if
used to facilitate unethical business practices. The Company will develop procedures for giving
and receiving gifts and hospitality which will seek to ensure that associates act ethically and
otherwise comply with the Anti-Corruption and Bribery Policy and Code of Ethical Business
Code when giving and receiving gifts and / or hospitality. These procedures must be followed by
associates

The Company may make donations but only if they are ethical and in compliance with this
policy, local applicable laws, the UK Bribery Act and the US FCPA24. No donation should be
made which may, or may be perceived to breach applicable law, or any other section of this
policy. All donations must be approved by the Company Corporate Ombudsman and the
Company shall keep accurate records of all donations made by the Company.

23
Public ANTI-CORRUPTION AND BRIBERY POLICY Page 5 of 8
24
(2012) 3 SCC 104.

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Third parties can put the Company at risk if they do not follow ethical business practices. For
that reason, the Company will develop procedures for conducting appropriate risk-based due
diligence on third parties, and the implementation of appropriate steps to address any identified
risks, to ensure compliance with applicable anti-corruption laws. Associates must carefully
follow the procedures that are established under this policy.

4. SUITABLE THEORY OF PUNISHMENT TO DEAL WITH

CORRUPTION

Corruption slows development, undermines democracy, and further marginalizes the most
disadvantaged citizens. Understanding the causes and consequences of corruption in developing
democracies is critical to ensuring healthier trends in these countries. Based on a series of studies
with government officials in Malawi, one of the ten poorest countries in the world, this brief
addresses who is involved in corrupt activities and why, as well as the responses by corrupt
officials to anti-corruption interventions, and who is targeted by corrupt activities.

Deterring corruption25

The theory of deterrence argues that punishing crimes can prevent future offenses. If crimes go
undetected or unpunished, malefactors can enjoy all the benefits without fear of the costs –
leading many rational people to engage in criminal behavior more often. Three aspects of
sanctions are important to the fight against corruption: certainty of detection, severity of
punishment, and swiftness in sentencing offenders. If governments can bolster any of these
factors, they can increase the costs of corruption and thereby deter corrupt acts.

Testing these ideas in an experiment conducted among Malawian government officials after a
large-scale corruption scandal, my research collaborators and I found that:

Swift punishment is the most important deterrent – perhaps because slow punishments allow
corrupt officials to enjoy prolonged payoffs and prompt would-be offenders to conclude that
benefits exceed costs.

25
Maddi Venkatraman & Co. (P) Ltd. v. Commissioner of Income Tax (1998) 2 SCC 95

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Increasing detection of corruption reduces corrupt activities, no matter the likelihood of
subsequent investigation and punishment. Improving detection can include formal actions such
as audits as well as taking steps to boost public awareness and reports of infractions.

Contrary to deterrence theory but in line with several earlier studies, we find that increasing the
severity of punishment does not prevent (and may instead increase) corruption. Why? Possibly,
threats of imprisonment, fines, or other penalties encourage officials to shorten their time
horizons and grab as much as they can while they hold government posts.

These factors are certainly intertwined. For example, more frequent audits will have little effect
if offenders who are caught are not quickly punished. As deterrence theory predicts, though, the
incidence of corruption is affected by would-be offenders’ expectations about punishment.

How anti corruption efforts can increase new kinds of infractions

Anti-corruption interventions are intended to reduce the overall level of corruption. But what if,
instead, they simply prompt would-be offenders to turn to new forms of malfeasance? Exactly
this kind of substitution is what our research found among government officials in Malawi.
Considering hypothetical anti-corruption interventions revealed several patterns:

Anti-corruption interventions indeed mitigate easily detected offenses, but they may increase the
prevalence of less detectable misdeeds. For example, officials might respond to increased formal
audits by taking more bribes that audits cannot detect.

Interventions that encourage participation by citizens – for example, reporting hotlines to an

Anti-Corruption Bureau26 – reduce offenses affecting citizens directly, but increase indirect
corruption. For example, taking bribes in exchange for government services may decline, but
falsifying receipts to inflate reimbursements may increase.

Reformers designing anti-corruption interventions must be mindful of possible substitution

effects that can counteract a large share of the reductions in corrupt behavior early programs

26
Nishith Desai Associates Telecom Hotline, Supreme Court cancels 122 telecom licences with good intentions,
February 2012.

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accomplish. The overall effort may involve two steps forward, one step back. However,
persistent anti-corruption interventions can force officials into a “corruption corner” over time,
limiting their options to inefficient forms of corruption that are not easy to detect but also not
very profitable. Beyond persistent “whack a mole” efforts, policymakers can also address the
root causes of corruption – such as low and inconsistent public salaries.

How Corrupt Demands are Affected by Wealth and Power

Not all citizens are equally subject to corrupt acts such as demands for bribes. Worldwide, the
wealthy and powerful pay more, probably because they have greater access to government
officials and services. The poor and powerless are supposed to be protected by democratic
institutions but often are preyed upon by officials with discretion about whom to target.

To disentangle effects of wealth and power, we conducted an undercover experiment among

Malawian traffic police. Trained research confederates posing as either rich or poor, and either
politically powerful or not, drove through traffic police roadblocks with a missing insurance disc
on their windshield. At each roadblock, the confederate was either stopped or not. If stopped, he
paid the full fine and was released; or won release without paying; or paid a bribe to the official.

