I INTRODUCTION

The new Companies Act 2013 (the Act) has changed the philosophy of corporate governance as traditionally understood in India. The Act has brought in stringent standards and has created a new offence of fraud (with a very broad and sweeping definition) that covers a variety of situations and extends liability to companies, their officers, key management persons (KMPs), auditors, directors, etc. Separately, more traditional offences relating to corporate conduct such as bribery, cheating, criminal breach of trust and criminal conspiracy continue to be charged.

The Serious Fraud Investigation Office (SFIO), a specialised investigative agency, has been established under the Act to investigate corporate fraud. Further, relevant sectoral regulators including the Securities and Exchange Board of India (SEBI) in relation to capital markets and the Competition Commission of India (CCI) in relation to competition matters also hold investigative powers. These investigating agencies, however, do not have the power to prosecute and assist a separate prosecution wing for prosecuting individuals and companies.

Under the Indian federal structure, the powers to investigate vest with the central government as well as with state governments. Agencies such the Central Bureau of Investigation (CBI), the Enforcement Directorate (within the Ministry of Finance) (ED), and the Anti-Corruption Bureau of the state governments apart from the Economic Offences Wing of the police departments are also empowered to investigate and prosecute corporate conduct, which may be implicated in offences.

Statutory powers of investigation and inspection of premises including seizures of books, papers and documents have been provided for under taxation laws and the corporate laws, to aid in information gathering and to prevent destruction of documents and evidence by the companies. Similarly, under the Competition Act 2002 (the Competition Act) the Director General also has wide search and seizure powers in connection with the investigation of an offence by the CCI.

The powers of these investigating authorities, acting through an investigating officer (IO), include the power to arrest an individual and carry out search and seizure of premises that are suspected to contain evidence of crime or proceeds of crime. The ED, investigating offences under the Prevention of Money Laundering Act 2002 (PMLA), also has the powers to provisionally attach ‘proceeds of crime', which may be the property directly involved in the crime or any property which the proceeds of crime have been converted to.

In recognition of the need to instil complete transparency, the ombudsman under the Central Vigilance Commission has been given the power of superintendence over the CBI under the Central Vigilance Commission Act 2003.

It is of utmost importance that any business under investigation fully cooperates with the authorities, of course, without needlessly compromising its rights. Failure to cooperate may have consequences such as arrest in the immediate term and, in the long run, prosecution, which may, in turn, adversely impact the defence. On balance, it is important to adopt some of the best practices like claiming legitimate privilege, confidentiality and the right against self-incrimination. It is advisable to carefully make written representations to the authorities during investigations, as otherwise the business may compromise its defence and unwittingly dilute the burden of proof that lies heavily with the prosecution. The KMPs and other officers of a business are required to appear personally before the IO for interrogation, during which, typically, constant access to lawyers is not allowed. An adversarial stand during investigation is adventurous, to say the least, and risky from both a commercial and individual point of view.

II CONDUCT

i Self-reporting

Per se, there is no express obligation on companies to self-report instances of internal wrongdoing or fraud. Such external reporting mandate is imposed upon auditors, practising company secretaries performing a secretarial audit or upon a cost accountant who is performing a cost audit, each in accordance with the provisions of the Act.

In terms of the Act, the board of directors of a company is under an obligation to ensure that proper and sufficient care is taken for the maintenance of adequate accounting records, for safeguarding the assets of the company, and for preventing and detecting fraud. It is also under the obligation to ensure that the financial statements of the company reflect a ‘true and fair view'. This includes a mandate to disclose all frauds reported to the audit committee or the board of directors in its financial statements. Also, where there is a finding of fraud or other internal wrongdoing that renders the financial statements untrue, the board of directors can, once every year, file restated financials with the prior approval of the NCLT2 providing details of the reasons for such restatement. Such restatement would, of course, not absolve the company and the concerned persons from liability as per the law.

Further, in relation to listed companies, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015 (LODR), inter alia, impose disclosure requirements on listed companies with respect to events that may materially impact the price of their securities which include instances of fraud by promoters or KMPs or employees. These must be reported in line with the disclosure requirements under the LODR.

