White-Collar Crime 2019

Last Updated October 21, 2019

India

Law and Practice

Authors



Shardul Amarchand Mangaldas & Co is one of India’s leading full-service law firms. The white-collar crime practice at SAM & Co offers a full range of services, starting from advising on Indian laws relating to anti-corruption and anti-bribery, anti-money laundering, general penal offences, corporate frauds (including fraud and embezzlement by employees and senior management), violation of ethics policies and data theft, and including conducting complex criminal trials. The firm also assists foreign counsel in the Indian leg of internal investigations concerning violations of the Foreign Corrupt Practices Act, the UK Bribery Act and other similar global investigations. SAM & Co specialises in all aspects of a cross-border investigation and its experience extends to advising clients on issues arising from mutual legal assistance treaties and extradition treaties. This work also encompasses supervising and working with forensic experts. The firm works closely with general corporate, litigation and securities law teams, to provide a suite of integrated services to clients. In the last year, the firm has been instructed on complex internal investigations on behalf of large multinational clients for their Indian businesses.

Criminal offences are categorised under three broad headings in Indian law – bailable and non-bailable offences, cognisable and non-cognisable offences and compoundable and non-compoundable offences. This distinction emanates from the severity of the offence and the resulting punishment. Schedule I of the Code of Criminal Procedure, 1973, (CrPC) specifically lists offences which are bailable and non-bailable, cognisable and non-cognisable and compoundable and non-compoundable. For example, the counterfeiting of currency is both a non-bailable and a cognisable offence, whereas knowingly disobeying a quarantine or curfew rule is both bailable and non-cognisable.

Generally, for offences not specified under the Indian Penal Code, 1860 (IPC), a bailable offence and a cognisable offence are offences which are punishable with imprisonment for less than three years or a fine only. Non-bailable offences and non-cognisable offences are more severe offences punishable with imprisonment for more than three years, life imprisonment or death.

Generally, bailable offences are less serious offences where bail can be claimed as a matter of right; and the bail can be granted by the police directly. Only a court of law can grant bail for a non-bailable offence after a hearing for the same.

Cognisable offences are offences where the police can arrest a suspect without an arrest warrant, following which the suspect has to be produced before a magistrate within 24 hours. The police can also commence the investigation without the approval of the court.

Non-cognisable offences are offences where the police do not have any authority to arrest the suspect in the absence of a valid arrest warrant. Moreover, the investigation can commence only after the competent court has taken cognisance of the offence by way of a suitable order.

Compoundable offences are those offences under the IPC where the victim and the party against whom a criminal complaint was made, can arrive at a compromise or settlement to dispose of the criminal complaint, without heading into a criminal trial. For example, uttering words that hurt religious sentiments. The compounding process results in the private disposal of a pending criminal complaint.

Section 320 of the CrPC provides a list of offences which can be compounded. Any offence not included in this list is a non-compoundable offence and cannot be settled privately between the parties.

As a general rule, intent is required as an essential ingredient to prove an offence under Indian law. There are a limited number of offences for which intent is not required to be established, such as waging war against the government. However, there is no intent-based classification of offences which is recognised under Indian law.

Indian law enables the prosecution of offences which are attempted but not completed. Attempted offences which are punishable are detailed and listed under statutes imposing criminal liability such as the IPC, the Prevention of Corruption Act, 1988 (PCA), the Prevention of Money Laundering Act, 2002 (PMLA). For example, the IPC prescribes enhanced punishment for attempted murder. Additionally, the IPC contains an overarching provision which provides that an attempted offence is also generally punishable in case no specific offence has been made out for the same in the statutes.

The CrPC prescribes the rules of limitation for taking cognisance of an offence (Sections 195 to 197). This limitation period for a criminal offence is calculated from:

  • the date of the offence; or
  • the first day on which the offence comes to the knowledge of the complainant or to any police officer, whichever is earlier (in cases where the date of the offence is unknown); or
  • the date on which the identity of the offender is known to the complainant or to a police officer investigating the offence, whichever is earlier (in cases where the identity of the offender was unknown).

There is no all-encompassing limitation period for all criminal offences in India. Only specific kinds of offence are subject to a limitation period, these periods are:

  • six months, if the offence is punishable with a fine only;
  • one year, if the offence is punishable with imprisonment for up to one year; and
  • three years, if the offence is punishable with imprisonment for between one to three years.

There is no limitation period for offences which are punishable with imprisonment in excess of three years.

The IPC provides that an Indian citizen can be punished for any offence committed outside India, provided that the offence would be punishable in India had it been committed there. Additionally, non-citizens can be punished in India provided that their criminal acts outside of India are made expressly punishable under Indian laws. For example, a non-citizen can be prosecuted in India for creating unauthorised access to a computer system located in India.

Corporate criminal liability in India is imposed under specific statutes, which create rules holding corporations liable for criminal breaches; and also generally for all offences recognised under Indian law. Certain statutes, through specific provisions, hold individuals liable for offences committed by a company (vicarious liability), for example the Negotiable Instruments Act, 1881, provides that the directors of a company can be held liable along with the company in cases where a cheque issued by a company is not honoured. Similar provisions exist for instances of copyright violation by companies, violations of the Information Technology Act, 2000 (IT Act), violations of provisions of food safety and standards laws, etc. Usually these statues identify the directors of the company, along with other officers ordinarily responsible for the business of the company, as the relevant persons to be held liable.

