The Prevention of Corruption Act 1988
The Prevention of Corruption Act 1988 (PCA) is the primary law relating to the prevention of corruption and matters connected therewith, and has recently been amended (in July 2018). The PCA criminalises the receipt of, or attempt to receive, any ‘undue advantage’, by a ‘public servant’ with the intention of, or as a reward for, performing a public duty improperly or dishonestly, or forbearing to perform such duty (or for causing or inducing another public servant to do so). The term ‘undue advantage’ includes any gratification (other than legal remuneration) and is not limited to pecuniary gratifications or gratifications capable of estimation in monetary terms, and therefore includes non-pecuniary gratifications such as gifts. The term ‘public servant’ has been defined broadly and includes any person in the service or pay of the government, local authority, statutory corporation, government company, or other body owned or controlled or aided by the government, as well as judges, arbitrators and employees of institutions receiving state financial assistance. The Supreme Court of India has also held that employees of banks would also be considered ‘public servants’ under the PCA (including employees of private banks).
The PCA also criminalises receipt of an undue advantage by a public servant through intermediaries, and certain conduct described as ‘criminal misconduct’ by public servants - this covers dishonest or fraudulent misappropriation of, or conversion for his or her own use of, any property in the possession of the public servant or any illicit enrichment by the public servant. Where the public servant (or any person on his or her behalf) is in possession of assets or pecuniary resources disproportionate to his or her known sources of income, which he or she cannot satisfactorily account for, the public servant is presumed to have intentionally enriched him or herself illicitly. The PCA also provides for more stringent measures against habitual offenders.
Prior to the amendment, the PCA primarily criminalised the receipt of bribes by a public servant, and a bribe giver could be penalised under the PCA only for abetment of the offence committed by the bribe recipient. However, pursuant to the amendment, the act of giving any ‘undue advantage’ to another person (directly or through a third party), with the intention to induce any public servant to (or reward any public servant for) improperly perform any public duty, is now an offence by itself under the PCA. Exceptions have been included for persons who are compelled to give an ‘undue advantage’ provided they report the same to authorities within seven days of giving the ‘undue advantage’, and persons who offer or give a bribe after informing the authorities (to assist the authorities in an investigation against the bribe recipient). However, the amendments have done away with the immunity previously available under section 24 of the PCA for a bribe giver who provided a statement during a corruption trial against a bribe receiver.
The PCA also provides for the establishment of special courts to try offences under the PCA, and offences under the PCA are generally investigated by the Central Bureau of Investigation (CBI). Further, the prosecution of public servants under the PCA requires the prior sanction of the government (or in certain circumstances, the sanction of the lokpal appointed under the Lokpal and Lokayuktas Act 2013, which has been discussed below). The recent amendments also provide that trial of offences under the PCA should be conducted on a day-to-day basis, with an endeavour to complete such trial within a period of two years. While this period may be extended by an additional six months at a time, for reasons to be recorded in writing, the proceedings should ordinarily be concluded within four years.
The recent amendments to the PCA have also incorporated specific provisions addressing the liability of commercial organisations (including companies) and their officers with respect to commission of offences under the PCA, which have been discussed in question 30. The government has been given powers to attach or confiscate any money or property that has been procured by means of an offence under the PCA. The key offences under the PCA (including the offence of bribing of public servant and the offence of bribing of public servant by a commercial organisation) have been included as predicate offences under the Prevention of Money Laundering Act, 2002 - therefore, proceeds from such offences have now been brought within the ambit of Indian anti-money laundering laws.
Though the Supreme Court of India has observed that the PCA is social legislation intended to curb the illegal activities of public servants and therefore should be construed liberally, so as to advance its objective, and not in favour of the accused (State of Madhya Pradesh v Ram Singh (2000) 5 Supreme Court Cases 88), it has also laid down that conviction of an accused under the PCA for acceptance of illegal gratification cannot be founded on the basis of inference; the offence should be proved against the accused beyond all reasonable doubt, either by way of direct evidence or even by circumstantial evidence. If such a causal link of the chain of events is not established pointing towards the guilt of accused, then the Supreme Court has held that a conviction may not be sustainable (Banarsi Dass v State of Haryana, 2010 (2) ACR 1344 (SC)).
