Corruption Bill provision could make entire board vulnerable to charges for failing to prevent bribery
The Law Commission of India, headed by former Delhi High Court Chief Justice AP Shah, has red-flagged a key provision in the upcoming Prevention of Corruption (Amendment) Bill which could potentially make the entire board of directors of a company vulnerable to criminal charges for failure to prevent its employees from bribing a public servant to obtain or retain business. The 50-page report submitted to law minister Sadananda Gowda on February 12 describes as “overbroad” the provision which ascribes criminal liability “to every person who is in charge of and responsible to the organisation for the conduct of its business” if the offence is proved to have been committed with the consent or connivance of the company, as it exposes the entire top leadership to a jail term. The proposed law, targeting the ‘supply side of corruption’, stipulates a 3-7 year jail term for that offence.
“The effect (of the provision) is that if an employee (P) of a company (C), sitting in Bangalore bribes a local official (R) to get its clearance on time, then the combined effect of the Bill is that all will be liable unless C can prove it has in place adequate procedures designed to prevent such conduct. However, the provision will operate to deem every single person in charge of, and responsible to C – thus, every director on the board of directors, who may be sitting in Delhi more than 2000 kms away – guilty, and the burden on proof will shift on each of these directors to prove they had no knowledge or had exercised due diligence,” the law commission report says.
“The situation could be even worse if, for instance, P had the high level clearance of one of the sitting directors to bribe R, because of which every other director will now be faced with the difficult task of discharging their high burden of proof,” the law commission report says. The new draft proposed by the Law Commission says only that official must be held liable whose consent or connivance is proved.
The report also criticises a provision which says that a company would have to pay a fine if it is unable to prevent acts of corruption. “This provision will lead to an immediate and significant impact on the conduct of business by corporations, especially in light of the fact that they will not have any clarity on what is expected of them and will not even know if the procedures and processes they adopt are in compliance or in possible breach,“ says the report.
The report also says the Centre cannot enforce the new law unless it first pub lishes guidelines, along the lines of the UK Bribery Act, describing proce dures that corporates can put in place so that there are “adequate systems“ to prevent their employees from bribing a public servant. The Law Commission says these guidelines must emerge through a consultation process initiated by the Centre in which the views of all the interested stakeholders are obtained through public notice. It adds that it should “be a defence” for the corporate if it proves it had in place adequate procedures designed to prevent persons associated with it from indulging in corrupt conduct.
The report says unlike the UK Bribery Act or the Foreign Corrupt Practices Act in the US which has detailed guidelines in place for corporates, the proposed amendment in the Indian law does not require any such guidance and “places no obligation” on the government in this regard. “In both countries thus, there are extensive guidelines on procedures, which commercial organisations may use on a voluntary basis to conform their conduct to the law and relevant government policy on enforcement,” the report says. In India, this is especially important given that the proviso places the “burden of proof ” on the commercial organisation, the Law Commission report has said. “This might also impede the efficient functioning of small businesses, which will not be able to determine the adequate standard themselves,” the report has added.
Finance minister Arun Jaitley, on November 12, 2014, in pursuance of the “informal decision” taken by the Cabinet, decided to obtain the views of the Law Commission of India on the issues relating to the proposed amendments to the Prevention of Corruption (Amendment) Bill, 2013, the Law Commission report says. The Bill was introduced in the Rajya Sabha by the erstwhile UPA government in 2013 and was referred to a standing committee that submitted its report on February 6, 2014.
Source: Economic Times
Date: 16th February 2015