Generally, under Indian criminal law, corporate criminal liability is established through the principle of attribution of intent. The criminal intent of the individuals (directors/agents/employees) representing the directing mind or alter ego of the company is attributable to the company in order to hold the company liable along with the individuals. Therefore, criminal liability is imputed to the company when the directors, agents, etc of the company act with criminal intent in the course of the business of the company. As a matter of law, this principle cannot be applied in reverse in the absence of a specific statutory provision imposing vicarious liability (as discussed above). Therefore, directors and agents of a company cannot be subject to criminal liability, in the absence of any involvement or intent on their part, merely because criminal liability attaches to the company.

There is no clear policy directive or direction about whether a company or an individual has to be prosecuted. In the ordinary course of events, investigative agencies seek to charge both the corporation and the individuals for the offence in question unless the facts suggest otherwise.

Criminal liability is not extinguished by merger, takeover or other forms of corporate restructuring.

Criminal law in India does not envisage or allow for the recovery of damages. However, Indian courts are empowered to direct the accused to pay compensation to the victim at the time of the passing the sentencing order. This payment of compensation is entirely at the discretion of the court. The compensation may also be directed to be paid from the amount of any fine paid by the accused at the time of sentencing. The court may also keep in mind any sums recovered by way of civil actions when deciding on the amount of compensation.

Additionally, the court is empowered to take certain measures by way of restitution for the victims of crime. For example, the court may direct that property (relevant to the crime) be given to the victim where he or she was dispossessed of the same as a result of the crime (Sections 452 and 456 of the CrPC). The court can also direct the return of money to innocent purchasers of stolen property, after restitution of the property to the victim. (Section 453 of the CrPC).

The PCA was amended in 2018. Prior to the amendment, the prosecution and punishments under the PCA were aimed only at public officials who received and accepted bribes. Companies which facilitated or paid bribes to public officials could only be prosecuted under the offence of conspiracy to commit a crime. Now, payment of a bribe to public officials has been included as a distinct offence, opening up the scope for direct prosecution of bribe givers. Moreover, the investigative agencies have been granted broader powers to investigate and prosecute a company along with its director, managers and other officers who consented or connived to commit the said offences.

Additionally, the Fugitive Economic Offenders Act, 2018 was enacted with a view to dealing with the increasing number of instances of high-value economic offenders fleeing India. This legislation enables the relevant authorities to confiscate the assets and properties of individuals accused of specified economic offences (such as money laundering), where the value of the offence in question is in excess of INR1 billion, who have left India and refuse to return to face prosecution.

New amendments to the Companies Act, 2013 were recently notified. These amendments enable the Serious Frauds Investigations Office (SFIO) to identify the beneficiaries of a corporate fraud and initiate legal action for disgorgement of benefits by such persons. Prosecution of corporate fraud cases by the SFIO, including the production of the arrested and accused persons will now take place in special courts.

Recent amendments to the PMLA have substantially enhanced its scope. A person shall now be guilty of money laundering if he or she is actually involved or knowingly a party to one or more of the following processes concerning tainted assets: concealment, possession, acquisition, use, projecting as untainted property and claiming it as untainted property, in any manner whatsoever. The amended PMLA now enables the Enforcement Directorate (ED) to attach property which is not only derived from the proceeds of crime but may also be derived from any criminal activity related to the proceeds of crime.

The local police, the ED, the Central Bureau of Investigation (CBI) and the SFIO have been entrusted with the investigation and prosecution of white-collar crimes.

There are designated criminal courts and authorities which are entrusted with the responsibility of adjudicating offences related to the commission of white-collar crimes. These courts and tribunals include the adjudicating authority, appellate tribunals and special courts constituted especially for the purpose of adjudicating offences relating to money laundering and foreign-exchange-regulation violations; the special CBI courts which adjudicate upon offences relating to corruption, financial frauds, bribery, and the like; and the designated criminal courts, which adjudicate upon offences punishable under the Companies Act, 2013.

Although prosecutors and civil authorities act in their respective fields, India has witnessed conflict between the powers of investigative agencies and those of the resolution professional or liquidator appointed under the Insolvency & Bankruptcy Code, 2016 (IBC) over claims on properties and assets. The PMLA allows for attachment and confiscation of properties derived from the proceeds of crime. The liquidator appointed under the IBC has to distribute the proceeds of the assets owned by the entity under liquidation, which may include properties and assets attached by the ED under the PMLA proceedings. Thus, there appeared to be a conflict between the powers of ED and that of the liquidator. Recently, the Delhi High Court has attempted to resolve this conflict. A similar situation arises in cases where, despite procuring a recovery certificate from the Debts Recovery Tribunal under the Recovery of Debts and Bankruptcy Act, 1993, banks could not redeem the mortgaged and hypothecated properties and assets as they continued to remain attached under the provisions of the PMLA. The Supreme Court of India is presently considering these issues in a pending appeal.

Any formal investigation with regard to the commission of a white-collar crime stems from registration of a first information report (FIR) by the police, the CBI or the ED. In the case of an offence investigated by the SFIO, the investigation stems from a report of the Registrar of Companies, or an inspector, or a special resolution of the company, or on an order/request from the central government, or a request from any of its departments, or a state government.

Upon receipt of a complaint, the police or the CBI may carry out a preliminary enquiry into the allegations contained in the complaint. In the event that the preliminary enquiry reveals the occurrence of a cognisable offence, the police or the CBI registers an FIR. Pursuant to registration of an FIR, the Police or the CBI initiate an investigation into the commission of alleged offences and post conclusion of investigation, either a charge-sheet or a closure report is filed with the competent court.