Separately, the management of scheduled commercial banks and non-banking financial companies are under an obligation to mandatorily report instances of fraud to the Reserve Bank of India.

Currently, there is nothing stipulated in the law in terms of leniency towards companies (and their officers and KMPs) that voluntarily report fraud and other instances of wrongdoing to the authorities. Accordingly, any leniency that is extended by the authorities will be strictly discretionary and will depend entirely on the facts and circumstances of the particular case.

However, an exception to the foregoing principle is under competition law. Section 46 of the Competition Act read with the CCI (Lesser Penalty) Regulations 2009 (the Regulations) allow the CCI to impose a lesser penalty in cases where a whistle-blower has made full and true disclosure regarding a cartel. The CCI has discretion to grant a reduction in the penalty of up to 100 per cent if the applicant is the first to make a vital disclosure by submitting evidence of a cartel, enabling the CCI to form a prima facie opinion or establishing the contravention in a matter under investigation. The CCI also has discretion to grant a reduction in the penalty of up to 50 per cent to the ‘second in' applicant and up to 30 per cent to a ‘third in' applicant that makes a disclosure by submitting evidence which provides significant added value. The CCI, for the first time in 2017, issued an order granting leniency to a first applicant enterprise and the responsible individual therein, reducing their sentence by 75 per cent. The order has laid down the requisite considerations for the grant of leniency, including the issue of the timing of the disclosure and, the question of value that the applicant added to the evidence available with the CCI at the commencement of the investigation.

ii Internal investigations

Internal investigations are not regulated by legislation and are determined in terms of internal policies and procedures that each company follows. It is typical for larger organisations to have policies that set out the manner of conducting internal investigations that may be triggered on account of, say, a whistle-blower complaint.

Internal investigations may take a variety of forms depending on the nature and gravity of the allegation and may encompass witness interviews, disclosure of documents, appointment of external experts, forensic support, etc. Typically, it is not very common for employees to engage lawyers to represent them. Given the cloak of privilege that is granted to communications between an attorney and his or her client, appropriate waivers would be necessary from the employee to enable release and use of the privileged information in connection with the internal investigation.

However, regardless of the allegation, as a best practice, it is always prudent to ensure that any internal investigation follows the principles of natural justice. Further, a show-cause notice must be issued to the concerned employee, followed by proper fact-finding and thereafter, cross-examination by both management as well as the employee, to ring-fence the internal investigation from being challenged later as having been partial or vindictive. Lastly, detailed reports and logs of the entire investigation process should be maintained as evidence for future reference and copies of the detailed order or findings should also be made available to the employee prior to levy of any punishment in order to keep the process transparent. Having said that, under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013, specified employers need to establish an internal complaints committee to provide redressal to grievances pertaining to sexual harassment in the workplace.

Currently, there is no legal mandate to voluntarily share the results of an internal investigation with the government, subject always to the reporting and disclosure requirements in terms of the LODR (applicable to listed companies). Further, where a formal inquiry follows an internal investigation, all internal records and documents would be expected to be made available subject to privileged communications.

Data-privacy aspects of internal investigations have assumed paramount importance since the promulgation of the Information Technology Act 2000 (the IT Act) and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011 (the IT Rules). The IT Rules stipulate what constitutes sensitive personal data or information (these include sexual orientation, financial information, passwords, biometrics, medical records, etc.) and the manner in which such information is to be handled, the protection it must be accorded and circumstances where it may be released or transmitted to a third party. Extreme care must be taken to ensure that in the disclosure and processing of information in relation to an internal investigation, all sensitive and personal information is kept confidential and dealt with strictly in line with the legal mandate. Many companies engage independent third-party experts to assist with internal investigations. Once again, care must be taken to ensure that any sensitive or personal information is handled as per the IT Act and the IT Rules and appropriate prior permissions are sought before release or transfer of such sensitive or personal information.

Section 126 of the Evidence Act 1872 (the Evidence Act) renders any communication between attorneys and clients privileged and accordingly, any communication, document and opinion given by them to the client cannot be disclosed to a third party unless specifically consented to by the client. This is, however, subject to certain exceptions such as communication for any illegal purpose or the attorney coming to know that a fraud or crime has been committed by the client since the time that the attorney's services have been availed of.