What did the study find? Drivers signaling poverty turned out to be more likely to be stopped by
the traffic police, indicating that wealth insulates citizens from corrupt demands when no
information about political connections is available27. However, once stopped by the traffic
police, the politically powerful poor were the least subject to bribe demands. Although the model
generated by our data predicts that the rich and politically connected pay a bribe 90 percent of
the time, the poor and connected pay in only 76 percent of the time. One explanation is that
requesting bribes from the wealthy has the potential for a higher payoff, outweighing the higher
risks when politically well-connected people are asked to pay.

By definition, however, if corrupt officials view requesting bribes from the rich and powerful as
more dangerous than making such demands on the poor and powerless, citizens are not equally

27
Ibid

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protected. Overall, our findings suggest that low-level corruption can be reduced by empowering
disadvantaged groups to take steps against corrupt demands (or at least to appear to be able to do
so). But empowering reforms such as hot lines must be combined with improved detection and
speedier punishments. And continued vigilance is necessary to head off new forms of
corruption28.

5. PROPOSED REFORMS IN ANTI CORRUPTION LAWS IN

INDIA
India’s liberalization that began in the 1980s should have curtailed corruption, but the opposite
happened. Growth surged; that raised the value of natural resources and government contracts.
So substantial was this increase that despite the reduction in powers, the economic rent at the
government’s disposal grew strongly. Even as technological innovations have reduced petty
bribery—for example in passport issuances—it has become clear (particularly so in the last
month) that bigger forms of corruption in India are flourishing.

Social sanctions and economic incentives work better than legal action: If the law is
effectively enforced, its penalties are good deterrents. However, enacting and applying strong
laws against corruption is inherently problematic, since politicians and officials are the main
beneficiaries of corruption. Luckily, social sanctions can be just as effective, or more so.
Deterring breaches of contract among cotton growers in the American South provides a powerful
example. These growers have not only business dealings among their members, but also close

28
Comply or Suffer: CCI Highlights Importance of Compliance Manuals, by Abigael Bosch, Payer Chatterjee, M.S.
Ananth and Pratibha Jain, Nishith Desai Associates, International Financial Products & Services Committee,
October 2015, Volume 4, Issue 3

~ 24 ~
friendships among their families. To maintain honesty in contracts, fear of social ostracism is a
powerful consideration.29

Accurate, publicly available information is essential: If workers, consumers, and suppliers of

capital are to implement a strategy of penalizing corrupt businesses, they need to know who the
clean firms are accurate publicity about misdeeds is the best way to deter corrupt businesses
through the imposition of social sanctions on the miscreants.

India’s culture cannot be changed, from corrupt to clean, simply by relying on the government to
enact and enforce laws. Such a movement can succeed only if young and idealistic workers,
consumers, entrepreneurs, managers, educators and the media all play their part and constitute a
coalition against corruption. In this article, we have mooted the creation of a business community
institution (BCI) to play the critical role of mobilizing this currently fragmented coalition. The
proposed BCI will aim to generate accurate information about firms’ status regarding corruption,
and to undertake a systematic outreach effort with the groups highlighted above.

The aim is to ensure that clean firms are able to experience a lower cost of doing business by (1)
getting access to a talented workforce, (2) getting access to consumers who are willing to pay a
premium price for the product of clean firms, and (3) being able to access investors who are
willing to supply capital at a lower cost. This should trigger a self-fulfilling process whereby
more and more firms are incentivized to be clean.

29
Ibid.

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 6. CONCLUSION, CRITICISM AND SUGGESTION
India’s law on corruption is a work-in-progress and as can be seen from international
laws and standards, Indian law does not address all issues relating to corruption. This
places the burden on companies and its stakeholders to be proactive and take necessary
measures to ensure that a company, its officers and employees adhere to the highest
standards of integrity. Unlike laws in developed foreign jurisdictions, laws in India do not
provide for measures such as damages when a party suffers due to contracts vitiated by
corrupt practices or comparable safeguards in the context of government contracts. The
Amendment Bill, while it is subject to debate in Parliament, does place the onus of
responsible measures on companies. Therefore, companies and stakeholders would do
well to develop standards of governance to address issues relating to corrupt and
unethical practices that are in line with international standards. Thus, while India presents
unmatched opportunities for business, elements of risk need to be well countered to
mitigate or negate possibilities of prosecution or investigation in relation to corrupt
practices.

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 BIBLIOGRAPHY

Books referred

 PSA Pillai’s Criminal Law, by K I Vibhute, LexisNexis, 12th Edition 2014.

 Textbook Of Criminal Law, by Glanville Williams, 2nd Edition, 2009, Universal Law
Publishing Company Pvt. Ltd.
 Cunningham, 6th Edition 2007, Sweet & Maxwell Limited.

Websites

 http://www.hrdiap.gov.in/fcg2/studymaterial/week2/INDIAN%20PENAL%20CODE,%2
01860.pdf
 https://www.nls.ac.in/students/SBR/issues/vol10/1002.pdf
pK4uGIC&pg=PR23&dq=defence+of+mistake+of+fact&hl=en&sa=X&ei=Jm0MVc3u
KePCmAWsnILYCA&ved=0CBwQ6AEwAA#v=onepage&q=defence%20of%20mistak
e%20of%20fact&f=false.

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