Law Commission’s 254th Report: Liability of Commercial Organisations Under the Prevention of Corruption (Amendment) Bill, 2013 Reviewed

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Law Commission’s 254th report[1], suggesting recommendations to the Prevention of Corruption (Amendment) Bill, 2013[2] seems an exercise in fishing out bloopers from what should have been a well drafted piece of legislation in the first place. What was an effort to bring the Indian anti-corruption laws in parity with international best practices and standards seemed plagued with hurried drafting and mechanical lifting of the provisions of United Kingdom Bribery Act[3] [“the Bribery Act”]. However, if the recommendations of the law commission are accepted and incorporated after debate, the bill may have a far reaching effect on the understanding of corruption in public life and the efforts to counter it.

Introduced in the RajyaSabha on 19th August, 2013, the bill is an amendment to the Prevention of Corruption Act, 1988 [“the Act”][4], Delhi Special Police Establishment Act, 1946[5] and Criminal Law (Amendment) Ordinance, 1944[6]. The Bill aimed to bring anti-corruption laws in India in line with the judicial pronouncements and international best practices, a much needed effort in light of India’s ratification of the United Nations Convention Against Corruption (UCAC) in May 2011.[7] The Bill attempts to widen the definition of both demand and supply side offences of corruption. It criminalizes- i) bribe giving by any person/organization to public servant; ii) bribe taking by public servant by direct or indirect manner; and iii) liability of commercial organization in facilitating or giving a bribe[8]. The Bill also strives to prevent harassment of public servant discharging their duties honourably, lay down parameters and mechanisms for facilitating prosecution and confiscating the corruption proceeds[9]. However, in light of the rapidly evolving political and business landscape, the Bill has the potential to have profound reverberations on corporate corruption and governance. Keeping this in mind, this article shall analyse the proposed Sections 9 and 10[10] and the respective recommendations of the Law Commission, which lay down a positive obligation for commercial organisations to get their house in order and tackle any form of corruption perpetrated by its employees or associates in the course of business to further the interests of the organisations.

Proposed section 9 of the Bill

While the proposed Section 8[11] targets commercial organisations themselves for indulging in bribery of a public servant to obtain an undue advantage in business, the proposed section 9 focuses its attention on the vicarious liability of the commercial organisations in failing to exercise due diligence which could have prevented persons associated with it from bribing a public servant. The bill holds a commercial organisation guilty and liable to a fine, in case a “person associated” with it “offers, promises or gives a financial or other advantage to a public servant”[12], in order to “obtain or retain business[13]…advantage in conduct of business[14]” for such a commercial organisations.

A commercial organisation has been defined under the proposed bill as a body incorporated in India, doing its business in or outside India or a body incorporated outside India but doing its business (wholly or partly) in India or a partnership firm or any other association registered in India doing business in India or any other partnership firm or other association formed outside India, but indulging in business (wholly or partly) in India[15]. Business, on the other hand has been comprehensively defined to include any form of trade/profession/provision of services[16], which is also to include charitable services. A person associated with a commercial organisation is someone who works to provide/perform services for or as a part of the commercial organisation (and not merely the act of bribery)[17]. It is noteworthy that a proviso to section 9(1) lays the onus upon a commercial organisation to prove that it had adequate procedures in place to countermand any such acts or wrongdoings before happening and to prevent associated persons from indulging in such improper conduct[18].

The proposed section 9 bears resemblance to section 7(2) of the Bribery Act[19] read with sections 7(4) and 9[20]. However, the fundamental logic of the act provides that individual failures on the part of persons associated with the company cannot be generalised to mean a large scale systemic failure on part of the company[21]. Consequently, section 9 of the Bribery Act makes it a mandatory upon the UK government via a compulsory duty for the Secretary of State to provide and publish guidance, regarding standards and procedures that must be put in place by commercial organisations to prevent associated persons from indulging in wrongful conduct[22]. Such guidance is to be revised regularly and has been published accordingly[23]. The guidance published include among others-proportionate procedures, higher management’s commitment, assessment of risk, due diligence, streamline communication, training and sensitisation along with regular review and monitoring of the procedures in place[24].

However, the proposed amendment to section 9 does not postulate the publication of any sort of guidance or any obligation on the government in this regard. Placing the entire burden of proof on commercial organisation to prove their innocence is an onerous condition. The said proviso is potentially debilitating for the conduct of business, as corporations will be left in the dark even about the standards they must adopt to deter bribery and corrupt practices in their organisations. The law commission’s report recommends that the proviso to the proposed section 9 in the 2013 bill be deleted and a new subsection (5) should be added making it mandatory for the government to publish guidelines for “adequate procedures” which can be put in place by commercial organisations to prevent their employees/associates from bribing public servants. Such guidelines will only be prescribed by the government after due consultation with the public[25].