The applicability of the PCA extends to the whole of India, except the state of Jammu and Kashmir and also to all Indian citizens outside India. The substantive provisions of the PCA, read in conjunction with the statement of its extent make it clear that this statute is intended to apply to situations where an Indian ‘public servant’ accepts illegal gratification from any person, whether in India or abroad. The PCA does not apply to the payment of illegal gratifications to foreign officials.
In addition to the PCA, most government officials are bound, during the tenure of their service, by service rules related to their conduct and discipline (the Service Rules). The primary Service Rules applicable to different classes of officials of the central government of India are:
- the Central Civil Services (Conduct) Rules 1964;
- the All India Services (Conduct) Rules 1968; and
- the Indian Foreign Service (Conduct and Discipline) Rules 1961.
These Service Rules, among other things, prohibit government officials from receiving gifts, lavish hospitality, free transport, boarding or other pecuniary advantages that exceed certain specified thresholds, from persons other than near relatives or personal friends, without the sanction of the government.
Further, even gifts received from near relatives or friends (with whom such official has no business dealings) that exceed specified thresholds in value are required to be reported.
The Service Rules also prohibit public servants engaging in any trade, business, other employment and certain other commercial activities. A violation of these Service Rules may result in the initiation of disciplinary action that may extend to the termination of service of the concerned official. Such departmental disciplinary proceedings are independent of prosecutions initiated under the PCA. It is important to note that unlike the Service Rules, the PCA does not provide for any minimum threshold for gifts, meals, entertainment or hospitality to Indian public servants.
Separately, under the Indian Penal Code, 1860 (IPC), an officer is criminally liable if he or she engages in any kind of trade, business, profession or occupation if he or she is expressly prohibited from doing so. However, this excludes persons employed by government on a contract or temporary basis such as senior doctors consulting at government hospitals, lawyers engaged by the state, etc.
Foreign Contribution (Regulation) Act 2010
The Foreign Contribution (Regulation) Act 2010 (FCRA) consolidates the laws regulating the acceptance and utilisation of foreign contributions or hospitality by certain individuals, associations or companies, and prohibits the acceptance of contributions from foreign sources or the acceptance of foreign hospitality by certain persons (such as members of legislatures, office bearers of political parties, judges, government servants or employees of government corporations), except with the prior permission of the central government. The definition of the term ‘foreign source’ under the FCRA is wide and includes any foreign company, or any other foreign entity, a multinational corporation, a foreign trust or foundation, and a citizen of a foreign country. The FCRA is administered by a department within the Union Ministry of Home Affairs of the government of India.
An amendment has been proposed to the definition of ‘foreign source’ by the Finance Bill, 2016 to clarify that companies that have foreign shareholdings in line with permissible limits under applicable foreign exchange regulations will not be considered a foreign source.
Central Vigilance Commission Act 2003
The central government has constituted the Central Vigilance Commission (CVC) pursuant to the Central Vigilance Commission Act 2003. The CVC is the primary agency to inquire or cause inquiry to be conducted into offences alleged to have been committed under the PCA. It is also responsible for advising, planning, executing, reviewing and reforming vigilance operations in central government organisations. The CVC is required to operate impartially and free of executive control.
In addition to the CVC, several state governments have established statutory functionaries known as lokayuktas who are responsible for investigating complaints against the functioning of the state government machinery, including complaints related to bribery and corruption punishable under the PCA. Both the CVC and the offices of the lokayuktas are assisted in the investigation of matters and the enforcement of the PCA by the police.
Right to Information Act 2005
The Right to Information Act 2005 (the RTI Act) is a law aiming, among other things, at transparent governance and prevention of corruption. It prescribes a procedure by which an Indian citizen can apply for and obtain information held by any public authority, subject to certain defined exceptions in respect of national interest, legislative privilege and right to privacy. The term ‘public authority’ is widely defined to mean any authority, body or institution of self-government created under statute or by government order, and includes entities owned, controlled or substantially financed, directly or indirectly, by the government.