The privilege under Section 126 of the Evidence Act does not extend to in-house lawyers, since the primary legislation governing lawyers and advocates in India, the Advocates Act, 1961 states that an advocate must be one who is enrolled with the bar council of a particular state and cannot be one who is in full-time employment. Further, judicial decisions have also not been consistent on whether communications with lawyers in full-time employment would be subject to the privilege under Section 126 of the Evidence Act. Accordingly, where a company engages external counsel to represent it in an internal investigation, all communication in that respect would be considered to be privileged. However, where a company deputes its in-house lawyers to act on its behalf in the internal investigation, it is likely that such communication and any work product generated by such in-house lawyers may not be deemed privileged.

iii Whistle-blowers

India has enacted the Whistleblowers Protection Act 2014 but this only provides for the protection of whistle-blowers who have reported the wrongdoings of public servants. However, with regard to private organisations, the Act and the LODR provide for provisions that require companies to put in place a vigil or whistle-blower mechanism.

The Act requires certain categories of companies (on the basis of turnover, paid-up share capital, exposure to bank loans, etc.) to have a vigil mechanism that is to be overseen and headed by the chairman of the audit committee (who must be an independent director) such that directors and employees can use the vigil mechanism to report genuine concerns in such manner as may be prescribed. The Act also provides for safeguards against victimisation to be established in the mechanism itself, including access to the chairman of the audit committee in appropriate cases. Further, under the Act, independent directors are also required to ensure that there is an adequate and functional vigil mechanism and that the rights of any person using the mechanism are not prejudiced. They are also required to report concerns about unethical behaviour or fraud to the board of directors.

Listed companies must have a whistle-blower mechanism for stakeholders to report unethical practices. The details of the working of such mechanism (including access to the chairman, manner of making a complaint, maintenance of anonymity, etc.) must be reflected in a whistle-blower policy, which is to be made available on the company's website.

In light of the above, while it is mandatory for companies to have a vigil mechanism, sufficient discretion is given to the company in relation to determining the manner of operationalising the same, subject only to the fact that the whistle-blower should not be victimised. Having said that, the law in this regard is still nascent and there are no other specific statutory safeguards provided for. In view of this, investigations pursuant to a whistle-blower complaint would be carried out in line with the internal policies of the company subject only to principles of natural justice.

III ENFORCEMENT

i Corporate liability

Principles of corporate liability are statutorily enshrined and some such statutes also provide for vicarious liability for the relevant offence. Where there is a direct charge against KMPs or other officers, such individuals (responsible for the culpable conduct of the corporate entity) can also be convicted and jailed.

Judicial decisions of the Supreme Court have established that corporations can be prosecuted for criminal acts including those requiring mens rea, just like individuals, and would be held criminally liable when an offence is committed in relation to the business of the corporation by a person whose control over the affairs of the corporation is so intense and pervasive that a corporation effectively thinks and acts through such person.3 However, the actions of a corporation cannot be automatically attributed to its KMPs, directors and officers unless it is factually established that such persons exercised intense and pervasive control over the business affairs of the corporation so as to deem them the alter ego of such corporation.4 Notwithstanding the foregoing, corporate criminal liability is a nascent area of law that is continuously evolving and developing in India.

In relation to defence of corporate conduct where attribution is at play in investigation and prosecution, and the inter se interests of the company and the concerned individuals are antagonistic, it is advisable that the company and the individuals are not represented by the same counsel. Typically, it is advantageous to have different counsel when the interests are opposite; however, when the positons are aligned, a common strategy and hence, common counsel, is advisable.

ii Penalties

The consequences of wrongful conduct by the company may have civil, administrative or criminal consequences. Civil liability and penalties include fines, blacklisting, debarment from future tenders, accessing capital markets, administrative encashment of bank guarantees, damages, etc., and, to the extent such conduct has criminal implications, the corporation stands to face appropriate criminal indictment as well, including attachment of property under criminal law. Further, there have been instances of exemplary penalties such as the cancellation of mining leases of coal mines (granted as far back as 1993) by the Supreme Court5 (Coal scam) and cancellation of 2G telecom licences by the Supreme Court6 (Spectrum scam), both on allegations of bribery and wrongdoing by businesses in connection with the grant of such licences.

