Fraud has been expressly defined in various statutes such as the Companies Act, 2013 (the “Companies Act”) and the Indian Contract Act, 1872 (the “Contract Act”). However, in all cases, a basic characteristic of fraud claims is that there must be an intention to:

• deceive another person;
• take undue advantage of them; or
• injure their interests.

Generally, a dishonest concealment of facts amounts to fraud as much as overt actions or the making of false statements. Specifically, under the Companies Act, an abuse of position with intent to deceive is also covered under fraud. The Companies Act also does not require the occurrence of loss to set up a case of fraud.

In 2023, the Indian Parliament enacted a new penal statute – Bharatiya Nyaya Sanhita 2023 (BNS) – and repealed the existing pre-colonial Indian Penal Code 1860 (IPC). Similarly, the erstwhile Code of Criminal Procedure 1973 has also been repealed and replaced by a new statute –  Bharatiya Nagarik Suraksha Sanhita 2023 (BNSS). As per the Indian government’s notification dated 23 February 2024, both the aforesaid BNS and BNSS will come into effect from 1 July 2024. 

The BNS, like its predecessor statute the IPC, does not define fraud as a distinct offence. It only provides for fraudulent intention as an ingredient of various specific offences. The BNSS defines “fraudulently” to mean with an intent to defraud.

Dishonest misappropriation of property, or dishonest conversion of property for one’s own use, is also a penal offence. This offence takes the form of “cheating” where someone, by deceitful or fraudulent means, induces a person to deliver a property to themself. On the other hand, where a person has been entrusted with this property and dishonestly or illegally misappropriates or converts it for their own use or benefit, this comprises the offence of “criminal breach of trust”.

It is to be noted that not only the commission of a fraudulent act per se but also any agreement or conspiracy to enter into a fraudulent act, entered into by two or more persons, is penalised under the BNSS, regardless of whether the actual fraud is committed.

There is a more nuanced definition of fraud in the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, made under the Securities and Exchange Board of India Act, 1992 (the “SEBI Act”), which deals with fraud committed while dealing in securities. This definition includes any act, expression, omission or concealment committed, whether in a deceitful manner or not, by a person while dealing in securities, in order to induce another person or their agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss.

The PC Act

Paying illegal gratification (corrupt payments) to a public or a government official is punishable under a special statute, the Prevention of Corruption Act, 1988 (the “PC Act”). The PC Act penalises a government servant as well as any person or organisation (including its officers) who makes the corrupt payment to the public official to obtain a benefit. The term “payments” is defined very broadly under the Act, and includes getting any undue advantage, whether pecuniary or otherwise. Likewise, “public servant” has been defined broadly to include officials working in corporations controlled or aided by the government, and anyone performing a public duty (such as bank officials, irrespective of whether they are employed by the government). There is no de minimis standard for the quantum that would qualify as a bribe. In order to prove the offence of bribery, the prosecution has to prove:

• the demand of a bribe by the public servant or the offer to pay a bribe by a person; and
• the acceptance or obtainment of the illegal gratification, either through direct or circumstantial evidence.

Claims relating to bribery in India can only be brought against public servants, and against persons or organisations who bribe or attempt to bribe such public servants. Receipt of a bribe by an agent of a claimant in general is also punishable under the PC Act where such a bribe has been received to induce a public servant to perform their public duty improperly or dishonestly.

The claimant in that case may proceed to file a complaint with specialised investigative agencies such as the Central Bureau of Investigation (CBI) or the State Anti-Corruption Bureau. However, the claimant may not be able to compel the CBI to act on a complaint, and the CBI may treat the complaint as information upon which it initiates its own investigation.

The Companies Act

Under the Companies Act, it is the directors’ responsibility to create adequate internal financial controls that enable the prevention and detection of fraud and other irregularities within a company. Such internal controls include the setting up of channels for reporting of the receipt of a bribe by an agent. In the event of a failure to do so, various recourses are available under the Companies Act, such as:

• prosecution for fraud;
• an action for disgorgement pursuant to a class action (in the case of egregious default); or
• an action for oppression and mismanagement.

A statutory auditor of the company is obligated to report fraud to the audit committee or the board of directors. Where the amount of suspected fraud is more than INR1,00,00,000 the auditor is also required to report such to the central government, after the audit committee or the board of directors (as the case may be) has been given an opportunity to respond to this. Where the auditor fails to do so, they are exposed to various legal liabilities, as explained in 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts.

The company may also pass a special resolution that its affairs are required to be investigated and may inform the Registrar of Companies (ROC) or the Serious Fraud Investigation Office (SFIO), the statutory corporate fraud-investigating agency constituted under the Companies Act.

The IPC

In India, abetment of an act is defined as providing any instigation or aid to facilitate the commission of an offence, and is a punishable act in itself, regardless of whether the intended offence is committed. It is important to note that the definition of abetment in India also includes engaging with one or more person(s) in any conspiracy for committing a fraudulent act, if any act or omission takes place in pursuance of that conspiracy. Where there is no punishment specifically prescribed for abetment of an offence, parties who conspire towards, assist in or facilitate such fraudulent acts are punished with the same punishment as though they had committed the intended offence. The claims for abetment would extend to situations wherein a party’s assistance towards the commission of a crime consists of receiving or harbouring fraudulently obtained assets, but only if the party had knowledge that the assets were fraudulently obtained. However, under Section 48 of the BNS, India has expanded extraterritorial application of the offence of abetment by making abetment outside India an offence in respect of a crime committed inside India.

The Companies Act

In the event that the statutory auditor of the company fails to perform their duties, or does not detect fraud despite it being brought to their notice, the auditor may face various actions, such as:

• a class action for disgorgement;
• regulatory action, including disbarment; and
• criminal prosecution for fraud or abetment of fraud.

In addition to other actions, they may also be removed from their position through a government action for removal, and may be debarred for a period of five years if they are found to be guilty of having directly or indirectly acted in a fraudulent manner, or of having colluded in a fraud by the company, its officers or its directors. In a landmark ruling in 2023 – Union of India v Deloitte Haskins and Sells LLP, reported in (2023) 8 SCC 56 – the Supreme Court of India held that an action seeking removal and debarment under Section 140(5) of the Companies Act is maintainable even against statutory auditors who had resigned prior to such action being instituted.

The Prevention of Money Laundering Act, 2002 (PMLA)

The PMLA penalises the offence of money laundering per se, when such offence involves proceeds of crime in relation to a specified or scheduled offence – ie, offences listed in the Schedule to the PMLA. The existence of such predicate offence is a sine qua non for initiation of proceedings under the PMLA. It is pertinent to note that the offences of cheating, forgery of valuable security and wills, etc, are scheduled offences under the PMLA. Under the PMLA, the offence of “money laundering” has been defined very widely to include any of the following activities pertaining to proceeds of crime:

• acquisition;
• possession;
• use;
• concealment; and
• projection or claiming proceeds of crime as untainted property.

It is to be noted that the aforesaid activities are independent of each other and are therefore to be read disjunctively.

Within its scope, the definition covers not only persons who are directly involved in any of the aforesaid activities but also those persons who (indirectly or directly) attempt to indulge or assist in the aforesaid activities. In other words, the PMLA not only criminalises an overt act of money laundering but also any attempt to commit the act of money laundering.