All public authorities are required, in terms of the RTI Act, to make a variety of information public, including statements of what information and documents they hold, their budget and their rules and regulations. They are also required to publish all relevant facts while formulating important policies or announcing decisions that affect the public and to provide reasons for their decisions to the persons affected. The RTI Act sets up a structure comprising of information officers to be appointed by each public authority. Citizens may request information from these officers, for a fee. The information officers are required to provide requested information within set timelines, ranging from 48 hours (if the life or liberty of any persons are involved) to 30 days.
The RTI Act has created information commissions at the central and state levels to enquire into complaints from citizens relating to requesting or obtaining access to records, including refusal of access by the public authority, failure to respond within the prescribed time and demands for unreasonable fees. The information commissions are empowered to direct public authorities to comply with the RTI Act, award compensation to the complainant and penalise any information officer with a fine of up to 25,000 Indian rupees or by recommending disciplinary action against him or her.
The RTI Act has proved a powerful tool against corruption, and RTI applications had helped bring to light (and consequently curb) many instances of corruption in procurement by the government and organisations owned or sponsored by the government.
Whistle Blowers Protection Act 2011
The Whistle Blowers Protection Act 2011, is legislation that aims to establish a mechanism to safeguard persons who make a complaint regarding an act of corruption or wilful misuse of power by a public authority. The identity of the complainant is mandatorily protected under the statute and any disclosure to the contrary is punishable with imprisonment as well as a fine. Once a public interest disclosure is made to the competent authority established under the statute, the authority has the power to conduct an inquiry and initiate proceedings accordingly.
The Whistle Blowers Protection (Amendment) Bill 2015 was passed by the lower house of parliament, and is pending the approval of the upper house of parliament, and seeks to prohibit the reporting of a corruption-related disclosure if it falls into certain categories of information such as:
- economic, scientific interests and the security of India;
- cabinet proceedings;
- intellectual property; and
- that received in a fiduciary capacity, etc.
Companies Act 2013
The Companies Act 2013 (the 2013 Act), which is the primary legislation regulating companies in India, also contains provisions to prevent corruption and fraud in companies.
Section 177 of the 2013 Act requires every listed company to establish a vigilance mechanism for directors and employees to report genuine concerns and to provide for adequate safeguard mechanism against victimisation of persons who use such a mechanism. Additionally, auditors, cost accountants and company secretaries are mandatorily required to report any suspected frauds to the central government if they, in the course of the performance of their duties, come to the belief that their company’s directors or employees are committing an offence against it.
‘Fraud’ is defined widely under the 2013 Act and could include acts of private bribery. Commission of fraud is a criminal offence under the 2013 Act, which is punishable with imprisonment ranging from six months to 10 years or a fine, or both.
The 2013 Act imposes an obligation on the directors of companies to devise proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively. The 2013 Act also obligates companies to maintain books and financial statements in accordance with prescribed accounting standards. There are fines and imprisonment mandated for violation of the aforesaid provisions. See question 18 for further details.
The provisions of the 2013 Act would also be applicable to government companies (see question 25 for a definition of ‘government company’).
Lokpal and Lokayuktas Act 2013
This legislation that was notified on 16 January 2014 provides for the establishment of the lokpal for the Union and the lokayuktas (discussed above) for the states where lokayuktas had not already been established, with the aim of creating a corruption ombudsman that acts independently from the executive branch of the government.
These bodies have been empowered to investigate allegations of corruption against public functionaries, including offences under the PCA. The jurisdiction of the lokpal includes the prime minister, ministers, members of parliament and other public servants. Additionally, the legislation imposes an additional obligation on all public servants to furnish information relating to assets of which he or she, his or her spouse and dependent children are, jointly or severally, owners or beneficiaries to the competent authority under the act within 30 days of making an oath to enter office and an annual return of assets and liabilities. However, the provisions of this legislation are yet to be enforced in a meaningful way, and no lokpal has been appointed as yet.
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