The Companies Act 2013 prescribes both civil and criminal penalties for misconduct. The civil penalty includes fine payable by the company or the officers of the company for offences like non-maintenance of register of members, default in holding meetings, non-payment of dividend etc. The criminal penalty entails imprisonment either of the director or the officer in default for not maintaining proper books of account, for not issuing proper prospectus, for fraudulent conduct of business etc. The government can also penalise erring government contractors by suspension or debarment of these businesses.

The range of potential sanctions brought against the companies do not vary according to the authorities bringing such sanctions, but is determined by the law.

iii Compliance programmes

Given corporate criminal liability, the question of defence assumes importance. Typically, Indian laws do not explicitly recognise compliance programmes as a defence to criminal charges or a mitigating factor. Traditional defences under criminal law also do not offer sufficient guidance. Investigations for corporate fraud are on the rise and to what extent compliance programmes would be considered a good defence is not clear at present. The Supreme Court in the near future may be called upon to settle the issue. However, a robust compliance programme certainly helps delineate the roles and functions in a company and, therefore, has the effect of isolating KMPs who otherwise would not be directly responsible for the culpable conduct from being needlessly dragged into an investigation.

Typically, for individuals who may be vicariously liable, due diligence, lack of knowledge and remoteness of role and responsibility are good defences. For corporate entities, robust outcome-oriented compliance programmes, including routine audits, timely detection and reporting may be considered as a defence. In this regard, it may be pertinent to note that in line with the UK Bribery Act, 2010, amendments are proposed to the primary Indian anti-corruption statute, the Prevention of Corruption Act 1988 (POCA), to create a safe harbour and defence where the corporation is able to prove that it has put in place adequate procedures designed to prevent persons associated with it from bribery and other offences punishable under the POCA.

The elements of a corporate compliance programme will vary based upon the risk assessments taking into account factors such as the nature of the business, the countries in which it operates, the employee strength of the company, etc. However, it is advisable that compliance programmes should have certain vital elements, for example, a written code of compliance programme, the programme must be for all the employees of the company including the senior management, an anonymous hotline for complaints, whistle-blower protection, etc. The compliance programme should be conducted periodically. There must be a periodic audit of the company operations to ensure that employees are complying with the programme.

iv Prosecution of individuals

Where only employees or offices of the corporation are being prosecuted, the question of managing employee relations is more a function of the peculiar facts of a particular case. There is no prohibition on a company paying the legal fees of its employee who is being investigated or prosecuted. The relevant contractual arrangement with the employee will have a bearing on the decision of employees' legal representation, coordinating with lawyers or payment of legal fees. If the employee, for instance, is acting in the course of his or her employment performing the duties prescribed and for benefit of the company, payment of legal fees would seem like an obligation and disciplinary action against the employee in such situation would seem unfair. On the other hand, if the conduct of the employee is egregious and outside the scope of his or her duty, determination of his or her contract would not be considered improper. The requirement that a company cooperate with the investigation does not have a legal corollary that its accused employee be terminated. Further, Indian companies typically purchase directors' and officers' liability insurance to insulate them from liability incurred in the course of their employment. The Act specifically recognises such right and further, while under the old company law directors could not be indemnified by the company for breach of duty or negligence, there is no restriction under the Act, especially where there is no fault on the part of the concerned director or KMP.

IV INTERNATIONAL

i Extraterritorial jurisdiction

Currently, the POCA deals with bribing of and the abetment of bribery of public officials in India and has an extraterritorial application towards all citizens of India outside India. In other words, where an offence is committed by an Indian citizen beyond the borders of India, the POCA will also be applicable to such offence and be tried as such. Separately, the Foreign Exchange Management Act 1999 (and the subordinate legislation framed thereunder), which is the foremost exchange control regulation, applies to all offices, branches and agencies outside India owned or controlled by a person resident in India and to any contravention committed outside India. Further, the Competition Act empowers the CCI to inquire into any agreement or abuse of dominant position or combinations, anywhere outside India, to the extent such acts are likely to have an appreciable adverse effect on competition in the relevant market in India and pass such orders as it may deem fit. In furtherance of this, the Competition Act also permits the CCI to enter into any arrangement with a foreign government.