The PC Act

Under the PC Act, abetment of an offence under the Act by either a private person or a government official is punishable, whether or not the offence was committed as a consequence of that abetment. 

In India, the Limitation Act, 1963 (the “Limitation Act”) provides that the period of limitation in the case of fraud commences from the time the fraud is actually discovered, or could have been discovered using reasonable measures, by the victim. However, where the fraud is continuing, a fresh period of limitation begins to run at every moment of the time during which the fraud continues.

Criminal Proceedings

In general, the limitation period of an offence is dependent on the period of imprisonment prescribed for a particular offence. For example, if an offence is punishable with imprisonment for up to three years, a complaint must be filed within three years from the commission of the offence. In the case of offences relating to fraudulent acts, the limitation period would depend on the specific offence. It must be noted that criminal courts have inherent powers to condone delay where the delay has been properly explained or where it is in the interests of justice to do so.

Additionally, for offences punishable with imprisonment of more than three years, no limitation period has been prescribed. Thus, a complaint pertaining to the offence of cheating and dishonestly inducing delivery of property (punishable with up to seven years’ imprisonment) or the forgery of a valuable security or will (punishable with up to ten years’ imprisonment) can be filed at any point in time.

Civil Proceedings

For civil claims, the period of limitation is specified under the Schedule to the Limitation Act. The periods differ depending on the causes of action; however, as stated above, the cause of action would commence from the time that the fraud is discovered or was discoverable.

The Contract Act

Under the Contract Act, where an agreement is deemed to be void or voidable on account of fraud, the person who has received an undue advantage under such an agreement is bound to restore it. However, where restoration of such property is not possible on account of conversion of the proceeds of fraud, a claimant will still be entitled to compensation on account of the loss that they may have suffered. In such cases, the principles under Section 65 of the Contract Act may apply, which provide that any person who has received any advantage under such an agreement or contract is bound to restore it, or to make compensation for it to the person from whom they received it. The term “received any advantage” provides for restitution of an innocent party to such position as though they had not entered into such a contract. This allows any undue gain received under such a contract to be restituted to an innocent party.

Further, the Specific Relief Act, 1963 provides that a person entitled to the possession of specific movable property may recover it as per the procedure prescribed under the Code of Civil Procedure, 1908 (CPC). Accordingly, once the contract has been declared void, a party is entitled to prefer a civil suit seeking declaratory relief with respect to the title to the property, along with possession thereof.

The Insolvency and Bankruptcy Code, 2016 (IBC)

The IBC provides for various processes in order to claw back or disgorge any undue benefit received by any creditor or related party of a corporate debtor. Section 66 provides that, during the liquidation process or the corporate insolvency resolution process, where any resolution professional or liquidator finds that the corporate debtor has conducted their business with intent to defraud creditors or for any fraudulent purpose, the adjudicating authority may direct any persons (including directors or partners) who were knowingly parties to it to make such contributions to the assets of the corporate debtor as it may deem fit.

The obligation is also cast on the resolution professional to claw back such preferential transactions (if they qualify for the conditions in Section 43) or undervalued transactions (if they qualify for the conditions in Section 46) by making an application under Section 44 or 45 of the IBC, respectively. However, such processes only allow these transactions to be restored to a corporate debtor and not a claimant. Any person applying for such transactions to be reversed will be entitled to proceeds from such transactions in accordance with the resolution plan or the scheme provided for the distribution of assets in liquidation under Section 53 of the IBC. It has recently been held that such avoidance applications by the resolution professional (RP) will be unaffected by the approval of the resolution plan, or conclusion of the corporate insolvency resolution process (CIRP).

The Insolvency and Bankruptcy Board of India (IBBI) has also been given powers to direct “any person” who has made an unlawful gain or averted loss by contravening the IBC to disgorge an amount equivalent to such unlawful gain. The IBBI has also been given the power to take appropriate steps in order to restitute the loss suffered by such person on account of this contravention, if such person is identifiable and the loss suffered is directly attributable to the contravener. 

The Code of Criminal Procedure (CrPC)

Under the CrPC, the police are also empowered to seize any movable property or evidence that they suspect may have been involved in any fraudulent act. Additionally, under Section 451 of the CrPC, the court has the power to pass an order, as it thinks fit, for proper custody of any property during the pendency of the criminal trial. Where the claimant seeks to establish their proprietary rights in a criminal proceeding to recover property, they may make a claim before the court. In that case the court can order the release/restoration of the seized property, either during the pendency of the investigation/trial or after conclusion of the trial. Such release/restoration of seized property may be without conditions or with conditions that the claimant shall execute a bond, with or without securities, to the satisfaction of the court. 

New Provisions of Attachment and Forfeiture of Property Under the BNSS

The powers for attachment and forfeiture of property that were available under the CrPC have been retained under Chapter VII (Sections 111–124) of the BNSS.

However, in addition thereto, Section 107 BNSS also seeks to provide magistrates with powers to attach property identified as “proceeds of crime” pursuant to an application by an investigating officer, giving reasons for believing that the property is derived or obtained from a criminal activity or commission of an offence. The magistrates are empowered to attach and forfeit property under Section 107 after hearing all concerned parties. However, under Section 107(5), a magistrate is also empowered to pass an interim order of attachment, even prior to issuance of a notice, if the magistrate is of the opinion that issuing a notice to the owner of the property for attachment will defeat the object of the attachment or seizure. At the conclusion of such proceedings, if the magistrate is of the opinion that particular property constitutes proceeds of crime, it can direct pro rata distribution of such proceeds of crime to the victims of such crime. If there are no claimants for such distribution, the property shall stand forfeited to the government.

It is to be noted that the powers of attachment of property involved in proceeds of crime under the BNSS come with even fewer procedural safeguards than those provided under the PMLA, and it remains to be seen whether these can withstand the scrutiny of constitutionality once they are brought into force from 1 July 2024.

The PMLA

As stated in 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts, under the PMLA, “proceeds of crime” are defined widely and constitute not only the property directly or indirectly obtained through fraudulent activities but also its equivalent value held in India when such property is taken or held outside India. It is relevant to note that if the proceeds of fraud have been mixed with other funds, the value of these proceeds may be identified under the enactment. This is important because it recognises that the tainted property may no longer be available.

The Directorate of Enforcement (ED), which is the investigating agency under the PMLA, is entitled to attach and (where not practicable to do so) to freeze such properties derived directly or indirectly from the proceeds of crime. However, the Supreme Court of India recently clarified that mere use of a property in the commission of the predicate offence will not render said property a proceed of crime.

If, upon completion of trial, the offence of money laundering is proved, such property forms part of the proceeds of crime and stands confiscated by the central government, vested free from all encumbrances. If, however, the trial results in an acquittal, the property is released to the persons entitled to receive it. Regardless, the special court trying the offence of money laundering is entitled to direct the government to restore the confiscated property to a bona fide claimant, who may have suffered a loss due to the offence of money laundering, at any point during or after the trial.

