Nov 02, 2023White-Collar Crime 2023
Our India practice guide provides an insight into the law, statutes and general practice relating to white-collar crimes in India.
1.1 Classification of Criminal Offences
The Indian Penal Code, 1860 (IPC) is the primary legislation in India enumerating general criminal offences and prescribing punishment.
Cognisable offences refer to offences in which a police officer can arrest a person without obtaining permission/a warrant from a court and are usually serious in nature. In respect of a non-cognisable offence, a police officer cannot arrest a person without obtaining permission from court. These are offences which are less serious in nature, as they are punishable with less than two years of imprisonment.
Bailable offences refer to offences where an arrested person can seek bail (release from custody) from the police officer or the jurisdictional court as a matter of right, on presentation of a bail bond/undertaking, as prescribed by the arresting officer or court to secure his/her presence in future. Typically, offences which prescribe punishment of up to three years or less are bailable and non-cognisable. In non-bailable offences, an arrested person cannot seek bail as a matter of right and must apply to the jurisdiction court for bail and release from custody.
This is a separate classification of offences which in some cases can be settled between the complainant and the alleged offender. The CrPC identifies the offences that can be compounded. The CrPC prescribes various methods for compounding, with or without involvement of court. There are certain offences that can be compounded only with the permission of the court. Serious offences and certain socio-economic offences are non-compoundable, though constitutional courts in India have powers to quash proceedings even in respect of non-compoundable offences in certain cases – ie, if the same is in the interests of justice or prevents an abuse of process.
Constituents of an Offence
Broadly, in order to establish criminal liability, the prosecution must prove existence of the following two elements, beyond reasonable doubt.
- Mens rea or guilty intention – the accused must be proven to have knowingly committed the crime, with full knowledge of their actions, and must have mala fide (intent). Some crimes do not necessarily require guilty intent – eg, in heinous crimes such as rape, actus reus (the act itself) is sufficient.
- Actus reus or the illegal act or omission – this is the physical aspect of the crime and refers to the accused having done something or omitted to have done something, resulting in injury to the victim or an offence being committed.
An attempt to commit an offence is also punishable under Indian law.
1.2 Statute of Limitations
The CrPC in India prescribes the periods of limitation for launching prosecution in respect of only certain offences, based on maximum quantum of punishment prescribed. For minor offences prescribing only a fine (no imprisonment), the limitation period is six months from the commission of the offence. For offences prescribing the maximum punishment of one year, the limitation period is one year from the commission of the offence, and for offences prescribing punishments of more than one year up to three years, the limitation period is three years from the commission of the offence. However, for offences which prescribe punishment of more than three years, there is no limitation prescribed (ie, prosecution may be launched at any point of time). Special penal statutes too may contain provisions pertaining to periods of limitation, in which case, such provisions will prevail over the CrPC. For example, the Negotiable Instruments Act, 1881 which deals with negotiable instruments such as promissory notes and cheques, the period of limitation for filing a complaint against the dishonour of a cheque is one month from the date on which cause of action arises.
Also, where an offence remains undetected, the date of its commission will be construed as the date on which the offence becomes known. Further, if the perpetrator of an offence remains unknown even after detection of an offence, the date on which the identity of the perpetrator is revealed will be the relevant date for determining the period of limitation.
The expiry date of limitation is the date on which the investigation report or the complaint is filed before court. In cases of continuing offences, a fresh period of limitation begins with every moment that the offence is said to have continued. The period of limitation in relation to offences which may be tried together is determined with reference to the offence which is punishable with more severe punishment.
1.3 Extraterritorial Reach
Sections 3 and 4 of the IPC and Section 188 of the CrPC recognise extraterritorial application of the Indian criminal law. An Indian citizen is subject to Indian criminal law’s extraterritorial reach as he/she can even be punished for offences committed outside India.
Further, any person who commits an offence targeting a computer source in India, or commits an offence as an Indian-registered ship/aircraft, can also be prosecuted under Indian criminal law.