Separately, India has ratified the United Nations Convention against Corruption, and, in order to meet its obligations under the convention, the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organizations Bill 2011 was introduced in Parliament. This was in order to deal with the bribery of and by foreign officials and officials of international organisations, penalising both. This bill, however, subsequently lapsed and now the government is planning to draft fresh legislation which will be introduced to Parliament for deliberation.

ii International cooperation

In India, the extradition of a fugitive from India to a foreign country or vice versa is governed by the provisions of Indian Extradition Act 1962 (the Extradition Act) and the basis of extradition could be a treaty between India and a foreign country. Under Section 3 of the Extradition Act, a notification is required to be issued by the government of India extending the provisions of the Extradition Act to the country or countries notified. The Ministry of External Affairs is the central authority for all incoming and outgoing requests for extradition. India has currently signed extradition treaties with 37 countries and also has extradition arrangements with eight others.

The Extradition Act specifies that any conduct of a person in India or in a foreign state that is mentioned in the list of extradition offences and is punishable with a minimum of one year's imprisonment qualifies for an extradition request. In the case of countries with which India does not have such a treaty, the central government can, by notified order, treat any convention to which India and the foreign country is a party, as the extradition treaty providing for extradition, with respect to the offences specified in that convention.

India has also entered into mutual legal assistance treaties with 39 countries wherein both countries agree to exchange information in order to enforce criminal laws. Further, India is a party to the 1997 International Convention for the Suppression of Terrorist Bombings. This provides for extradition in terror crimes. Furthermore, India is one of the oldest members of Interpol and the CBI acts as the liaising agency with Interpol.

For matters and information pertaining to taxation, India is a party to a number of tax information-exchange agreements with various countries (including several perceived tax havens such as the British Virgin Islands), which provide for transparent exchange of information between the countries in taxation matters. Lastly, in matters of securities regulation, India is member of the International Organization of Securities Commissions and has signed the multilateral memorandum of understanding that represents a common understanding on the manner of consultation, cooperation and exchange of information for the purpose of regulatory enforcement regarding securities markets.

In terms of cross-border cooperation, the PMLA authorises the central government to enter into an agreement with another government for the exchange of information for the prevention of an offence. Also, as noted above, the Competition Act empowers the CCI to enter into arrangements with foreign governments in connection with giving inquiries into acts outside India that have an appreciable adverse effect within the relevant markets in India. Similar powers are provided to the government under the newly promulgated Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act 2015 for gathering of information in relation to evasion or avoidance of tax or undisclosed foreign income.

iii Local law considerations

India has strict laws relating to data privacy and attorney-client privilege as discussed above. Breach of any of those lead to stipulated punishments. Having said that, there are exceptions when the disclosure and release of sensitive or personal information may be permitted without the consent of the concerned person by an order under the law currently in force.

Indian law also recognises bank secrecy and there are a number of provisions in the law that stipulate that transactions between a bank and its client shall be maintained secret. Among these, the Bankers' Book Evidence Act 1891 states that a banker cannot be compelled to produce the contents of its books and is permitted to maintain the secrecy of such transactions in a matter where the bank has not been made a party. Such production can be forced only upon a court order from a judge with special cause. Under this legislation, the banks have a right to give notice of their intention to show cause against an order made by a court or a judge requiring disclosure.

Further, the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act 1983 as well the Banking (Regulation) Act 1949 contain provisions dealing with privacy principles and secrecy that must be accorded to the affairs of the clients of the banks. The principles of banker-client secrecy are respected and upheld and only in exceptional circumstances can those principles be overridden and confidential information be permitted to be disclosed. Compliance with law and public interest would be instances when such disclosure would be deemed permissible. Having said that, an order of the appropriate government or a court would be necessary to effectuate such disclosure of confidential information overriding the statutory grant of secrecy and confidentiality to such information.