Post-registration of an FIR, in cases where the offence also falls within the schedule provided in the PMLA, the ED could also register an enforcement case information report (ECIR) against the accused and initiate its investigation into the offence of money laundering.

The SFIO may commence an investigation in the manner described above. On completion of the investigation, the SFIO submits its report to the Central Government, which may, on examination of the report, direct the SFIO to initiate prosecution against the company and/or its officers and employees before the competent special court.

The guidelines relating to the initiation of an investigation by the investigating agencies (other than the CBI) are contained in the governing statute or the rules framed thereunder. In addition, the CrPC acts as a guiding factor. The guidelines for the CBI are contained in the CBI Manual.

Investigative agencies have wide powers in relation to the collection of information. Investigation, search and seizure, confiscation and arrest are conducted in accordance with the CrPC.

The agencies can issue summons in the name of companies or officers, calling upon them to appear before the investigating officer concerned, for the purpose of giving evidence or producing documents that the agency feels are relevant to the investigation.

However, in cases where the agencies have reasons to believe that certain documents or records relating to the commission of an offence under investigation are in the possession of the company and/or its employee and that those documents or records are not forthcoming, it may enter into any building or place believed to contain them and search that building or place and seize any such documents or records found.

Internal investigations are not mandated under law, nor are they regulated by any legislation. Internal investigations are only mandated to investigate allegations of sexual harassment in the workplace. In certain cases, large organisations may, upon receipt of a whistle-blower’s complaint, conduct an internal investigation for the purpose of determining the authenticity and gravity of the allegations.

The reports of such internal investigations or the contents thereof are not binding on the investigation agencies, however, they may be submitted by the company to the agency for the purpose of establishing its bona fides. In cases where such internal investigations are carried out pursuant to the directions of a regulator, the report of that investigation is generally required to be submitted to the regulator directly.       

In certain internal investigations, the company may engage the services of external attorneys to act on its behalf in internal investigations. During these investigations, the communication inter se the attorneys and the employees of company remains privileged and ordinarily cannot be disclosed to a third party. While communications between an attorney and his or her client are privileged, that privilege can be waived by the company, when it has to report to the authorities that a fraud has been detected in the investigation, thereby disclosing the information received, including from the employee. This rule is, however, subject to an exception that communications made in furtherance of an illegal purpose are not protected from disclosure.

India has also entered into mutual legal assistance treaties (MLAT), with 39 foreign nations for the purpose of ensuring service of summons, warrants and judicial processes to individuals or entities believed to be involved in the commission of crimes, including white-collar crimes. India is also a party to the Financial Action Task Force (FATF) in order to co-operate and co-ordinate global and international anti-money laundering efforts.

The Government of India has also entered into bilateral extradition treaties with 42 countries and has entered into extradition arrangements with 11 more.

India does not have any specific blocking statute which hinders the application of a law made by a foreign country. However, there are certain laws in India which impose conditions on the dissemination and transmission of information to foreign countries in pursuance of the requirements of such foreign laws. For instance, the Bankers’ Book Evidence Act, 1891, the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983 contain provisions which regulate dissemination and transmission of information.

In India, initiation of any prosecution with regard to the commission of any offence whether categorised as a white-collar crime or not, is per the procedure prescribed in the statute concerning the commission of the offence, its allied rules and the CrPC. After the investigative agency in question completes its investigation, it files a report with the court of law – called a charge-sheet – containing their version of events and identifying the offences charged. The charge-sheet also contains a list of witnesses and documents being relied on by the prosecution.

After the charge-sheet is filed, the process of an inquiry commences under the CrPC. At this stage, the court is empowered to take cognisance of the offences; reject the charge-sheet on the grounds that no offences are disclosed; or direct further investigation. If the court takes cognisance of the offence, a summons is issued to the accused. Following this stage, the court examines the charges, affords a preliminary hearing to the accused and proceeds to either frame the charges or discharge the accused. The trial stage officially commences after the framing of charges.

Courts have the power to add companies and/or individuals during any stage of the trial if it appears from the evidence that any person (company and/or individual) not named as an accused has committed an offence. Similarly, the investigation agencies have the power to conduct further investigation into a matter and add a company and/or individual at a later stage by way of a supplementary charge-sheet.

Indian law does not accord any legal sanctity to deferred prosecution agreements or non-prosecution agreements. There are no alternative mechanisms for the purposes of resolving criminal trials.

Plea bargaining is recognised under the CrPC. The accused can plead guilty in exchange for concessions by the prosecution on the quantum of penalties. The accused intending to avail himself or herself of the benefit of plea bargaining, is required to file an application along with an affidavit, for plea bargaining in the pending trial, containing brief details of the case to which the application relates. The accused also needs to specify the offence(s) with which they are charged, state that they have voluntarily made the application and that they have not previously been convicted by the court in a case in which they had been charged with the same offence.

Subsequent to the filing of the application, the court will issue notice to the public prosecutor, investigating officer, the victim/complainant, while fixing a date for hearing. On the date fixed for hearing, the court examines the accused in the absence of the other related parties, for the purposes of satisfying itself that the application has been filed voluntarily. The court, upon being satisfied that the application has been filed voluntarily, will grant time to the public prosecutor or the complainant and the accused to work out a mutually satisfactory disposition and thereafter, fix the date for further hearing of the case. In cases where a satisfactory disposition has been worked out, the court prepares a report of that disposition and if no such disposition has been worked out, the court will record an observation to that effect and proceed with the trial.