Criminal Proceedings

In the case of a criminal complaint relating to fraudulent acts, there are no rules of pre-action conduct. The complainant should approach the magistrate or, where the offence is cognisable, the police authorities in order to initiate investigation into the offence. 

Civil Law Proceedings

Where a claimant is filing a civil claim relating to a fraud alleged to have been perpetrated under a contract, such party should furnish a legal notice (usually a demand notice) or such pre-action steps as required under the dispute resolution clause in the contract.

Moreover, specific legislation or provisions may have their own particular rules of pre-conduct action. For example, a claim under the Commercial Courts Act, 2015 (the “CC Act”) requires the parties to have undergone pre-institution mediation of the dispute where no urgent interim relief is sought by the claimant; a civil action against the government or a public official may only be instituted after a written notice has been served two months in advance, unless waived by the court. It is pertinent to mention that failure to adhere to pre-conduct action may be fatal to the claim in certain instances, specifically where the statute provides for this.

A victim of fraud may, while pursuing civil claims, file an application for a temporary injunction to prevent a party from alienating assets while adjudication on the claim is ongoing. The application must show that the common law criteria for an injunction is satisfied – ie, that:

• there is a prima facie case in favour of the claimant;
• the balance of convenience lies in favour of the claimant; and
• irreparable injury would be caused to the claimant if such an injunction is not granted.

This injunction is in personam. However, the injunction may also apply to third parties, where such third parties interfere with or obstruct the course of justice.

Where a suit is instituted for seeking damages/permanent injunction, the court fees payable will be computed as per the Court Fees Act, 1870 and the rules governing that specific court, which may be ad valorem (with or without caps, depending on where the action takes place). However, the fees payable for seeking an ad interim injunction under the suit may be a nominal fee. Such fees may differ for different courts and would need to be computed accordingly.

A similar right would be available to a party if it prefers an application under Section 9 of the Arbitration and Conciliation Act, 1996, wherein such party can seek an ad interim injunction for preservation of assets or the substratum of an arbitration, before, during and after the constitution of an arbitral tribunal but before execution of an arbitral award.

As mentioned in 1.5 Proprietary Claims Against Property, the CrPC and the BNSS allow police officers to seize any property that may be involved in the commission of any fraudulent offence. Additionally, under the BNSS, a magistrate now has the power to issue attachment orders (including ex parte interim attachment orders) if it is of the opinion that a property is involved in proceeds of crime. These powers can be exercised at a pretrial stage and even before an accused person has the opportunity to plead and establish their innocence in a trial. Further, a criminal court also has wide powers to secure the custody of any property produced before it during the pendency of trial. Such property may be directed to be released/restored to the claimant either during the pendency of investigation/trial or after conclusion of the trial.

Civil Law Remedies for Violation of an Injunction

Violation of the aforementioned orders granting an interim injunction would amount to contempt of court by the opposite party, and is punishable with civil imprisonment and/or a fine. The court would also be entitled to attach the property of the violating party. Further, the court may also declare any transaction in violation of such orders null and void. 

Criminal Law Remedies for Violation of an Injunction

Under the IPC (and the BNS), any fraudulent removal or dissipation of assets to prevent a property from being forfeited for the satisfaction of an order or a decree that has been passed, or that is likely to be passed, is punishable by imprisonment of up to two years or a fine, or both.

Cross-Undertakings

In general, there is no statutory requirement for the claimant to give a cross-undertaking in damages, with the exception of patent suits filed in New Delhi. However, the courts (while keeping in mind equitable principles) or the arbitral tribunal (by way of the principles governing commercial arbitrations) may require a cross-undertaking to be given by a claimant to indemnify the losses suffered by a party on granting of an injunction against it, if such party ultimately succeeds in its defence. Further, while granting an injunction or an interim relief, a court can put parties to terms and direct a deposit of an amount it deems suitable till the time the issue is adjudicated.

Under Section 144 of the CPC, where any order is subsequently varied, reversed or modified, a party can apply to the court for restitution of its position to before the making of such an order, which could include refund of costs and payment of interest, damages and compensation.

Criminal Proceedings

With respect to criminal actions, under Section 91 of the CrPC (Section 94 of the BNSS), a court or a police officer has wide powers to compel a person, through a written notice, to produce any “document or other thing” that is considered necessary or desirable in respect of the fraudulent act, during the stage of investigation, inquiry or trial. The person may be compelled to disclose documents in relation to assets held by themself as well as by nominees on their behalf. Omission to produce documents in this regard may be punishable with simple imprisonment of up to six months and a fine of up to INR1,000.

Civil Proceedings

In civil proceedings, a claimant may make an application to a court to seek discovery, inspection and admission of certain documents in the control of the opposite party. Furthermore, where the court is satisfied that, in the usual course of business, assets of the opposite party are held by a third party, the court may (following the submission of an application) direct the third party to disclose such assets. The opposite party may also be required to answer specific questions (termed “interrogatories”) served by the claimant. A failure to answer such interrogatories or to comply with an order of discovery may lead to dismissal of the defendant’s defence, as if they had not defended the suit at all, under Order XI Rule 21 of the CPC. Additionally, if the defendant is eventually found to have given false information, they may also be proceeded against for perjury. At the same time, the court may impose costs on any party if it believes that such party has issued interrogatories that are unreasonable, vexatious or exceedingly lengthy in any manner.

Cross-Undertakings

As explained in 1.7 Prevention of Defendants Dissipating or Secreting Assets, a party can be put to terms and be directed by the court to deposit a certain amount. Further, under Section 144 of the CPC, a court has the power to restore a party to its original position where an order against it is subsequently vacated or modified. This power includes the power of the court to order that a party be paid such costs as are properly consequential on such variation, reversal or modification.

Criminal Proceedings

Law enforcement agencies often have their own manuals or rules that provide for the preservation and storage of evidence. For example, the CBI manual provides that all documents and material objects seized during an investigation must be promptly sealed in a scientific manner and deposited in the designated property room. Furthermore, the details of such documents and material objects must be entered in the submodule of crimes, or in the register where the submodule is not operational. These documents/items can be issued to the investigating officer as and when required for the purpose of investigation, by proper receipt. Further, such documents/items should be returned as soon as they are not required by the investigating officer. The manual also states that every investigating officer shall be personally responsible for the safe custody of such documents/items at all stages of the investigation.

As mentioned in 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts, 1.5 Proprietary Claims Against Property and 1.7 Prevention of Defendants Dissipating or Secreting Assets, under the PMLA, the ED is entitled to attach any property that it reasonably suspects is a “proceed of crime”.

Attachment enables preservation of such proceeds of crime as may be used as evidence in the trial. Under the PMLA, specific rules have also been enacted under the Prevention of Money Laundering (Receipt and Management of Confiscated Properties) Rules, 2005, which provide for proper identification, maintenance and custody of confiscated properties. In the case of attachment of an asset that is of a depreciating nature, courts may order sale of the asset in order to realise its maximum value, even during the pendency of the trial.

Pursuant to the Financial Action Task Force (FATF) highlighting use of cryptocurrencies in money laundering activities, enforcement agencies in India have also begun to attach cryptocurrencies and assets of such exchanges as proceeds of crime. As a measure of statutory recognition, in March 2023 the government of India (for the first time) formally brought “cryptocurrency” and “virtual digital assets” under the regulatory ambit of the PMLA. It is now mandatory for anyone dealing with cryptocurrencies and/or virtual digital assets to comply with reporting requirements.