The CrPC statutorily recognises reciprocal arrangements with other countries in matters of service of summons/warrants, investigation and collection of evidence, and attachment and forfeiture of property. Consequently, the CrPC permits as well as assists with cross-border criminal law enforcement. India has entered into various arrangements and bilateral agreements for seeking and providing mutual legal assistance in criminal law matters. See 2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation under “Letters Rogatory (LR)”.
The extraterritorial reach of investigation agencies can also be found in various specialised legislations targeting economic offences, such as the Prevention of Money Laundering Act, 2002 (PMLA). The PMLA relies on bilateral assistance with notified countries to assist in investigations.
1.4 Corporate Liability and Personal Liability
A company can be prosecuted for an offence under Indian law; however, it cannot be punished for an offence which prescribes only a fine and not imprisonment.
There is no vicarious liability under the IPC. However, special criminal statutes such as the Drugs and Cosmetics Act, 1940, the Food Safety and Standards Act, 2006, the Prevention of Corruption Act, 1988, and the Negotiable Instruments Act, 1888 specifically provide for vicarious liability.
For fastening criminal liability on companies/corporate entities, the doctrine of attribution is applied. In other words, the law imputes mens rea of the persons in charge of, or responsible for, the corporate entities’ affairs onto such company/corporate entity.
Conversely, in the absence of a specific provision in a statute recognising vicarious liability, the doctrine of attribution cannot be applied to impute criminal liability on directors/persons in charge of the affairs of a company. Similarly, without any specific provision providing for it, a company cannot be made liable for the acts of its employees, done without any abetment from the company. In the absence of a law containing vicarious liability provisions, a person can be held criminally liable for an offence committed by the company only if there is evidence of his/her specific and active involvement in the commission of an offence.
There is a growing tendency among the investigation agencies entrusted with investigation of white-collar crimes, such as, the Central Bureau of Investigation (CBI), Directorate of Enforcement (ED), and Serious Frauds Investigation Office (SFIO) to identify the accused in cases of corporate crimes based on statutory filings, resulting in identification of promoters, directors, and other senior officials of a corporate entity. This is despite the statutory guidance to restrict the prosecution only to those who are responsible for, or in charge of, the affairs of the entity. This often results in initiation of criminal prosecution against such individuals, some of whom may not be in charge of, or responsible for, the affairs of the entity or the contravention. Therefore, courts have struck down overbroad investigations and attempts to include unconnected individuals or independent third parties.
1.5 Damages and Compensation
The court has wide discretionary powers to award compensation at the time of sentencing the offender. Criminal courts may, on consideration of factors set out in Section 357 of the CrPC, award compensation. There are no guidelines on the sentencing or quantifying of fines to be levied. It may range from the alleged amount involved in the crime to sometimes multiples of such amount. The IPC only provides that where no sum is expressed to which a fine may extend, the amount of the fine for which the offender is liable is unlimited, but shall not be excessive. Legislations such as the Foreign Exchange Management Act, 1999 prescribe a penalty of up to three times the sum involved in such contravention.
The quantum of compensation depends on the gravity of the offence, extent of loss or damage suffered by the victim, and the capacity of the offender to pay such compensation. If the offender does not have capacity to pay, the court can compel the state to pay from the state victim compensation fund (although a policy for compelling the state to pay has not been implemented in most states).
While the court trying the offence has the power to levy a fine or grant compensation, constitutional courts have provided compensation under the writ jurisdiction as part of the fundamental right to life and in the exercise of the powers given to the constitutional courts.
Indian law does not provide for class action suits for white-collar criminal offences. A first information report becomes the basis for starting an investigation and all other complaints are clubbed together in the same investigation. However, specialised institutions such as the securities regulator, the Securities and Exchange Board of India (SEBI), take into consideration the number investors who suffer loss and that may impact the quantum of penalty, the nature of compensation and restitution, as well as the scope of settlement.