Where a satisfactory disposition of the case has been worked out, the court will dispose of the case by awarding compensation to the victim in accordance with the disposition, hear the parties on the quantum of the punishment and will then deliver its judgment.

The benefit of plea bargaining is not available to any person who is charged with:

  • offences punishable with death, life imprisonment, or a term exceeding seven years – such as murder; or
  • an offence which affects the socio-economic condition of the country; or
  • an offence which has been committed against a woman, or a child below the age of fourteen years – sex crimes.

The Companies Act, 2013, specifically recognises fraud as an offence in relation to the affairs of a company. This operates in addition to the general offences in relation to fraud, dishonesty, etc that are set out in the IPC.

Fraud, in relation to the affairs of a company, includes any act, omission, concealment of any fact or abuse of position; committed by any person (or with the connivance in any manner of another person); with intent to deceive, gain undue advantage from, or injure the interests of; the company, its shareholders, its creditors or any other person; whether or not there is any wrongful gain or wrongful loss. Any person found guilty of fraud shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years, and he or she shall also be liable to a fine which shall not be less than the amount involved in the fraud, but which may extend to three times that amount.

Anti-bribery prosecutions in India have usually been initiated under the provisions of the PCA and the IPC (specifically the offences of criminal conspiracy).

The main bribery offences in India are:

  • a public official taking illegal gratification as a reward or motive for undertaking or refraining from an official act, or for showing or refraining from showing any favour or disfavour to any person in the exercise of their official functions;
  • an individual taking illegal gratification to influence a public servant to commit the above-stated offence;
  • a public official obtaining a valuable thing without consideration from a person in respect of business dealings with that person;
  • a public official dishonestly or fraudulently misappropriating or converting any property entrusted to them or under their control, for their personal use, or allowing any other person to do so;
  • a public official obtaining an item of value or a monetary advantage for themselves or for any other person, through corrupt means, abuse of their office, authority or other illegal means;
  • an individual giving or promising to give another person any advantage with the intent to induce a public official to perform a public duty improperly; and
  • being associated with a commercial organisation that gives or promises to give an undue advantage to a public official.

The criminal sanctions for these offences are usually imprisonment for up to seven years or a fine, or

both, depending on the specifics of the offence charged.

Bribery of foreign officials and bribery between private parties is not an express offence under Indian laws. However, depending on the facts and circumstances of the case, these acts can be prosecuted under the IPC as offences of cheating and/or criminal breach of trust.

Until recently, Indian law did not provide for a specific obligation to prevent bribery and influence peddling. There was also no express obligation to maintain an anti-bribery compliance programme by companies. However, amendments brought into the law in 2018 have introduced a sea-change to these provisions.

Under Section 9 of the amended PCA, officials and associated persons of companies can be prosecuted for giving bribes to public officials. However, commercial organisations can use the defence that they had ‘adequate procedures’ in place to prevent their associated persons from undertaking such conduct. In the absence of such procedures, a commercial organisation, irrespective of its size or operations, is vulnerable to liability under the anti-bribery law of India for all the dealings of its officials and associated persons.

Under the PCA, the Government of India is required to notify the guidelines for an adequate bribery prevention procedure and/or compliance programme. However, no such guidelines have been published by the government yet.

The amended PCA is silent on the other criminal or administrative sanctions which may result from non-implementation of the proposed compliance programme.

The Securities and Exchange Board of India (SEBI) regulates and prohibits collective investment schemes such as ponzi schemes and chit funds. Any fraudulent or unfair trade practice in relation to the securities market, including collective investment schemes, attracts strict sanctions from the SEBI in the form of restrictions on operating in the market. Moreover, unregulated deposit schemes are banned under the Banning of Unregulated Deposit Schemes Act, 2019 and any persons soliciting or receiving deposits for such schemes can be prosecuted and punished with imprisonment for between two and seven years depending on the specific acts, along with monetary fines up to INR1 million.

Insider trading is expressly prohibited in India through two pieces of legislation: the Companies Act, 2013 and the SEBI (Prohibition of Insider Trading Regulations), 2015 (Insider Trading Regulations).

Section 195 of the Companies Act 2013 prohibits any person with access to price sensitive information, including the directors or key managerial personnel of a company from entering into insider trading, except for situations where price communication is required in the ordinary course of business or under any law. Any person who contravenes the provisions of Section 195 will be liable to pay a fine ranging from INR500,000 to INR250 million or three times the amount of profits made out of insider trading, whichever is higher. Violators can also face imprisonment for a term of up to five years.

The Insider Trading Regulations prohibit a person or a company, from dealing in the securities of a company listed on any stock exchange, when in possession of any unpublished price sensitive information. The regulations also prohibit directly or indirectly communicating or procuring any unpublished price sensitive information to any person who is dealing in securities on the basis of such price sensitive information.

A violation of the Insider Trading Regulations will expose the violator to a penalty of up to INR250 million or three times the amount of profits made out of insider trading, whichever is higher. In addition to these penalties, a contravention of the Insider Trading Regulations is punishable with imprisonment for up to ten years.