V YEAR IN REVIEW

Unfortunately, despite the efforts of various governmental authorities to bring about stricter adherence to corporate governance norms and to bring about greater transparency, the last two years have seen a resurgence in the classic Ponzi schemes, albeit in a new avatar. In addition to the Social Trade scam and the Ringing Bell fraud, a number of other scams have involved large amounts of public money being embezzled. The private sector has seen its fair share or fraud and bribery and there have been various instances of FCPA investigations being carried out against foreign corporations as a result of the actions of their Indian subsidiaries. Listed below are some of the major scams and investigations that occurred during the course of the past two years.

 

i Social Trade

This Noida-based Ponzi scam is one of the biggest internet scams in recent times and is estimated to have cheated around 650,000 people and estimated to be worth US$580 million. Through the scheme, Social Trade, offered money to investors for ‘liking' posts on social media profiles to increase traction and promote some web pages. Memberships cost between US$90 and US$900 and a return of US$0.08 was offered per ‘like'. The matter is under investigation by the income tax department, the Serious Fraud Investigation Office (SFIO) and the Hyderabad police.

 

ii Ringing Bells Private Limited

Another high-profile scam was the one perpetrated by Ringing Bells Private Limited. Seeking to ride on the coat-tails of the Prime Minister's ‘Make in India' vision, Ringing Bells created a sensation after it announced the launch of Freedom 251, a smartphone that it promised to sell at a price of approximately US$4. The company took pre-orders from hundreds of thousands of people but failed to deliver the phones to most of them. Ringing Bells had never showed that it had the ability to manufacture or even import hundreds of thousands of phones to supply them to all those who had pre-ordered them. The CEO of Ringing Bells Private Limited was arrested based on allegations of fraud on 23 February 2017.

 

iii Sai Prasad group

The Sai Prasad group of companies duped investors with promises of high returns. The company enticed investors by promising 13.5 per cent interest or US$280 per month for six years on an investment of approximately US$1,560, apart from principal on maturity. The scam was made public in 2015, when the SEBI filed a complaint, claiming that the companies had collected investments without its permission - typically companies that collect investments are required to register themselves under the Collective Investment Scheme of the SEBI. The Economic Offences Wing registered a case of forgery, cheating, breach of trust against the company under the Maharashtra Protection of Interest of Depositor (MPID) Act. A special court under the MPID Act has ordered the sale of US$625 million worth of assets of the Sai Prasad group of companies, in order to repay the investors.

iv Cognizant Technologies

In September 2016, Cognizant disclosed that it had discovered violations of the FCPA. The company determined that about US$6 million were paid as bribes to facilitate real estate transactions for the company's subsidiaries in India. Cognizant voluntarily notified the US Department of Justice (DOJ) and the US Securities and Exchange Commission. Cognizant disclosed that it incurred US$27 million in costs related to its investigation into this matter and in dealing with related law suits and was expecting to incur more costs in this regard. Cognizant also stated that members of the senior management who may have participated in or been aware of the making of the identified potentially improper payments and who failed to take appropriate action were no longer associated with the company.

v Anheuser-Busch InBev

As of 28 September 2016, it was revealed that Anheuser-Busch InBev paid US$6 million to settle charges that it violated the FCPA and impeded a whistle-blower who reported the misconduct to the DOJ. According to the SEC, the company's India minority-owned joint venture used third-party sales promoters to make improper payments to government officials in India to increase sales and production. It also executed a separation agreement to prevent an employee from voluntarily communicating with the SEC about potential FCPA violations. SEC found that Anheuser-Busch InBev violated the books and records and internal controls provisions of the FCPA as well as SEC Rule 21F-17(a) by impeding an employee from communicating directly with the SEC. Anheuser-Busch InBev settled the action without admitting or denying the SEC's findings.

vi Mondelēz International, Inc

Mondelēz International, Inc paid US$13 million to resolve FCPA offences related to payments by its Cadbury unit in India for obtaining relevant licences and approvals for a factory in the state of Himachal Pradesh. Such payments were made through a local agent and Cadbury India did not conduct appropriate due diligence, monitor the agent or put in place compliance measures to prevent breach of the FCPA. Cadbury and Mondelēz settled the SEC's allegations without admitting or denying the findings.

vii The Fake IRS Call Centres/BPO's scam

This scam relates to certain companies being investigated by the Thane police for running call centres that allegedly duped over 6,000 US citizens out of at least US$80 million. Call centre executives of these companies pretended to be officials from the IRS and threatened the victims tax investigations unless they were provided with some compensation. Many of the victims agreed to pay between US$500 and US$60,000 in gift cards and iTunes gift cards to escape such potential scrutiny.