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Section 10 of the Bill

The proposed section 10(1) of the bill is a deeming provision[26]. It extends the liability for the offence under the proposed section 9 to every person in charge of the company at the time the offence was committed[27]. For instance if a personnel of a company is held guilty of bribing a public servant, not only will the company be held liable but also a director sitting 2000 km away at the time of commission of the offence will also be reprimanded. Considering that the director will now have to discharge very high burden of proof in order to prove that he did not participate in the wrongdoing. The situation becomes worse if the guilty employee is a director himself or his wrongdoing has been cleared by the director[28].

Subsection (2)[29], on the other hand limits the liability for an offence under section 9 to officials who have connived with the guilty person. This mindless drafting creates differing standards within the same piece of legislation and is a cause of much ambiguity. Not only is section 10(1) of the bill overbroad, subsection (2) is also too wide in scope considering the overbroad elements of negligence contained within the subsection[30].

Law commission has recommended that the ultra-wide scope of section 10 be curtailed by deleting subsection (1) and modifying subsection (2) to exclude element of neglect on that part of officials[31]. The modified provision will thus limit the liability to those directly responsible for abetment to an offence by conniving with the guilty personnel, without any harassment caused to other officials of the company.

Need for intelligent and careful drafting

Though the law commission, after a considerable amount of work has managed to correct the inordinate errors made by the Parliament, what remains to be seen is whether the Parliament will mend its ways and counter the malaise in drafting seen one time too many. This particular bill has been drafted in an extremely shoddy manner, considering that most of the provisions have been borrowed almost word for word from the UK Bribery Act. It is not the case that foreign or international legislations are or should not be consulted before legislations are drafted. But, the drafters should understand the import and context of the foreign legislation before mechanically copying them. As can be perused from the arguments given above and the complete report of the law commission, lack of consultation and context in drafting can have potentially disastrous consequences. The need for intelligent and careful drafting thus, can never be overstated.

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by Siddhartha Singh.

  1. 254th Report, 20th Law Commission of India, The Prevention of Corruption (Amendment) Bill, 2013 (http://lawcommissionofindia.nic.in/reports/Report_No.254_Prevention_of_Corruption.pdf) accessed 16 February, 2015.
  2. The Prevention of Corruption (Amendment) Bill, Bill No. 49 of 2013 [“The Bill”] (http://www.prsindia.org/administrator/uploads/general/1376983957~~PCA%20Bill%202013.pdf) accessed on 17 February, 2015.
  3. Bribery Act, 2010 (http://www.legislation.gov.uk/ukpga/2010/23/pdfs/ukpga_20100023_en.pdf) accessed on 17February, 2015.
  4. The Prevention of Corruption Act, 1988 (http://www.persmin.gov.in/DOPT/EmployeesCorner/Acts_Rules/PCAct/pcact.pdf) accessed on 17 February, 2015.
  5. Delhi Special Police Establishment Act, 1946 (http://www.cbi.gov.in/aboutus/dspe.php) accessed on 17 February, 2015.
  6. Criminal Law (Amendment) Ordinance, 1944 (http://apvc.ap.nic.in/js/vol4/c19t1s1.html) accessed on 17 February, 2015.
  7. The Bill, Statement of Objects and Reasons.
  8. 69th Report of Department-related Parliamentary Standing Committee on Personnel, Public grievances, Law and Justice, The Prevention of Corruption (Amendment) Bill, 2013, at 1, February 6, 2014 (http://164.100.47.5/newcommittee/reports/EnglishCommittees/Committee%20on%20Personnel,%20PublicGrievances,%20Law%20and%20Justice/69.pdf) accessed on February 17, 2015.
  9. Id.
  10. The Bill, §§9-10.
  11. The Bill, §8.
  12. The Bill, §9(1).
  13. The Bill, §9(1)(a)
  14. The Bill, §9(1)(b).
  15. The Bill, §§9(3)(a)(i)-(iv)
  16. The Bill, §9(3)(b)
  17. The Bill, §9(3)(c)
  18. The Bill, §9(1)
  19. Bribery Act, §7(2)
  20. Bribery Act, §§7(4) and 9.
  21. Supra note 1, at 32.
  22. Bribery Act, §9.
  23. Supra note 1, at 32.
  24. Supra note 1, at 32-33.
  25. Supra note 1, at 35.
  26. Id.
  27. The Bill, §10(1).
  28. Supra note 1, at 36.
  29. The Bill, §10(2).
  30. Supra note 1, at 36.
  31. Id.