With a view to check corruption in the private sector, the Government of India has proposed to make bribery in private sector a criminal offence. To this end, the Government has proposed to amend the Indian Penal Code, 1860 to criminalize both giving as well as receipt of bribes in the private sector.

For this purpose, the Indian Penal Code (Amendment) Bill, 2011, circulated to various States and Union Territories in India, has proposed the addition of a new Chapter, viz. Chapter VIII-A (Section 160A & 160B), titled “Of the Offences related to Officials in Private Sector” (‘the proposed Amendment’)

Private Sector – What is?

The proposed Amendment explains the expression “private sector” as meaning an individual, firm or company, whether incorporated or not which undertakes any economic, financial or commercial activity but does not include such activity carried out by the Government or a company or trust, directly or indirectly, controlled by the Government.

The possible reason for excluding government companies / bodies from the purview of the proposed amendment appears to be the fact that these entities are already covered by the provisions of the Prevention of Corruption Act, 1988 (‘POC Act’) – a special statute dealing with corruption in the public sector.

Offence of corruption in private sector – Bribery

The Bill defines the “offence of bribery in private sector” by including therein instances where any person who, in the course of economic, financial or commercial activity, promises / offers / gives, directly and / or indirectly, any gratification amounting to an undue advantage to any person who directs, or works, in any capacity, for a private sector entity (‘specified person’) for the person himself or for  another person, in order that he, in breach of his duties acts / refrains from acting in the exercise of his duties. Soliciting or accepting any gratification amounting to undue advantage for the aforesaid purpose is also covered as an offence of bribery.

The Bill further states that the expression “undue advantage” in relation to private sector means an act of a specified person, who:

(a)    By corrupt or illegal means, obtains for himself or for any other person, any valuable thing or pecuniary advantage, to which he is not entitled under law or by rules by which he is governed; or

(b)   By abusing his position as such obtains for himself or for any other person, any valuable thing or pecuniary advantage to which he is not entitled under the law or rules by which he is governed;

(c)    While holding office as such person obtains for himself or for any other person, any valuable thing or pecuniary advantage to which he is not entitled under the law or rules by which he is governed; or

(d)   Habitually accepts or obtains or agrees to accept or attempts to obtain for himself or for any other person, any valuable thing without consideration or for a consideration which he knows to be inadequate from any person whom he knows to have been, or to be, or to be likely to be concerned in any proceeding or business transacted or about to be transacted by him, or having any connection with the official functions of himself or of any official to whom he is subordinate, or from any person whom he knows to be interested in, or related to the person so concerned.

Punishment for offence of bribery in private sector

The offence of bribery in the private sector will be punishable with imprisonment of either description for a term which may extend to seven years, or with fine or with both.

Main focus of the proposed amendment

The main focus of the proposed amendment is to criminalize bribery within the private sector. Thus, the amendment does not seem to include a situation where a private sector official is found to be engaged in an act of bribery vis-à-vis a public sector official. This aspect has been left unscathed in the proposed Amendment. The reason for this, presumably, is that such instances are covered, albeit indirectly, under the head of ‘abetment’ under the POC Act.

Lacuna

Neither the Indian Penal Code nor the POC Act have vicarious liability provisions and the proposed Amendment does not create one either. Therefore, it does not appear that corporations / entities themselves, as opposed to their respective employees have been covered by the blanket of the proposed Amendment.

While conceptually the Indian industry has expressed its keenness for adopting measures which would be effective deterrents and helpful tools in curbing corruption, however, it has, in the same breath, expressed that it would be necessary to ensure that the amended law does not cause undue harassment to businessmen and women in the country. Opinions have been expressed that while, under the POC Act, the government shields its officials from harassment by anti-corruption sleuths, however, under the proposed Amendment, private sector officials are proposed to be left at the mercy of the police. It would be open for any police officer, irrespective of rank, to initiate criminal proceedings against a private sector business official for violation of the proposed law. No prior permission from any authority whatsoever would be required for the said purpose.

It is perhaps in realization of this veiled threat that the State of Himachal Pradesh, while providing its comments to the proposed Amendment, stated that “To allow the police or other investigating agencies to meddle in the affairs of private sector without any specific information and without proper and high-level safeguards has the potential to destroy businesses”.

In the U.S. context, the U.S. Foreign Corrupt Practices Act (FCPA) of 1977 which, in a slightly different context of foreign bribery, deals with the supply side of bribery, has had a tremendous impact in the manner in which U.S. companies and persons do business and on their compliance policies. Indeed, strengthening of corporate governance norms and increasing disclosure requirements thereby creating a market mechanism to penalize errant private firms is a way to check corruption. However, unlike the United States, which has the Securities & Exchange Commission (SEC) and the United Kingdom, with its Financial Services Authority (FSA), at present, India does not have a separate regulatory body that oversees corruption in private sector. Even the proposed Amendment does not seem to cover this aspect.

India is witnessing a sea change in its approach to the issue of corruption. Given the spate of recent scams and public outcry on the issue, it is clear that public displeasure about the level of corruption has reached alarming proportions. This socio-cultural development must be seen and understood in the political and legal context which requires adherence to international standards for combating corruption as envisaged by the United Nations Convention Against Corruption (UNCAC), ratified by India in 2011.

While new laws, as envisaged, may take time to be incorporated into existing statutes or new statutes, companies doing business in India – both foreign as well as Indian – must step up their ethics, Compliance and the overall standard of corporate governance. There is indeed strong need to build a corporate environment in which standards and values are central to the company’s growth strategy just as much, if not more as economic objectives. Companies doing business in India must relook at their Ethics & Compliance policies, make them more robust, and ensure their effective implementation. This alone would ensure compliance with existing as well as imminent laws as well as the norms of good governance.

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Rajat Sharma

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