1.6 Recent Case Law and Latest Developments
Judgments
V Senthil Balaji v State, reported at the 2023 SCC Online SC 934
In this case, the Supreme Court for the first time held that the power of ED to arrest an accused person under PMLA is not circumscribed by the rigours of Section 41A of the CrPC which envisages a duty to issue a notice to an accused person and thereby acts as an important procedural safeguard against arbitrary and unnecessary arrests. The Supreme Court in V Senthil Balaji held that since PMLA is sui generis in nature, the power of ED to arrest under Section 19 of PMLA is not circumscribed by the rigours of Section 41A of the CrPC.
Legislation
The government of India has tabled the following three new bills to reform criminal laws and that propose to repeal the existing Indian Penal Code 1860 (IPC), Code of Criminal Procedure 1973 (CrPC), and Indian Evidence Act 1872 (IEA).
- Bharatiya Nyaya Sanhita, 2023 (BNS) – new penal code.
- Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) – new criminal procedure code.
- Bharatiya Sakshya Bill, 2023 (BSB) – new law on evidence.
BNS for the first time has defined an “economic offence” in Clause 109 and included the same within the definition of “organised crime”, which also did not exist in the IPC. The scope of abetment has been increased to include abetment outside India for offences in India. Interestingly, BNS has also for the first time introduced the concept of “community service” as a punishment. Offences of cheating under Sections 417, 418, and 420 have been clubbed into one as Clause 316. Similarly, criminal breach of trust under Sections 406–409 have been clubbed into Clause 314.
BNSS – one of the notable changes sought to be introduced is the adoption of technology which pervades through the entire process of a criminal investigation and trial; ie, filing of FIR through electronic means, recording of statements electronically, production of electronic, digital, and communication devices, and issuance of summons through electronic means. BNSS also seeks to introduce certain timelines for criminal trials – framing of charges within 60 days by a sessions court, and giving a judgment within 30 days from the date of completion of arguments. BNSS also gives statutory recognition to the concept of zero FIR; ie, registration of FIR at any police station even though it does not have jurisdiction.
BSB – even though the IEA recognised the concept of electronic evidence, BSB has sought to expand the scope for such statutory recognition by including semi-conductor memory, records maintained on emails, server logs, and voicemails. Another significant change sought to be introduced in BSB is expansion of the relevancy of confession. The concept of “secondary evidence” has also been sought to be expanded.
The aforesaid Bills have been referred to a Parliamentary Standing Committee and are yet to become law.
2.1 Enforcement Authorities
Federal Agencies
The CBI, which was established under the Delhi Special Police Establishment Act, 1946, is responsible for investigating complex crimes, including white-collar offences, typically in cases involving the Prevention of Corruption Act, 1988 (PCA) or cases of public importance. There are designated special courts notified to try cases investigated by the CBI, all of which have a judge of the rank of a sessions judge to hear such cases.
The ED has been established by the Ministry of Finance to investigate contraventions of the Indian exchange control laws (FEMA) and anti-money laundering regulations. Cases investigated by the ED are adjudicated by adjudicating authorities specifically empowered under FEMA and PMLA as well as designated special courts set up under the Act. Additionally, there is a specialised Appellate Tribunal to hear appeals against orders of the Adjudicating Authorities under PMLA and FEMA.
The SFIO was established to investigate offences under the Companies Act, 2013 (“Companies Act”). SFIO investigations have been given priority, as all investigations by other investigative agencies must await the completion of the SFIO investigation. As part of its investigation, the SFIO can share information related to the commission of an offence with other investigating agencies in order to prosecute the offence outside its purview and is empowered to obtain information from other investigating agencies as part of its investigation. There are designated special courts notified to try cases under the Companies Act.
The Income Tax department (IT Authority) has the authority to investigate cases of income tax evasion, undisclosed foreign assets (termed “black money” under Indian law), and income tax fraud. In addition to the assessment, collection of tax, and penalty of interest, the IT Authorities can also prosecute persons for tax evasion, fraud, and for holding black money.