The Income Tax Act, 1961 (Tax Act) provides for several specific criminal offences in relation to tax fraud, these include:

  • Fraudulent removal, concealment, transfer or delivery of property to thwart recovery of tax (Section 276 of the Tax Act) – the elements of the offence necessitate intentional and fraudulent removal, concealment or transfer of property, specifically with a view to avoid payment of the legitimate tax amount. This offence is punishable with imprisonment for up to two years and may also include levy of a fine.
  • Failure to timely furnish tax returns and failure to pay taxes withheld from the government are punishable with imprisonment for up to seven years and with a fine (Sections 276 B and 276CC of the Tax Act).
  • Making a false statement in verification or delivery of a statement of accounts (Section 277 of the Tax Act) – the elements of the offence necessitate that an intentional and deliberate false statement has been made under any necessary declarations and forms required to be signed under the legislation, or any accounts which are presented to the tax authorities. This offence is punishable with both imprisonment for up to seven years (where the amount of tax evaded is in excess of INR2.5 million) as well as a monetary fine.
  • Abetting or inducing another person to make or deliver a false statement of accounts (277A of the Tax Act) – Any person who wilfully abets the commission of the offence stated above shall also be subjected to the same punishment as described above. The elements necessitate that the abetter act with the intent of enabling the offender to make a false statement or present false statements of account.
  • Wilful attempt to evade tax – the elements of the offence include possessing or controlling falsified books of accounts or other documents, falsifying or omitting any entry or statement in any books of account or other documents, or causing any other circumstance to evade tax. The offence is punishable with imprisonment ranging from three months to two years; and from six months to seven years and a fine for any further wilful attempts to evade tax.

While there is no express general obligation created under law to prevent tax evasion, either by organisations or individuals, various statutory provisions under the Tax Act, create obligations and impose criminal sanctions on persons who may enable tax evasion. For instance, abetment of a false return, account or declaration relating to income chargeable to tax is a punishable criminal offence as indicated above.

The Central Goods and Services Tax Act, 2017 (GST) also provides for punishable offences (Section 132) in relation to tax fraud which, inter alia, include the following:

  • issuance of fake invoices or bills of supply resulting in wrongful availment or utilisation of input tax credit or refund of tax;
  • failure to deposit the amount collected as tax by a supplier beyond a period of three months from the date when such payment becomes due;
  • furnishing of false information, falsification of financial records or failure to supply information required to be furnished; with an intention to evade the payment of tax or obstruct the proceedings undertaken by a tax officer; and
  • abetting the commission of any of the listed offences.

For any of these offences, the punishment varies between five years' and six months' imprisonment along with a fine, penalty and interest, depending on the value of the tax evaded. GST laws also provide penalties for other offences including non-compliance with specific provisions. Furthermore, while GST laws do not provide for any specific obligation to prevent tax evasion, it does provide for penalty or punishment on account of tax evasion.

The PMLA and the Prevention of Money-laundering (Maintenance of Records of the Nature and Value of Transactions, the Procedure and Manner of Maintaining and Time for Furnishing Information and Verification and Maintenance of Records of the Identity of the Clients of the Banking Companies, Financial Institutions and Intermediaries) Rules 2005 (PML Rules) require maintenance of records of identification and transactions as well as their disclosure. Banks, financial institutions and intermediaries must maintain and furnish information on records of cash transactions of more than INR1 million, records of cross-border wire transfers in excess of INR500,000, along with various other kinds of transactions. Under the PMLA, a fine of between INR10,000 and INR100,000 can be levied on the failure to disclose those accurate financial records which must be maintained according to the Act. Under the Companies Act, the failure to maintain financial records with due and reasonable care will render a director liable to a fine ranging from INR50,000 to INR500,000 and/or imprisonment for up to one year.

Additionally, the Companies Act, 2013 requires companies to maintain records with full and true financial statements in accordance with accounting standards prescribed by the central government, for a period of eight years. Failure to maintain the books of account of a company as per the provisions of the Act can attract fines of up to INR500,000 and imprisonment for up to one year.

The Income Tax Act, 1961 also prescribes certain requirements for certain professionals to maintain books of accounts and other supporting documents for a period of six years following the assessment year. Transfer pricing documents must be maintained for a total period of ten years.

Sanctions for violation of competition law are governed under the Competition Act, 2002 (Competition Act). Section 3 of the Competition Act prohibits anti-competitive agreements which cause or are likely to cause an appreciable adverse effect on competition (AAEC) in India and treats these as void. Such agreements include cartels, which are presumed under the Competition Act to have an AAEC.

In cases where a firm is found to be participating in a cartel, a penalty of up to three times the profit of the participating firm for each year of the continuance of the cartel or 10% of its relevant turnover for each year of continuance of the cartel, whichever is higher, can be imposed on the company as well as on every person who, at the time the contravention was committed, in charge of, and responsible to the company. In addition, the Competition Commission of India (CCI) can direct the participating firm to cease and desist from engaging in anti-competitive conduct.

The CCI has no jurisdiction to impose criminal sanctions on companies for cartel violations under the Act. The only situation where the Competition Act allows for criminal sanctions is on contravening the orders of the CCI or on failure to pay the penalties imposed. Such non-payment is punishable by imprisonment for a maximum term of three years, a maximum fine of INR250 million, or both. Additionally, the National Company Law Appellate Tribunal(NCLAT) has the power, similar to that of the High Court, to punish conduct in contempt of its orders, and can specifically impose criminal sanctions, in the nature of both fines and imprisonment, for contempt of its orders.

In addition to the general offences of fraud, cheating, etc as set out under the IPC, criminal liability in the scope of consumer law usually attaches under two statutes in India: the Consumer Protection Act, 2019 and the Food Safety and Standards Act, 2006.