As outlined above, the above-mentioned cases are only a representation of some of the matters that have taken place and many more such instances exist. The increase in the number of foreign companies that are being investigated by the US DOJ for alleged violations of the US FCPA has gone up over the past couple of years, clearly indicating that the US DOJ is maintaining closer scrutiny of the actions of US subsidiaries in India and the measures being taken by them to guard against contraventions of the US FCPA.

VI CONCLUSIONS AND OUTLOOK

While India has a multitude of laws that seek to instil high levels of corporate governance and adequate safeguards in both the public and private sectors, it is the lack of enforcement and the general apathy of governmental authorities that has led to the unabated rise of scams over the past few years. It is possible that this may change given the government's outlook.

India has had a new government at the helm since 2014 and one of the main statements the government used in its electoral campaign was the promise of a corruption-free government. The government claims to have clamped down on the prevailing practices of bribery and kickbacks in the allotment of government (especially defence-related) tenders and also in the processing of routine requests before governmental authorities. Further, to counter and eliminate fraudulent collective-investment schemes meant to cheat members of the public, the government intends to introduce a new bill, the Banning of Unregulated Deposit Schemes and Protection of Depositors' Interests Bill (the Bill), which will be based on Britain's Financial Services Act 2012 and will provide for harsh penalties to deter companies and persons from implementing any collective investment schemes without obtaining due permissions. The Bill also proposes the creation of special courts in every state to handle cases of fraudulent deposit schemes. Should such a law be implemented, it may prove to be a deterrent for such crimes going forward.

The introduction of the Act and its stringent provisions concerning internal reporting by the board of directors and the auditors will also hopefully plug some of the loose ends when it comes to enforcement. Further, the SEBI is also playing an increasingly proactive role in clamping down on various unscrupulous businesses that roll out collective investment schemes without complying with the provisions of the SEBI's regulations governing such schemes. The dispute between the SEBI and the Sahara Group grabbed national headlines when the Supreme Court directed the Sahara Group to refund monies to the tune of 240 billion rupees to nearly 30 million investors from whom such monies had been taken without proper regulatory approvals. The Chairman of the Sahara Group was in custody for close to two years on charges of being in contempt of the Court's prior orders but no other charge of fraud was brought against him. The SEBI is also taking similar measures in the Pearl Agro case (cited above) and other similar cases.

Over time, courts have accorded recognition to the serious nature of white-collar crime and the effect it has on the public. Despite this, conviction for white-collar offences is often a drawn-out process in India. While it is possible that courts may, depending upon the criticality or quantum involved, act more quickly in some cases, in most instances, the accused are usually able to secure personal freedom for themselves (by obtaining bail) even as cases against them continue in court. To sum up, the current outlook in India suggests greater enforcement of legal provisions to curb instances of white-collar crimes and more involvement of the government in ensuring the reduction of such crimes.


1 Anand Mehta and Susmit Pushkar are partners, and Vinay Joy and Supratim Chakraborty are associate partners at Khaitan & Co.

2 The government has notified the constitution of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT) in terms of the Act. Accordingly, the NCLT and the NCLAT have replaced the Company Law Board, which stands dissolved.

3 Iridium India Telecom Ltd. v. Motorola, Inc (2011) 1 SCC 74.

4 Sunil Mittal v. CBI (AIR 2015 SC 923).

5 Manohar Lal Sharma v. The Principal Secretary & Others (2014) 9 SCC 614.

6 Centre for Public Interest Litigation and others v. Union of India and Others (2012) 3 SCC 1.