The Directorate of Revenue Intelligence is tasked with detecting and curbing smuggling of contraband, including drug trafficking and illicit international trade in wildlife and environmentally sensitive items, as well as combating commercial frauds related to international trade and evasion of Customs duty. The Directorate General of GST Intelligence (DGGI) is entrusted with the task of collection, collation, and dissemination of intelligence relating to evasion of Goods and Services Tax (GST), Central Excise Duty, and Service Tax.
The Central Vigilance Commission (CVC) is a federal authority which provides advice and guidance to its agencies on matters related to vigilance, and which receives complaints concerning allegations of corruption or misappropriation of office, and recommends appropriate action regarding these allegations. The matters investigated and recommended by CVC are tried by courts notified to try offences under the PCA.
State Agencies
The police force of each state/union territory is responsible for maintaining law and order in the designated area as well as registering complaints and investigating crimes. Additionally, a special branch has been established in the local police structure known as the Economic Offence Wing (EOW) in order to specifically deal with economic offences involving a certain threshold of monetary value. EOW is responsible for dealing with, inter alia, banking crimes, housing crimes, corporate frauds, general cheating, and crimes relating to the security and commodities markets.
Regulatory Oversight
Certain regulators are also empowered to investigate regulatory offences. For example, SEBI, the regulator for the securities and commodity market in India, is empowered to investigate fraudulent and prohibited transactions in securities, including insider trading. The Reserve Bank of India (RBI) can also prosecute banks and non-banking financial companies for regulatory offences.
Conflict of Jurisdiction
As different authorities are investigating the same offence, their jurisdictions are defined. The SFIO has exclusive jurisdiction for offences under the Companies Act. ED, meanwhile, has exclusive jurisdiction in terms of investigating money laundering and foreign exchange control related offences. However, it cannot do so until an offence is registered by the police authorities for an offence listed in the PMLA schedule; ie, a predicate offence. Similarly, police officers cannot exercise generic powers of investigation once a case is submitted to the exclusive jurisdiction of the CBI.
Civil/Administrative Enforcement Against White-Collar Offences
White-collar crime does not have any civil enforcement mechanisms, except a duty to disclose in certain cases and restitution under tort law. Recent legislations, like the one on insolvency and bankruptcy, provide for a claw-back provision to disgorge undue benefit received by any creditor or related party of a corporate debtor, with the intent to defraud other creditors or for any fraudulent purpose. Furthermore, authorities such as the Insolvency and Bankruptcy Board of India, established under the Insolvency and Bankruptcy Code, 2016 (IBC), prosecute offences under the IBC, such as breaches of moratorium, and breaches of resolution plans.
2.2 Initiating an Investigation
Generally, investigations are initiated on the basis of a complaint, alleging the offence, being filed with the authority that is empowered to investigate. There may be instances in which authorities initiate investigations on their own, based on reasonable suspicions.
Police officials and officers in the EOW may either register a complaint as a preliminary enquiry or a First Information Report (FIR), which marks the beginning of an investigation. The investigating machinery may also be brought into play at the direction of a court, in case of failure by police to initiate an investigation by registering an FIR. These agencies also have the power to arrest individuals alleged to have committed offences. A public servant cannot be prosecuted for offences of bribery and corruption, except with the previous sanction of the government.
An ED investigation is initiated pursuant to a case being registered for commission of certain identified offences (known as “scheduled offences” like cheating and extortion). In such cases, a complaint is registered if the authority has reason to believe that “proceeds of crime” may have been generated through the commission of a scheduled offence.
The CBI and SFIO cannot initiate investigations on their own but must be specifically notified by the central government or by a court. In addition, the SFIO has the authority to investigate the affairs of a company if it is required in public interest to do so and if the shareholder approval is sought.