The Consumer Protection Act, 2019 imposes the following criminal sanctions:

  • imprisonment for up to one year and fines of up to INR1 million for misleading and false advertisement by any manufacturer or service provider;
  • imprisonment for six months to life imprisonment and fines of up to INR5 million (depending on the extent of injury to the consumer) for manufacture, sale, storage (and abetment of the same) of any adulterant; and
  • imprisonment for six months to life imprisonment and fines of up to INR5 million (depending on the extent of injury to the consumer) for manufacture, sale, storage (and abetment of the same) of any spurious goods.

Additionally, the Food Safety and Standards Act, 2006 imposes the following criminal sanctions –

  • imprisonment for six months to life imprisonment and fines of up to INR5 million (depending on the extent of injury to the consumer) for manufacture, sale, storage and distribution of food for human consumption which is unsafe;
  • imprisonment for up to three months or fines of up to INR200,000 for providing false information; and
  • imprisonment for up to six month and fines of up to INR500,000 for operating a food business without the requisite license.

Cybercrimes recognised in India can be broadly divided into two types – the first where the computer system is the target of the crime (such as hacking, unauthorised access to a computer system) and the second where the computer system is used to commit a criminal act (publishing child pornography, committing fraud and forgery, etc). Cybercrimes are identified and prosecuted in India largely under the Information Technology Act, 2000 (IT Act) and the IPC. The main offences in relation to cybercrime in India are:

  • knowing or intentional concealment, destruction or alteration of source code when the code is required to be maintained by law (Section 65 of the IT Act);
  • dishonestly or fraudulently accessing a computer system or computer network without the authorisation of the owner or the person in charge with a view to accessing, copying or extracting data; introducing a virus; causing any kind of damage to the data; and disrupting or denying access to the computer system or network (Section 66 of the IT Act);
  • dishonestly or knowingly receiving or retaining stolen computer resources (data) or communication devices. (Section 66B of the IT Act)
  • fraudulently or dishonestly using the password, electronic signature or other unique identification of a person or cheating by means of a computer system through impersonating any other person(Section 66C of the IT Act); and
  • The creation, publication or transmission of child pornography (Section 67B of the IT Act).

These offences attract criminal sanctions in the form of imprisonment (up to a period of seven years depending on the kind of offence), or fines, or both.

Additionally, deliberately or fraudulently making a false electronic record with an intent to cheat or making that record seem like an authentic document can be prosecuted under Section 464 of the IPC read with Section 465 of the IPC which prescribes a punishment of imprisonment for up to two years or a fine, or both.

Any breach of company secrets caused on account of hacking or other forms of unauthorised access is likely be prosecuted under Sections 66, 66B, 66C and 66D of the IT Act. Moreover, acts of computer fraud can be prosecuted under the above-stated provisions of the IT Act and the IPC, along with the previously stated provisions of fraud under the IPC and the Companies Act, 2013.

Trade and customs related sanctions are governed by the Customs Act, 1962. The sanctions in question are either civil/administrative or criminal. The civil sanctions include imposition of monetary penalties and confiscation of goods. The criminal sanctions include imprisonment (of up to seven years depending on the specific kind of offence) and fines.

Civil sanctions are largely attracted for the following violations of the Customs Act:

  • Importing or attempting to import prohibited goods, avoiding duty payment, importing in violation of foreign trade policy, mis-declaring goods or violating rules regarding movement, storage, unloading or use of imported goods (Section 111 of the Customs Act); and
  • attempting to export goods through a port other than a specified customs port, or through a non-specified route, avoiding duty payment, exportation in violation of foreign policy, mis-declared goods, or violating rules regarding movement, storage, unloading and proposed use of the goods to be exported (Section 113 of the Customs Act).

The following are the main offences attracting criminal sanctions under the Customs Act;

  • knowingly making false declarations or making false documents in relation to any business transacted with customs (Section 132);
  • intentional obstruction of any customs officer in exercise of their powers under the Act (Section 133);
  • fraudulent or deliberate mis-declaration of the value of the goods concerned or the fraudulent evasion or attempted evasion of any customs duty;
  • deliberate possession, carrying, removal, sale or purchase of improperly imported or improperly exported goods;
  • deliberately attempting to export improperly exportable goods;
  • fraudulently availing or attempting to avail onseself of any exemption of customs duty; and
  • obtaining any instrument from any authority by fraud, collusion, wilful misstatement or suppression of facts.

Concealment of a crime is a distinct criminal offence recognised under the IPC, Sections 118 to 120.

The following categories of predicate offences can result in a charge of concealment:

  • any criminal act punishable with imprisonment for any term under Indian law (Section 120 of the IPC);
  • any criminal act punishable with life imprisonment or a death sentence (eg, murder) (Section 118 of the IPC); and
  • any criminal act punishable with imprisonment for any duration or with a fine or both, so long as the accused in the charge of concealment is a public servant (Section 119 of the IPC).

Predicate offences punishable only with fines cannot result in a charge of concealment under Sections 118 and 120 of the IPC.

The essential elements of an offence of concealment under Section 118 of the IPC are:

  • the existence of a design to commit an offence;
  • the offence in question being punishable with death or imprisonment for life;
  • voluntary concealment with knowledge of the design; and
  • that the accused either facilitated or committed the predicate offence.

The accused can be charged with both the predicate offence and the charge of concealment under Section 118 of the IPC. An accused under Section 118 of the IPC can be punished with imprisonment for up to seven years, in cases where the predicate offence is committed, or with a term of up to three years, in case the predicate offence is not committed.