Moreover, the police and the courts are given the power to seize and attach any property that is governed by the procedure provided in the CRPC (now the BNSS). Under these criminal statutes, “property” is defined extremely widely to include movable or immovable property, corporeal or incorporeal property, and the instruments relating to such assets (and includes bank accounts).

It may be noted that the IPC (and even the BNS) provides that any person who secretes or destroys any document to prevent its production in legal proceedings shall be punished with imprisonment of two years or a fine, or both. This acts as a deterrent to a party to not tamper with or destroy evidence.

Civil Proceedings

The CPC provides that a court may regulate and control the evidence placed before it. The High Courts in India have their own specific rules in relation to maintenance of evidence. For example, the rules formulated by the High Court of Delhi provide that old and delicate documents should be safeguarded from any damage, such as by using a protective covering, or by using a photocopy while keeping the original document sealed. The CPC also provides for the appointment of a receiver, under Order XL, to protect and preserve a property that is the subject matter of a suit for realisation, management or improvement of a property, or to collect rent and profits while the suit is pending. Additionally, under Order XXXIX Rule 7 of the CPC, a party can make an application to the court for the inspection, detention or preservation of any property that forms the subject matter of the suit.

Physical Search of Documents

The Indian Evidence Act, 1872 gives broad powers to the court to seek production of any document at any time, as the court may deem fit (unless this falls under a recognised privileged communication). However, under criminal law, the rights of the victim are limited and do not extend to conducting a physical search of documents at the defendant’s residence or place of business. While the Indian Evidence Act, 1872 is also due to be replaced by the BSA from 1 July 2024, the provisions relating to privileged communications have been retained under the BSA.

Under civil law, such a claimant would be able to seek discovery and inspection of the evidence upon making an application for this to the court. Such an inspection would usually take place at the office of the defendant’s pleader, or at the usual place of custody of such evidence. No undertaking is required to be given by the claimant in such cases, but the application is required to be made on oath to ensure that such documents are relevant for the purposes of the proceedings in question. However, the inspection is limited to documents referred to and/or relied upon by the defendant in its pleadings, or to specific documents that the claimant affirms the defendant has, and does not take on the nature of a general search of the defendant’s premises.

The CPC also provides for the appointment of commissioners under Order XXVI, where the court finds the need for local investigation/inspection or for ascertaining the amount of any mesne profits or damages, or annual net profits. After such an investigation/inspection, the commissioner must reduce their evidence into writing and, together with their report, submit this to the court. Such commissioners also have the power to take evidence from a witness by examination on interrogatories or otherwise.

Criminal Proceedings

As stated in 2.1 Disclosure of Defendants’ Assets, Section 91 of the CrPC (Section 94 of BNSS) can be utilised by a court or the police to summon any person to produce any document or thing necessary for investigation or trial. The Section is not limited to obtaining disclosure from an accused person alone but can be used to seek a document or thing relevant for investigation from any person in whose possession or power such document or thing is believed to be.

Civil Proceedings

Further, under the CPC and the Indian Evidence Act, 1872, a court has broad powers to seek production of any document or evidence from any party, either on its own or pursuant to an application filed by a claimant in this regard. One notable change regarding production of documents is that under the newly enacted BSA (which replaced the Indian Evidence Act, 1872) the definition of the word “document” has been expanded to include:

• electronic or digital records stored in emails;
• server logs;
• documents on a computer;
• messages;
• websites;
• the cloud;
• location evidence; and
• voicemail messages stored on digital devices.

Similarly, the definition of the word “evidence” has also been expanded to include any information given electronically. This is a major amendment introduced by the BSA.

Under the CPC, a claimant seeking a temporary injunction (such as to preserve any property or prevent any further injury) may be granted an ex parte injunction if the court believes that the delay in notifying the other party may defeat the purpose of the injunction sought. However, the claimant will be required to inform the opposite party of this and to send all documents forthwith. Such an injunction is also liable to be vacated upon an application filed by the opposite party if the claimant has knowingly made a false or misleading statement in its application for the purpose of obtaining such an injunction. The CPC also states that, once such an ex parte interim injunction is granted, the court is required to hear and dispose of the application of the claimant for injunction within 30 days of passing the interim order.

Victims of fraudulent acts or fraud have two avenues through which they can seek redress against perpetrators:

• initiation of criminal proceedings; or
• the filing of a civil suit.

The victim can also pursue both civil and criminal remedies simultaneously for the same cause of action. Such proceedings take place before different courts and hence do not impact on the speed at which they are disposed. However, to initiate criminal proceedings, the victim must ensure that criminal offences are sufficiently made out in the cause of action, as Indian courts have repeatedly warned against giving a criminal cloak to purely civil/contractual disputes. 

In practice, the route chosen by victims depends on what form of redress they are seeking. In India, there are limited provisions for providing compensation to victims in criminal proceedings. The granting of such compensation is recoverable from the fine imposed by the court, and is subject to the discretion of the court. Hence, if the overarching goal of initiation of proceedings is recovery, a victim will be well advised to pursue civil proceedings; but, if the goal is to seek punishment for the perpetrator, criminal proceedings may be a better option.

The standard of proof required to hold against the perpetrator is different in both cases. In civil proceedings, it is sufficient for the victim to show on “preponderance of probabilities” that the perpetrator is at fault; whereas in criminal proceedings, it is the duty of the prosecution (for example, the State) to show that the perpetrator is liable “beyond reasonable doubt”.

While in theory both proceedings are independent and do not have a bearing on each other, in practice an adverse ruling in one may be prejudicial for the party in the second proceeding, depending on the facts dealt with and whether the conviction precedes the civil determination.

Criminal Proceedings

Under the CrPC, there are no provisions that allow for the obtaining of a judgment without a full trial being conducted. However, if an accused is absconding and there is no immediate prospect of arresting them, the CrPC provides for the recording of evidence against the accused in their absence. Such evidence may then be used against the accused when their trial can take place. The court may also dispense with the presence of the accused if it is satisfied that their presence is not necessary, or that the accused has persistently disturbed the court proceedings. In fact, the Supreme Court of India has noted that absconding persons cause undue delay in adjudication of trials and the CrPC needs to be amended to allow for “trial in absentia”.

In view of such suggestions, the BNSS has (for the first time) introduced provisions relating to conducting a trial of an accused person in absentia. Section 356 of the BNSS envisages trial in absentia if three conditions are satisfied, namely:

• the accused person is declared as a proclaimed offender under Section 84 of the BNSS;
• they have absconded to evade trial; and
• there is no immediate prospect of arresting them.

Consequently, the BNSS provides for pronouncement of judgment for an in absentia trial conducted regarding an accused, with the further stipulation that an appeal therefrom can only be preferred if the proclaimed offender presents themself before the Court of Appeal.

Civil Proceedings

The courts can also issue an ex parte decree in a defendant’s absence, provided that sufficient opportunity has been provided to the defendant and despite which the defendant failed to appear before such court.