IT Authorities and the CVC can initiate investigations, however, there are certain internal safeguards provided by the Income Tax Act, 1961 (“Income Tax Act”) and the Central Vigilance Commission Act, 2003 that allow authorities to determine probable cause or develop prima facie view prior to initiating an investigation.
2.3 Powers of Investigation
Investigation agencies have wide powers to investigate white-collar offences. However, the rules and regulations governing such powers vary across agencies.
The police, EOW, and CBI have the power to summon persons, conduct search and seizures, compel production of documents, and arrest accused persons for interrogation during the investigation. They may call any employee, officer, or director of a company to join the investigation. Failure to join the investigation may be treated as non-co-operation and may justify arrest in some cases. Statements made to these authorities need not be signed. Additionally, under CrPC they have the power to attach movable and immovable properties as well as investigate peremptorily in order to prevent the commission of an offence. However, issues of seizure of confidential and privileged documents are protected by legal and litigation privilege. The scope of exclusion is currently being tested in Indian courts.
The CVC has been empowered with all the powers of a civil court. The powers include the power of summoning and enforcing attendance of any person and examining them on oath, production of any document, receiving evidence on affidavits, and requisitioning any public record.
The SFIO has the same power as that of an inspector, under the Companies Act, which include the powers of a civil court as mentioned above. SFIO also has the power to compel disclosure from officers and employees of a company under investigation. SFIO also has the power to arrest and has been statutorily empowered to object to grant of bail to the arrested person and no bail can be granted without hearing the SFIO prosecutor.
The IT Authorities have also been given powers of a civil court and can compel disclosure of documents which are in the possession and control of an accused, and/or compel the presence of the assessee and fine the person if they fail to follow such compulsion. The IT Authorities have the power to conduct dawn raids in the form of search and seizure operations. However, such powers can be exercised only if the authorities have reason to suspect that income has been concealed or is likely to be concealed by any person within their jurisdiction. The statements recorded in such investigations are to be signed by the accused/witness.
The ED has the same powers as those of the IT Authorities under the Income Tax Act for purposes of enforcing Indian exchange control regulations. In addition, under the PMLA, for offence of money laundering, the ED has the power to attach properties obtained from proceeds of crime, and in the event the property is located outside of India, it can attach a property of equivalent value located within India. Further, the ED has the authority to summon, conduct searches and seizures, compel the production of documents, and arrest accused persons for interrogation during the investigation. The statements recorded by the ED have to be signed by the accused/witness and can be used in the court of law, unlike the statements recorded by the police officials.
The powers highlighted above can be exercised by the authorities once investigation has been initiated (see 2.2 Initiating an Investigation). There is no right to counsel during interrogation, although a limited right to visit along with the accused and be present outside the room to see the witness (but not hear their responses) is available.
2.4 Internal Investigations
While there is a limited statutory mandate to conduct internal investigations under the Companies Act, there is no overarching requirement to do so. Further, any such internal investigation does not impose an estoppel on the enforcement authorities from conducting an investigation. Nonetheless, internal investigations are a good corporate governance practice that should be conducted, as they may later on assist the company in demonstrating that it has acted bona fide during investigations/trials. Enactments such as the PCA specifically provide that it shall be a valid defence for a commercial organisation against vicarious liability if the company proves that it had in place adequate procedures to prevent persons associated with it from undertaking such conduct. In some cases where the company is being accused of fraud, and the internal investigation report reveals commission of such offence by the employee, without authority and beyond the knowledge of the company, then the company could take the position of a witness or victim to the fraud and not an accused.
Separately, fiduciary duties cast on directors may also require them to initiate internal investigations in addition to filing a formal disclosure with the authorities through a Director’s Responsibility Statement (DRS). Moreover, in the case of a publicly listed company, directors are duty bound to disclose fraudulent acts not only under a DRS but also under listing regulations with stock exchanges. Further, for such publicly listed companies, any forensic audit being conducted at the instance of a regulator or otherwise has to be mandatorily disclosed to the stock exchanges.