The essential elements of concealment under Section 119 of the IPC are that:

  • the accused, during the commission of the offence of concealment (not the predicate offence), was a public official;
  • the public official has voluntarily concealed the design to commit an offence either by way of an act, or by an illegal omission;
  • the above is done with an intent to facilitate the commission of the predicate offence; and
  • the predicate offence was of a nature which the public official was bound by duty to prevent.

If the predicate offence is committed, the public official in question can be punished with imprisonment for a term of up to half of the longest term of imprisonment provided for the predicate offence, or with the same fine, or both. If the predicate offence is punishable with life imprisonment or death, then the public servant in question can be imprisoned for a term of up to 10 years. If the predicate offence is not committed, then the accused can be punished with imprisonment for a quarter of the maximum duration of imprisonment prescribed for the predicate offence, or a fine, or both.

The essential elements of concealment under Section 120 of the IPC are the same as for an offence under Section 118, except that the predicate offence must be punishable with imprisonment of any term except life imprisonment. In cases where the offence is committed then the accused can be punished with imprisonment for a term of up to a quarter of the maximum term for the predicate offence; and up to a term of one eighth of the maximum term of the predicate offence in cases where the offence is not committed.

Abetment has been defined under Section 107 of the IPC to mean one or all of the following:

  • instigating a person to do an act;
  • engaging in a conspiracy to do an act; and
  • intentionally aiding by act or illegal omission the doing of an act.

The offence of abetment requires that the accused must have aided and abetted the commission of the predicate offence; and that the principal offence must necessarily have been committed; and that the accused had the intent to aid or encourage its commission.

The sanctions for abetment are as follows:

  • punishment for the same term as the predicate offence, if the offence has been committed as a result of the aiding and abetting and the accused had the intent for the same (Section 109):
  • if the perpetrator of the predicate offence has a different intent from that of the abettor, then the abettor will be punished with the offence that would have been committed had the abettor and perpetrator had the same intent (Section 110); and
  • if a different act was done than what was abetted, the abettor is liable to be punished for the act done as if he or she had directly abetted it (Section 111).

Additionally, certain criminal statutes specify distinct punishments for abetment – for example, Section 12 of the PCA prescribes a punishment of imprisonment for between three and seven years and a fine for abetting any offence under the PCA.

In terms of the PMLA, the offence of money laundering has been described as the act of deliberate and knowing concealment, possession, acquisition or use and projection or claiming of the "proceeds of crime" as untainted. Each of these elements has to be established to make out an offence of money laundering.

Further, "proceeds of crime" has been defined as any property derived by a person as a result of criminal activity related to a "scheduled offence", as per the PMLA. The PMLA has a list of scheduled offences, which, inter alia, include a list of offences under the IPC, PCA, Customs Act, Companies Act, 2013 and other pieces of legislation which are likely to result in generation of tainted assets and funds.

The following sanctions may follow a conviction on a charge of money laundering under the PMLA:

  • imprisonment for a minimum term of three years and up to a maximum term of ten years, depending on the nature of the predicate offence (Section 4(1) of the PMLA); and
  • property suspected to be generated from the proceeds of crime may be provisionally attached for the duration of the trial under the PMLA, the property may be confiscated and vested with the central government upon a conviction for the offence of money laundering.

The PMLA (along with the PML Rules, as well as rules prescribed by the Reserve Bank of India (RBI) and SEBI) prescribes strict record keeping and reporting obligations to banks, financial institutions and intermediaries (collectively referred to as the reporting entities), with a view to preventing money laundering. Reporting entities are, inter alia, required to verify the identification of their clients (Section 11A) and maintain adequate records of all transactions, documents and the identities of their clients; which have to be provided to the ED, for a period of five years (Section 12).

The ED may call for these financial records from time to time and the reporting entity is mandated to furnish the records (Section 12A) and conduct inquiries as required with regarding to compliance with the reporting requirements. In cases where the ED finds any non-compliance of the reporting requirements the following sanctions may apply:

  • a written warning;
  • issuing specific directions to rectify the instances of non-compliance and send regular updates on the status of compliance (monitoring); and
  • the imposition of a monetary penalty on the reporting entity or its designated director for an amount not less than INR10,000 and up to INR1 million for each instance of non-compliance.

The reporting entity and the designated directors cannot be subjected to any additional civil or criminal proceedings.

The nature of the criminal defences which can be raised in cases of white-collar crime depends on the nature of the statute under which the charges are levied. As such, it is unlikely that a common defence could be raised across the range of white-collar crimes. In the case of an offence involving bribery, lack of proof of the demand and payment of the bribe may be raised as a defence. For example, defences to allegations raised under the PCA are likely to be legally different to defences to allegations raised under the PMLA, despite the fact that the offence originates from the same series of transactions.

However, in cases where individuals are made criminally liable for the acts of companies through vicarious liability provisions in statutes, the common defence that can be taken is that the offence took place without his or her knowledge, involvement or negligence.

Companies and their officials accused of paying bribes under the PCA can raise the defence that the company had adequate bribery prevention policies and compliance programmes in place. However, the government has yet to notify the relevant rules and standards setting out the scope and contents of such an effective compliance programme.

There are no exceptions for white-collar offences and all corporations and individuals accused of commission of a white-collar crime are investigated as per the procedure prescribed in law. No industries and/or sectors are exempt.

India does not recognise voluntary disclosure of a crime (self-disclosure) as a means of securing either amnesty or reduced sanctions in prosecutions related to the commission of white-collar crimes. Self-disclosure of wrongdoing does not act as a mitigating factor while fastening liability.