For civil cases, the CPC also provides for the claimant filing an application before the court seeking a summary judgment in certain commercial disputes. Under Order XIII-A of the CPC, read with the CC Act, the court may give a summary judgment if it considers that the defendant has no real prospect of successfully defending the claim, and that there is no other compelling reason for why the claim should not be disposed of without proceeding to trial and recording of oral evidence. The CPC, read along with the CC Act, also empowers the court to pronounce judgment at the first hearing of the suit itself when it appears that the parties are not at issue on any question of law or fact.

Moreover, there is also a separate provision for institution of summary suits that involve the plaintiff seeking recovery from the defendant for an ascertainable amount based on an instrument executed between the parties. Such summary suits only allow the hearing of defence if the leave to participate is granted; and if such leave is refused by the court, the suit is decreed in favour of the plaintiff.

Courts in India have given an expansive and inclusive definition of fraud. The primary component that must be alleged and proved in claims pertaining to fraud is that the claimant was fraudulently or dishonestly induced to act in a certain manner by the perpetrator. While proving that a wrongful gain was caused to the perpetrator and a wrongful loss was caused to the claimant may not be necessary in every instance, the Supreme Court of India has repeatedly held that the party alleging fraud must set forth specific particulars of fraud, and that the case can only be decided on the basis of the particulars laid out. Mere bald allegations or pleadings of fraud by the claimant are not sufficient to proceed with a claim for fraud. Order VI Rule 4 of the CPC also states that, in all cases where a party’s pleadings rely on any misrepresentation, fraud, breach of trust, wilful default or undue influence, particulars (with dates and times if necessary) should be stated in the pleadings.

A claim against unknown fraudsters can be made in India, especially when seeking an ex parte interim injunction against an unknown party, in order to protect the claimant’s interests where there is an imminent threat to such interests, and where the identity of the fraudster is unknown. The courts in India have granted such “John Doe” orders (referred to as “Ashok Kumar” orders in India) frequently in cases involving fraudulent misrepresentations or frauds in relation to intellectual property claims.

Criminal Proceedings

As stated in 2.1 Disclosure of Defendants’ Assets and 2.3 Obtaining Disclosure of Documents and Evidence From Third Parties, Section 91 of the CrPC (Section 94 of the BNSS) can be invoked by the police or a court to direct a person to produce certain specified documents in their possession as evidence. Further, courts in India generally have broad powers to summon a witness, either on their own motion or upon application by a claimant, and to compel production of any evidence or document.

Civil Proceedings

Even arbitral tribunals can seek court assistance in taking evidence under Section 27 of the Arbitration and Conciliation Act, 1996 (the “A&C Act”) by exercising the stipulated powers. These powers have also been elucidated in the Indian Evidence Act. Powers have also been granted to courts under Order XXVI of the CPC to appoint a commission for deposing a witness or pursuing interrogatories in cases where:

• the witness is within local limits and cannot be compelled to appear before a court;
• there is apprehension of evading jurisdiction before such witness can be compelled to appear before a court; or 
• such witness is incapable of attending evidentiary proceedings.

Indian courts have laid down that, where an offence requiring mens rea or a guilty mind (such as fraud) is committed by persons exercising control over the affairs of a corporate entity, the offence would also be imputed to the entity. Such imputation will be dependent on the degree to which the corporation can be said to be acting through such persons, so as to make such persons the “alter ego” of the entity. Therefore, the corporate entity will be held to be liable for the actions of its director or officer if such persons are acting in the course of their regular duties. Such an entity would also be liable to pay a fine if convicted of the offence, where a fine and/or imprisonment are prescribed as a penalty under the relevant statute.

When a corporate entity has been used as a vehicle for fraud, and its separate identity has been misused to commit such frauds, the courts in India use the well-established common law doctrine of piercing the corporate veil to uncover the individuals who are the ultimate beneficial owners of the entity. In such circumstances, the courts will disregard the separate legal identity generally accorded to corporations in order to punish the actual perpetrators of the fraudulent conduct. The courts have frequently lifted the corporate veil where they suspect that the company itself is a sham entity created for an unlawful purpose or through unlawful means.

It is important to note that, in order to aid identification and regulation of such individuals, in 2018 the Ministry of Corporate Affairs in India introduced the Significant Beneficial Ownership Rules, which define the criteria for constituting a significant beneficial owner (SBO) in a company. The Rules require the reporting company to submit specified information pertaining to SBOs to the ROC, thereby providing investigative and regulatory agencies with ready access to ultimate beneficiaries in complex ownership structures. Similar rules also exist under the PMLA, wherein banks and financial institutions are charged with the responsibility of maintaining records of their clients and their respective beneficial owners. The Securities and Exchange Board of India (SEBI) has also issued multiple guidelines and circulars for identifying ultimate beneficial ownership among companies listed on a stock exchange.

Under the Companies Act, shareholders may institute oppression and mismanagement proceedings against the company and its director(s) where, inter alia, the affairs of the company have been or are being conducted in a manner that is prejudicial to public interest or prejudicial to such shareholders’ interests. The requirement for initiating such proceedings has been provided for under the Companies Act as not less than 100 members or one tenth of the total members (whichever is less), or any member(s) holding one tenth of the paid-up share capital of the company, in the case of a company that has a share capital. For a company that does not have a share capital, not less than one fifth of the total members of such a company can initiate such proceedings.

It should be noted that the High Court of Delhi has held that provisions under the Companies Act, including Sections 241 and 242, allowing for initiation of proceedings and the relief of freezing assets and disgorgement of property as disgorgement, are civil actions in the nature of equitable relief.

The Companies Act also permits institution of a class action, where members can approach the National Company Law Tribunal to seek certain orders, such as to claim damages or to demand any other suitable action from or against the company or its directors for any fraudulent, unlawful or wrongful act or omission on their part. For a company that has a share capital, a “class” is defined as not less than 100 members or not less than 5% of the total members (whichever is less), or members holding not less than 5% of the share capital of a company in the case of an unlisted company, and not less than 2% of the issued share capital in the case of a listed company. For a company without a share capital, a “class” has been defined as not less than one fifth of the total members of such a company.

Fraud Under the Contract Act

A suit for declaration of contract rendered void on account of fraud, or for claiming damages on account of such fraud committed by a private party, may require the joinder of an overseas party to such a suit. Such a joinder would be governed by the provisions of the CPC. While the CPC does not create a distinction between joinders of an overseas party and a domestic party, a joinder is allowed on account of liability under the same contract (Order I Rule 6) or on account of a cause of action (Order II Rule 3). In such cases, the courts allow issuing a notice/summons to an overseas party. However, if the overseas party fails to appear and defend its case, the courts may proceed ex parte to decide the suit.

A decree passed by an Indian court against an overseas party, specifically for damages on account of fraud, may need to be enforced specifically. In cases where the jurisdiction in which the decree is to be executed is a reciprocating country notified under the CPC, the decree would become enforceable in the reciprocating country. However, for non-reciprocating countries, a decree may only hold evidentiary value and may have to be adjudicated on merits.

