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CONDUCTING BUSINESS IN INDIA

conducting business india

Siddhartha Datta (Amarchand & Mangaldas & Suresh A. Shroff & Co) considers the impact of the Bribery Act 2010 for those conducting business in India where private sector bribery is not at present a criminal offence.

Speed Read

India is taking the issue of bribery and corruption seriously, with its Supreme Court taking an active interest in anti-corruption monitoring and talk of legislative steps to criminalize private sector corruption. But until this happens, there continue to be mixed expectations and UK businessmen must take care not contravene the extra-territorial application of the Bribery Act 2010 which would capture any private sector commissions paid to agents in India.

Commentary

India has had anti-corruption legislation since 1988.[i] The Central Government has constituted the Central Vigilance Commission as well as Central Bureau of Investigation for looking into charges of corruption in India. Since 2011, anti-corruption investigations in India by Central Government bodies have transformed themselves in their manner of operations, and dealt with various scams such as the spectrum allocation scandal and coal block allocation scandal,[ii], being two of the most prominent corruption investigations currently underway in India. Cross-border elements have also been enquired into by investigation authorities through invocation of Mutual Assistance Treaties or Letters Rogatory, including foreign individuals and corporations.

The Supreme Court of India, the Apex Court, has exercised its jurisdiction under the Constitution of India to direct and monitor the investigations in suspected corruption cases. This spate of judicial activism by the Supreme Court of India has been criticized at many levels as representing interference in the executive decision on policy matters, generally considered the prerogative of the Executive and not the Judiciary. However, the Honourable Supreme Court’s process of monitoring such anti-corruption investigations has also raised the level of awareness in India with regard to the prosecution of corruption cases in India.

Against this background, the UK Bribery Act, 2010 assumes particular importance because of the involvement of multi-national corporations in various industry sectors in India which have been liberalized over the years. Certain sectors require joint venture partners or Indian investors to be a joint promoter and shareholders in specified business sectors where foreign investment is regulated. Therefore, complex regulatory and management compliance issues have been experienced over the last two years in India where the activities of the Indian partners within India have raised concerns about triggering liability under the UK Bribery Act. Similarly, business activities of US companies in India have also had to be conscious of the impact of the US Foreign Corrupt Practices Act (FCPA), 1977. Accordingly, the extra-territorial impact of such legislation, along with an enhanced domestic awareness and prosecution of corruption cases concerning large diverse infrastructure sectors, have led to a serious rethink about the manner of conducting business in India amongst investors.

Accordingly, India being a country which has experienced various critical and dynamic changes in policy-making with direct or indirect impact on industry, it is necessary for third parties to adopt a very cautious attitude towards involvement in activities such as lobbying, funding of NGOs, funding of social sectors (e.g. CSR funding), which prima facie may appear to be legitimate activities but which, if linked to payments to organizations connected with people in the government or their nominees, who might be influential in government decision making processes, would be a matter of concern in India today. India also has a Prevention of Money Laundering Act which is triggered in case of certain specified corruption offences under the Prevention of Corruption Act and the freezing provisions are under the Money Laundering Act and has been invoked in the recent past in various matters.

Interestingly, private sector corruption has not been captured in any specific legislation in India until now. However, since the UK Bribery Act includes private sector corruption, this changes the dynamic and requires third parties to exercise caution in India. Payment to consultants, commission agents, brokers, middlemen, or certain interested groups without legitimate cause, might not be in violation of domestic law unless linked with public sector corruption, but may be isolated actionable offences under the UK Bribery Act. It is, therefore, of critical importance that international players, while doing business in India, are conscious that there may not be awareness in India with regard to private sector corruption, while the management of such international companies might be exposed under the UK Bribery Act for its executives in India indulging in the same.

Since 2011, with the strengthening of the Central Bureau of Investigation in India and judicial activism of the Supreme Court, we can consider India to be travelling along the path of an effective anti-corruption compliance movement as compared to the first few decades after independence. But legislative steps to control private sector corruption remain the next critical step for India at the domestic level. Surely, the impact of the UK Bribery Act for UK based companies in respect of private sector corruption in India is a live issue at hand.

To conclude, the UK Bribery Act, considering India’s globalized economy, requires specific study and appreciation by Indian companies with international operations, joint ventures or companies with a substantial foreign ownership and control.




[i] Please see The Prevention of Corruption Act, 1988, available at http://www.persmin.gov.in/DOPT/EmployeesCorner/Acts_Rules/PCAct/pcact.pdf (last accessed on 19th November, 2013).

[ii] Please see the order of Special Judge, CBI (04), O.P. Saini in this regard, available at http://media2.intoday.in/indiatoday/images/2G-trial-court.pdf (last accessed on 19th November, 2013).

Image credit: Flickrconducting business2
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The views expressed in this article represent those of the author and not Bright Line Law.

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