2.5 Mutual Legal Assistance Treaties and Cross-Border Co-operation
The CrPC provides for the procedure for issuance of summons by a court (or a police officer through the court) for physical presence or to produce any document/material necessary for the purposes of any investigation, inquiry, or trial. Summons in such cases can be issued to any person who the court or police believes to be possessing such information.
MLATs
India has arrangements for mutual legal assistance with certain countries that enable service of summons to persons residing in the signatory country’s territory, following the principle of double criminality as a precondition to involve the MLAT route. These treaties place an obligation on the signatory countries to follow through with requests from another signatory country. The Ministry of Home Affairs (MHA) is the Indian nodal ministry and the designated central authority for seeking and providing mutual legal assistance in criminal law matters under the MLATs. India has MLAT arrangement with 14 countries, including Russia, France, and the UAE.
For countries not covered under MLAT, the MHA makes a request on the basis of assurance of reciprocity to the concerned foreign government through the mission/Embassy. Non-MLAT countries do not have any obligation to consider such a request.
Letters Rogatory (LR)
The LRs are issued typically in cases of countries that do not have an MLAT arrangement with India. LRs are letters of request sent by the court of one country to the court of another country for obtaining assistance in investigation or prosecution of a criminal matter. The CrPC lays down the procedure for sending LRs through the competent court on the request of the investigating officer or investigating agency. For LRs, in the case of non-reciprocating territories, the investigating officer or agency must send the request for issue of LRs to the MHA for concurrence and agreement. Thereafter, LRs are presented to the relevant court for issuance. The summons is then forwarded to the MHA and transmitted to the central authority of the non-reciprocating state, through the Ministry of External Affairs (MEA).
MHA Guidelines
The MHA has issued comprehensive guidelines for cross-border investigations and for issuance of LRs, MLAT requests, and service of summons, notices, and judicial documents in respect of criminal matters.
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 MEA 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 the country. According to the MHA Guidelines, foreign courts or authorities require at least ten weeks to transmit the request and serve summons/notices/judicial processes upon the person concerned.
Multilateral Treaties
India is a member state to various multilateral treaties that provide for mutual assistance in enforcement. These include membership to the Financial Action Task Force and International Criminal Police Organisation, which enable member states to share and access data on crimes and criminals and offer a range of technical and operational support.
Extradition Arrangements
The process of extradition is governed by the Indian Extradition Act, 1962. India has entered into a number of bilateral agreements. The central government has entered into extradition arrangements with a number of countries with which it does not have a bilateral extradition treaty. In the absence of an extradition treaty between India and a foreign state, the central government may, by notified order, treat any convention to which India and that state are parties as an extradition treaty.
Currently, India has extradition treaties with 48 foreign states (including the US, UK, and Switzerland) and extradition arrangements with 12 foreign states (including Sweden and Singapore).
It is also possible to extradite those who are subject to the extradition treaty/arrangement or whose offences are punishable by imprisonment for more than one year under Indian or foreign laws. The term includes a composite offence (ie, offence committed wholly or in part in a foreign country or in India). These broadly include offences under the PCA, PMLA, or the IPC.
2.6 Prosecution
Prosecuting Authorities
Police/CBI/EOW
After an investigation is completed, the CrPC mandates police officials, CBI, and EOW to file a report with the jurisdictional court. Once the court is satisfied that an offence is made out and there is sufficient material to prosecute the accused, it can take cognisance of the offence and commit the accused to trial.
SFIO
The SFIO, on the other hand, has to prepare an investigation report/complaint, which has to be filed with the central government for its direction/permission to initiate prosecution. Once such direction/permission is granted, the report is presented to a special court notified to take cognisance of offences committed under the Companies Act along with other penal offences. The special court operates in the same way as the criminal court based on the procedures notified under the CrPC.