Arbitrability of Fraud

The law in India allows fraud of a civil nature to be arbitrated between parties. Any allegation of fraud that affects the private dispute between parties is arbitrable, unless the allegation is that the arbitration agreement itself is vitiated by fraud. However, courts have held that the criminal aspects of fraud, forgery or fabrication, which would be visited with penal consequences, can only be adjudicated by a court of law, as they are in the realm of public law.

Indian law has made considerable strides in terms of joining non-signatories to an arbitration, be it domestic parties or overseas parties. Such a non-signatory party will need to discharge the onus of proving that it is either claiming “through” or “under” a signatory party, or that such a composite reference to the signatory and the non-signatory party is required to achieve the common object of the composite transaction.

Courts in India have also utilised the “group of companies” doctrine for the joinder of parties to an arbitration. This has recently been authoritatively ruled upon by a five-judge Constitution Bench of the Supreme Court of India in Cox & Kings Ltd v SAP India (P) Ltd 2023 INSC 1051. The Supreme Court ruled the “group of companies” doctrine to be an intrinsic part of the Indian legal system, and has further defined the contours of the doctrine by guard-railing it from misuse. In doing so, the Supreme Court has reiterated the essential difference between a non-party and non-signatory and has held that consent may be implied in some situations to include a non-signatory to an agreement as party to an arbitration. Under this doctrine, an arbitration agreement entered into by a company, being one within a group of companies, may bind a non-signatory affiliate, if the circumstances show that the mutual intention of all the parties was to bind both the signatory and the non-signatory affiliate.

Fraud Under the Companies Act

While the Companies Act provides punishment for fraud under Section 447, the applicability of the Companies Act to an overseas entity is limited. A foreign company, for the purposes of the Companies Act, is defined under Section 2(42) to mean any company or body corporate incorporated outside India which:

• has a place of business in India, whether by itself or through an agent, physically or through an electronic mode; and
• conducts any business activity in India in any other manner.

In this context, Section 379 of the Companies Act provides that, where not less than 50% of the paid-up share capital of a foreign company is held by one or more citizens of India, or by one or more companies or bodies corporate incorporated in India, whether singly or in aggregate, such company must comply with certain provisions as may be prescribed with regard to the business carried on by it in India as though it were a company incorporated in India.

Section 380 of the Companies Act provides for service of any process, notice or other document required to be served on a foreign company. Section 228 of the Companies Act provides for inspection, inquiry or investigation in relation to foreign companies.

Criminal Proceedings

An Indian court would have jurisdiction over criminal acts committed with a fraudulent intent under the IPC (and also under the BNS) when the act has been committed by:

• any citizen of India residing beyond India;
• any person on a ship or aircraft registered in India, wherever it may be; and
• any person who commits an offence involving a computer source in India.

Where an Indian court can exercise jurisdiction over an overseas entity, the CrPC (and also the BNSS) provides for an elaborate process for the valid service of summons or warrants, etc, in any contracting “state”, through an authority for transmission. In this regard, India has entered into mutual legal assistance treaties/arrangements (MLATs) with various countries that provide for reciprocal arrangements for the serving of such judicial documents. Such requests are processed by the Ministry of Home Affairs, which transfers such documents to the relevant Indian missions/embassies.

The difference between the two categories of countries is that the country where an MLAT is involved has an obligation to consider serving the documents; whereas non-MLAT countries do not have any obligation to consider such a request. Similarly, India has entered into various bilateral treaties that allow knowledge-sharing, mutual assistance and extradition for enabling investigation, arrest and production of accused persons in India.

Some expropriatory statutes, such as the PMLA, also allow attachment of property of equal value in India in cases where properties forming proceeds of crime are taken or held outside India.

The CrPC is the principle Indian legislation which provides for administration of substantive criminal procedure, including the issuance of summons by a court (or a police officer through the court) for the production of any document or material necessary for the purposes of any investigation, inquiry or trial. Summons in such cases can be issued to any person who the court believes to be in possession of such information.

The CrPC (and also the BNSS) provides for an elaborate process for the valid service of summons or warrants, etc, in any contracting “state”, through an authority for transmission. In this regard, India has entered into mutual legal assistance treaties/arrangements (MLATs) with various countries/contracting states that provide for reciprocal arrangements for the serving of such judicial documents. India is a member state to various multilateral treaties that provide for mutual assistance in enforcement. These include membership of the Financial Action Task Force and International Criminal Police Organization, which enable member states to share and access data on crimes and criminals as well as offer a range of technical and operational support. Similarly, India has also entered into various bilateral treaties that allow knowledge-sharing, mutual assistance and extradition for enabling investigation, arrest and production of accused persons in India.

The request for service of such judicial documents to an entity/person outside India are processed by the Ministry of Home Affairs (MHA). The MHA examines the request upon receipt to ensure that it is compliant with the provisions of any bilateral or multilateral treaty or any other international convention to which both India and the receiving country are signatories. It also examines the summons request to verify compliance with Indian law and the laws of the foreign recipient country. The request is then sent through the Ministry of External Affairs to the “Central Authority” of the reciprocating country. In the country to which a request for assistance is made, summons are served in accordance with the laws and procedures of that country.

It is pertinent to mention that the country where the MLAT is involved has an obligation to consider serving the documents; whereas non-MLAT countries do not have any obligation to consider such a request.

Some expropriatory statutes, such as the PMLA, also allow attachment of property of equal value in India in cases where properties forming proceeds of crime are taken or held outside India.

Civil Proceedings

Where a decree has been obtained by a petitioner based on a claim of fraud in contractual disputes, such a decree may be executed either by the court which passed it or by the court to which it is sent for execution. Order XXI of the CPC provides a detailed procedure for executing a decree in an Indian court. Courts have held that all execution petitions must be disposed of within six months of their filing, failing which an executing court must record the reasons for delay. 

A decree obtained from a foreign jurisdiction may also be enforced in an Indian court provided it passes the test of finality as laid down in Section 13 of the CPC. Section 44A of the CPC provides that a decree of any superior court of a reciprocating territory is executable in India as a decree passed by an Indian district court. If the decree is passed by a non-reciprocating territory, a civil suit may be instituted before the appropriate court seeking its recognition and, thereafter, enforcement. Similarly, a domestic arbitral award passed under the A&C Act can be enforced in accordance with the provisions of the CPC, in the same manner as if it were a decree of the court. Such an enforcement under Section 36 of the A&C Act is subject to any appeal that may lie under Section 34 of the A&C Act. An international arbitral award may be enforced in India where the court is satisfied that it fulfils the conditions provided for in Sections 44, 48 and 57 of the A&C Act. Such an executable foreign award is deemed to be a decree of the court.

Criminal Proceedings

While cognisance of criminal fraud can only be taken by an Indian court exercising criminal jurisdiction, various agencies can investigate criminal acts of a fraudulent nature. Powers of investigation, as provided under the CrPC (and the BNSS) can be exercised by state police, and officers of special divisions such as the Economic Offence Wing and CBI. Special multidisciplinary agencies have also been given powers to investigate fraud under specific statutes – ie, the SFIO to investigate fraud under the Companies Act, and the ED to investigate the predicate offence of fraud under the PMLA.