Every corporation is required to co-operate with the investigative agencies and provide all information and necessary evidence, as may be required for investigation, and also to present its officers to assist during the investigation. However, this co-operation does not imply leniency on the part of investigating agencies while fastening liability and neither does the co-operation act as a mitigating factor.   

However, where a person, after informing a law enforcement authority, gives or promises to give any undue advantage to another person in order to assist a law enforcement authority in its investigation of the offence alleged under the PCA, that person will not be liable for any violation of the PCA. 

Under the Companies Act, 2013, every listed company is required to establish a vigil mechanism for its directors and employees to report genuine concerns and penalties are imposed on companies which fail to comply with this requirement. The existence of such a mechanism is also required to be disclosed in the report of the Board of Directors. Thus, it is apparent that there is an attempt to encourage employees to safely red-flag serious issues. Additionally, the Companies Act, 2013 requires independent directors to ascertain whether the company has an adequate and functional vigil mechanism as well as ensuring that the interests of persons who use such mechanisms (whistle-blowers) are protected. Also, the SEBI corporate governance rules require companies to establish a functional whistle-blowing mechanism and ensure adequate protection to whistle-blowers.

The Companies Act, 2013 and its allied rules, without being specific as to the nature and extent of the safeguards required,, mandates that the vigil mechanism put in place by the company shall ensure adequate safeguards against victimisation of the whistle-blower.

The general law relating to the burden of proof is set out in the Indian Evidence Act, 1872. Additional provisions concerning burden of proof are also contained in:

  • Section 23 (presumption in interconnected transactions) and Section 24 (burden of proof) of the PMLA;
  • Section 20 (presumption where public servant accepts any undue advantage) of the PC Act; and
  • Section 212(6) (Investigation into affairs of Company by Serious Fraud Investigation Office) of the Companies Act, 2013.

As a general rule, the prosecutor is required to discharge the burden of proving the accusation beyond reasonable doubt. However, when it comes to crimes which are being specifically investigated or prosecuted by the ED and SFIO, it is incumbent upon the accused to dispel the allegations against him or her and discharge the burden of proof.

A presumption mechanism exists under the PMLA. More specifically, in any proceeding relating to proceeds of crime, a presumption is raised by the authority or court against the person charged with the offence of money laundering and it is incumbent upon him or her to dispel the assumption and prove that the proceeds of crime alleged to be involved in money laundering are in fact not involved. The burden of proof that the monies were not the proceeds of crime and were not, therefore, tainted rests on the accused persons under Section 24 of the PMLA.

In terms of Section 20 of the PCA, there is a presumption that a public servant accepted or obtained or attempted to obtain undue advantage as a motive or reward for performing or causing performance of a public duty improperly or dishonestly either by himself or by another public servant.

Section 212(6) of the Companies Act, 2013 requires the person accused of the commission of offences under Section 447 of the Companies Act, 2013 to prove beyond reasonable doubt that he or she is, in fact, not guilty of the offence.

There are no specific sentencing guidelines in India, instead the courts, upon coming to the conclusion that an accused is guilty of the offences with which he or she is charged, proceeds to determine the quantum of punishment. The graver the offence, and the longer the criminal record, the more severe is the punishment to be awarded.

Certain statutes prescribe the standards and rules used to determine the quantum of fines to be levied. For instance, a penalty of three times the sum involved can be levied under the Foreign Exchange Management Act, 1999 (FEMA) in cases where the violation is quantifiable. However, under the PCA, the courts take into consideration the value of the property obtained by the commission of the offence and if the offence is in relation to resources which the official cannot satisfactorily account for, then the value of such resources is also taken into consideration while determining the penalty or sentence. Under the PMLA, the fine may vary depending on the gravity of the offence.

The CrPC prescribes the procedure for sentencing. In the event that the accused is found guilty, the court has to conduct a hearing on the quantum of sentence. At this stage, the court takes into consideration extraneous circumstances like the antecedents of the offender, the nature and circumstances of the offence, criminal record, etc to determine the quantum of sentence. The procedure is no different when it comes to sentencing for commission of white-collar crimes.

Shardul Amarchand Mangaldas & Co

Amarchand Towers, 216 Okhla Industrial Estate
Phase III
New Delhi 110 020
India

+91 11 4159 0700

connect@amsshardul.com www.amsshardul.com
Author Business Card

Law and Practice

Authors



Shardul Amarchand Mangaldas & Co is one of India’s leading full-service law firms. The white-collar crime practice at SAM & Co offers a full range of services, starting from advising on Indian laws relating to anti-corruption and anti-bribery, anti-money laundering, general penal offences, corporate frauds (including fraud and embezzlement by employees and senior management), violation of ethics policies and data theft, and including conducting complex criminal trials. The firm also assists foreign counsel in the Indian leg of internal investigations concerning violations of the Foreign Corrupt Practices Act, the UK Bribery Act and other similar global investigations. SAM & Co specialises in all aspects of a cross-border investigation and its experience extends to advising clients on issues arising from mutual legal assistance treaties and extradition treaties. This work also encompasses supervising and working with forensic experts. The firm works closely with general corporate, litigation and securities law teams, to provide a suite of integrated services to clients. In the last year, the firm has been instructed on complex internal investigations on behalf of large multinational clients for their Indian businesses.

Compare law and practice by selecting locations and topic(s)

{{searchBoxHeader}}

Select Topic(s)

loading ...
{{topic.title}}

Please select at least one chapter and one topic to use the compare functionality.