In a significant ruling, in RK Gupta v Union of India (through Ministry of Corporate Affairs) 2023:DHC:9243, the High Court of Delhi recently held that the SFIO, an investigating agency under the Companies Act, has the power to investigate offences under the Indian Penal Code (which will soon be replaced by the BNS) in addition to the power to investigate offences under the Companies Act. However, on appeal, even though the Supreme Court of India refused to entertain a challenge against the High Court judgment, it did however observe that, since the issue as to whether SFIO inspectors are “police officers” under the CrPC did not directly arise for consideration in said case, the High Court judgment cannot be treated as a precedent in this regard.

Additionally, in order to secure the presence of an accused, a criminal court has the power to issue warrants (both bailable and non-bailable) against the accused person. However, in serious cases of fraud, where accused persons may be evading arrest, the executive can issue Look-Out Circulars (LOCs) for arrest of such persons. LOCs are essentially advisories/instructions issued to immigration authorities to inform law enforcement agencies if such an accused person is found to be leaving India or even travelling into India. Issuance of LOCs, however, does not automatically lead to arrest; it only results in accused persons being prevented from travelling out of India.

Criminal Proceedings

A right against self-incrimination is innate in Indian jurisprudence and has been guaranteed as a fundamental right by Article 20(3) of the Constitution of India. This fundamental right is echoed in various other statutes, including the CrPC and the Evidence Act. The protection applies to all forms of testimonial evidence, extending both to oral testimony and to the production of documents. It is important to note that this constitutional protection is not only available at the pretrial stage but also during the trial, and a witness may refrain from giving evidence that may result in self-incrimination. In such cases, since the burden of proof is on the investigation agencies and the prosecution, negative inference cannot be drawn from exercising this fundamental right.

This right may be diluted in certain special statutes where the burden of proof is on an accused to prove that punitive actions should not be exercised against them. For example, the Supreme Court of India recently held that protection of the right against self-incrimination guaranteed under Article 20(3) is not available to a person whose statement is recorded under the PMLA, since the nature of proceedings conducted by the ED under the Act is that of “inquiry” and not investigation per se. However, such right will be available once a person is arrested for the offence of money laundering under the PMLA.

Civil Proceedings

Under the same principle, since civil disputes do not lead to “self-incrimination”, no right to silence is available in civil proceedings for adjudication of fraud, and a court may draw adverse inferences on issues wherein the defendant does not adduce evidence or refuses to give testimony to defend their case. This is in line with the principle enshrined in Section 114 of the Evidence Act (Section 119 of the BSA).

In India, privilege from disclosing communications between a lawyer and their client is statutorily recognised under Sections 126, 128 and 129 of the Evidence Act (Sections 132(1), 132(3) and 133 of the BSA, respectively) and under Section 227 of the Companies Act. This privilege from disclosing communication between a client and lawyer exists even after such a relationship has ended. There are few exceptions to this rule – ie, where:

• any such communication was made in furtherance of any illegal purpose; and
• any fact observed by any lawyer, in the course of their employment as such, shows that any crime or fraud has been committed since the commencement of their employment.

This privilege is also waived in cases where a client expressly waives their privilege or adduces evidence and offers themself as a witness, in which case they may be compelled to disclose any communication, which, in the opinion of the court, is necessary in order to explain any evidence they have led, and no other. This has to be read in the context of Section 128 of the Evidence Act (Section 133 of the BSA) wherein, by merely volunteering to give evidence, such a privilege is not waived. The Section also contemplates that, if a party calls in their lawyer as a witness, they may be deemed to have consented to such disclosure only if they question their lawyer on fact, which otherwise would have been protected from disclosure under Section 126 (Section 132(1) of BSA).

While Section 126 (Section 132(1) of the BSA) provides for privilege in communication with a “barrister, attorney, pleader or vakil”, the same distinction is not visible in the Advocates Act, 1961 (the “Advocates Act”), wherein only an “advocate” is permitted to practise the “profession of law” in India. While the Advocates Act does not make a distinction between different types of legal professionals, the intent of the legislature is clear and intended to use an inclusive definition. Further, the language used in Section 129 (Section 134 of the BSA) uses an even wider connotation of “legal professional adviser”, which has not been defined in the Advocates Act.

However, it is to be noted that, under the Bar Council of India Rules (the “BCI Rules”), when a lawyer joins a company under full-time employment, they are under an obligation by such rules to surrender their registration as an advocate. This conundrum creates a complexity in recognising privilege of communication with “in-house” legal counsels in India.

There have been instances where the High Courts have considered the nature of advice or the scope of work of an in-house legal counsel to extend legal privilege to communications with in-house counsels or departmental lawyers engaged in government employment. However, some High Courts have taken the view that an in-house counsel cannot claim to be an “advocate” under the Advocates Act, and hence the legal privilege enshrined under the Evidence Act would not be available to such lawyers.

In Indian jurisprudence, punitive or exemplary damages may only be granted in certain cases, such as tortious claims, IPR matters or where the relevant statute so allows such damages to be imposed. Such damages are often awarded in cases where the party in breach of an agreement has behaved in an outrageous, reprehensible or objectionable manner. In general, however, the principles for granting general damages are enshrined under Sections 73 and 74 of the Contract Act, and do not provide for the granting of punitive or exemplary damages.

Section 73 of the Contract Act deals with compensation for breach of a contract which results in actual damage in the nature of unliquidated damages. Section 73 of the Contract Act itself provides that a party can claim compensation for any loss or damage caused to them which “naturally arose in the usual course of things”. Furthermore, Section 73 provides that compensation therein is not to be given for any remote and indirect loss or damage sustained by reason of the breach. The principles under Section 73 only allow for a party to be placed, as far as money can allow, in as good a situation as though the contract had been performed and a duty has been cast on the plaintiff to take all reasonable steps to mitigate the loss suffered by them. These principles do not allow the courts to grant exemplary or punitive damages in fraud claims.

Section 74 of the Contract Act provides that, if a sum is named in the contract as the amount to be paid in the case of such a breach, or “if the contract contains any other stipulation by way of penalty”, the party complaining of the breach is entitled (whether or not actual damage or loss is proved to have been caused thereby) to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated.

While the principle enshrined under Section 74 of the Contract Act allows any amount stipulated in the contract, even by way of penalty, to be granted as damages to a plaintiff, the Indian courts have diluted the principle under Section 74 to reasonable compensation only if it is a “genuine pre-estimate of damages” fixed by both parties and is found to be such by the court. The courts have therefore held that the expression “whether or not actual damage or loss is proved to have been caused thereby” means that, where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded without proving the actual loss. However, amounts stipulated in contracts in terrorem cannot be granted under Indian law. This principle therefore limits the scope of exemplary or punitive damages under the Contract Act.

It should be noted that the aforementioned principles may not be applicable, stricto sensu, in cases involving fraud, as fraud unravels all, and any contract obtained by fraud would make it voidable. In such cases, the principles under Section 65 of the Contract Act apply, which provide that any person who has received any advantage under such an agreement or contract is bound to restore it, or to make compensation for it to the person from whom they received it. The term “received any advantage” provides for restitution of an innocent party to such position as though they had not entered into such a contract. This allows any undue gain received under such a contract to be restituted to an innocent party. This principle has been further diluted by Indian courts to the effect that the primary aim of awarding compensation is not to penalise the defaulting party but to put an innocent party in such same position as though it had not entered into such a contract. Therefore, where compensation can be determined based on principles of computing damages under the Contract Act, there may not be any need to award compensation by restitution.

It may be noted that provisions relating to disgorgement of unlawful gains typically obtained through wrongful means (which is inclusive of fraud) were introduced in the SEBI Act and subsequently introduced by Section 212(14A) of the Companies Act, which came into effect from 15 August 2019. As stated in 3.3 Shareholders’ Claims Against Fraudulent Directors, the Companies Act already allows for initiation of proceedings and for the relief of freezing assets and disgorgement of property, as disgorgement is a civil action in the nature of an equitable relief, and not a penal action. Therefore, the SFIO would also be bound by the same principle for disgorgement.

Similar principles have also been accepted by the Securities Appellate Tribunal for directing disgorgement under the SEBI Act. It was noted that a repayment of ill-gotten gains imposed on wrongdoers is a monetary equitable remedy designed to prevent a wrongdoer from unjustly enriching themself as a result of their illegal conduct, and is not a punishment. Therefore, the principle applied under the statutes is caveated by the fact that the disgorgement has to be limited to the unlawful gains obtained, and should never exceed them.

It is now a settled principle that disgorgement of ill-gotten proceeds can be directed under various expropriatory statutes; however, this is limited to attachment/confiscation of property to the extent of monies that have been appropriated illegally. These provisions therefore do not allow for exemplary damages for illicit acts committed by a party.

Indian law statutorily imposes the duty of fidelity, confidentiality and secrecy upon various intermediaries such as banks, public financial institutions and credit information companies. However, these obligations are subject to certain exceptions. The obligation to maintain secrecy, fidelity and confidentiality applies to:

• banks under the Banking Regulation Act, 1949 (Section 34A);
• public financial institutions through the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983;
• credit information companies through the Credit Information Companies (Regulation) Act, 2005; and
• intermediaries processing payments under the Payment and Settlement Systems Act, 2007.

These obligations are punishable through various regulatory, monetary and criminal sanctions. The Bankers’ Book Evidence Act, 1891 also protects any banker from being compelled to produce any bankers’ book, and from appearing as a witness to prove the matters, transactions and accounts recorded in such books, unless specifically mandated by the court for a special cause.

Furthermore, the Indian Information Technology Act, 2000 also recognises financial information to be sensitive personal data or information – ie, “financial information such as a bank account, credit card, debit card or other payment instrument detail” – and prohibits any disclosure thereof unless personally consented to by the entity/person to whom it belongs, or without consent when sought by investigating agencies in accordance with the law. Lastly, the Companies Act also provides for a safeguard against disclosure of third-party sensitive financial information, where such information is sought by bankers of any company under investigation (other than the information of the company itself).

While the right to banking secrecy has been recognised, as indicated, this is not absolute. It is possible under law to compel a bank, through summons and processes issued in accordance with the law, to disclose such information as it has in its possession. This right is clearly recognised in favour of investigating agencies, either through periodic reporting requirements (such as those under the PMLA) or through a specific power to issue summons for disclosure of information vested with various authorities (such as the police, income tax authorities, ED, customs authorities, etc), who have been given power to compel a person to provide their books of accounts or face a penalty for non-compliance as specified under various statutes. Such statutes include:

• the Income Tax Act, 1961;
• the Foreign Exchange Management Act, 1999 (FEMA);
• the Customs Act, 1962; and
• the CrPC.

In addition to this, the police, income tax authorities, ED, custom authorities, etc, have the power to search for and seize documents from banks in the course of their investigation. Lastly, banks and intermediaries are also subject to limited disclosure under the Right to Information Act, 2005 where information held by them qualifies as public information.

There is no legislation in India that specifically deals with crypto-assets. While the government of India introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 to prohibit private crypto-assets and create a framework for a digital currency issued by the Reserve Bank of India (RBI), this has not materialised into substantive legislation. The government of India has stated that any regulation on crypto-assets will be finalised only after international consultation.

The Finance Act, 2022 (the “Finance Act”) recognised, for the first time, taxation of certain virtual digital assets as a basis for recognising the income generated from such virtual digital assets. However, this has not expressly legitimised virtual digital assets. The Finance Act specifically refers to crypto-assets as “virtual digital assets” for the purposes of taxing any income from such assets at 30% and every transaction involving such “virtual digital assets” at 1% tax deducted at source.

Notably, the Finance Act introduced a new clause (47A) in Section 2 of the Income Tax Act defining a virtual digital asset as “any information, code, number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or [which] functions as a store of value or a unit of account and [this] includes its use in any financial transaction or investment but [is] not limited to investment schemes, and [which] can be transferred, stored or traded electronically”. Non-fungible tokens and any other token of a similar nature are included in this definition.

The Finance Act recognised that the introduction of any cryptocurrency can only happen as a result of the Central Bank, namely the RBI, which alone has the power to issue a Central Bank digital currency as defined under the Finance Act. In light of this, cryptocurrencies are not recognised as legal tender under Indian law, and the Finance Act clearly identifies that the power to issue currency coins and notes rests only with the RBI.

The RBI has repeatedly cautioned parties from dealing with cryptocurrencies and has, through a circular dated 6 April 2018 (the “April 6 Circular”), asked banks and entities regulated by the RBI to not allow use of the banking system for trade in crypto-assets. However, in Internet and Mobile Association of India v RBI, the Supreme Court of India struck down the April 6 Circular. Therefore, banks are presently dealing with accounts that relate to entities/persons dealing in crypto-assets. However, through its circular dated 31 May 2021, the RBI has also advised its regulated entities to continue to carry out customer due-diligence processes for transactions in “virtual digital assets”, in line with regulations governing standards for know-your-customer, anti-money laundering, and the combating of financing of terrorism obligations under the PMLA.

Nonetheless, in March 2023 the government of India formally brought “cryptocurrency” and “virtual digital assets” under the regulatory ambit of the PMLA. It is now mandatory for any person dealing with cryptocurrencies and/or virtual digital assets to comply with reporting requirements.

There are increasing incidents of law enforcement authorities freezing crypto-assets where they are suspected of being involved in the commission of crime. Recently, the Minister of State for Finance stated that, to date, proceeds of crime worth more than INR953.70 crores have been seized, frozen or attached in investigations relating to allegations of money laundering by crypto exchanges. Further, assets of crypto exchanges amounting to INR289.28 crores have been seized by the ED in relation to potential violations of foreign exchange regulations, and show-cause notices have been issued to a crypto exchange and its directors for transactions involving cryptocurrencies worth INR2790 crores. In some instances, the ED has directly frozen the cryptocurrency itself. In a recent order by the Supreme Court, an accused was also directed to provide details of his digital wallet to the ED.

This nuanced area is becoming a topic of debate, as by their very nature “asset tracing” of crypto-assets presents a challenge. “Blockchain” technology does not allow complete asset tracing and, as recognised by the Supreme Court of India, every crypto-asset differs in nature, whether it is anonymous or pseudo-anonymous, and in light of the potential impact of attachment or confiscation of such property (given that a public ledger does not allow change of ownership in a traditional way).