Income tax (IT) authorities
In the event the IT authorities conduct a search and seizure or audit of the books of accounts of a company/individual, the IT authorities are mandated to prepare a report and assess the amount of tax evaded by the accused. A notice of demand of such tax is then issued to an individual, who can either pay the amount or challenge the assessment before the IT authorities/tribunal.
CVC
Once an investigation is concluded by the CVC, it has to submit a report to a commission that recommends further actions to be taken by the department/authorities. Depending on the course of action recommended, a prosecution may be brought before special courts constituted to prosecute matters (as in the case of offences under the PCA).
ED
If the ED has reason to believe, and that reason is documented, it has the powers to arrest, conduct a search and seizure, and thereby attach property it believes to be the proceeds of crime. Following the issuance of the provisional attachment order, the ED is required to file a complaint within 30 days with the immediately superior authority, called the Adjudicating Authority. Once the complaint is filed, the properties are attached for a period of 180 days during which period the adjudicating authority may uphold or reject the attachment order. In the event the same is not done, it would lead to setting aside of the attachment. Upon completion of the investigation, the ED must file a complaint.
2.7 Deferred Prosecution
In India, criminal jurisprudence does not allow for prosecution of criminal offences without a trial. Agreements for deferred prosecution or non-prosecution have no sanctity.
However, certain offences can be compounded by an accused. Offences with punishment of more than seven years of imprisonment or offences of serious economic consequences are not compoundable in India. An offence of a less serious nature, such as regulatory filings violation, or a minor offence under the IPC (listed out in Section 320 of the CrPC) can be compounded, in the manner provided for in the said sections.
Compounding is also permitted with respect to offences punishable with fines under the Companies Act and securities and exchange control regulations. False statements made in the board report or annual accounts, violations of securities law, including the failure to furnish information, returns, etc, and the failure to redress investors’ grievances and insider trading, are examples. Such offence may be compounded either before or after the initiation of prosecution.
The central government has also endeavoured to amend many statutes to de-criminalise less serious or regulatory offences and limit the punishment to a fine and do away with prosecution. This has been done through the Jan Vishwas Bill, which has been passed by both legislative houses of the Indian Parliament. The decriminalisation has been done under such socio-economic legislations where the offence was generally punishable with an option of imprisonment or fine or where the prosecution was for minor offences such as non-filing of certain forms or returns. Decriminalisation of regulatory offences is being considered by the legislature, as well as the introduction of a settlement mechanism.
2.8 Plea Agreements
Plea bargaining is permitted in limited circumstances. It is not allowed in cases where the prescribed punishment is death or life imprisonment or imprisonment for a term exceeding seven years. Plea bargaining also does not apply where the offence affects the socio-economic condition of the country or has been committed against a woman, or a child under the age of 14 years.
A person accused of an offence may file a plea-bargaining application in the jurisdictional court with a brief description of the facts of the case. A prerequisite for such an application is that the accused person has not previously been convicted of the same offence by a court. After understanding the nature and extent of punishment provided by the law for the offence, the application is voluntarily preferred.
Once the court is satisfied that the application has been filed voluntarily, it shall provide time to the public prosecutor/complainant to mutually work out a satisfactory disposition of the case. Where such a result has been reached, the court shall award compensation to the victim and hear the parties’ argument regarding the severity of the punishment and thereafter the court may impose either half or one fourth of such minimum punishment.
3.1 Criminal Company Law and Corporate Fraud
Companies Act
Under the Companies Act, fraud in relation to affairs of a company includes:
- any act, omission, concealment of a fact, or abuse of position by any person;
- intent to deceive, to gain undue advantage from, or to injure the interests of the company, its shareholders, its creditors, or any other person; and
- whether or not there is any wrongful gain or wrongful loss.
“Fraud” is a serious offence punishable with imprisonment for a minimum term of six months which may extend to ten years along with a fine of up to three times the amount involved in the fraud.
In cases where an audit of a company is conducted by an audit firm, and the partner of such audit firm acts fraudulently or abates or colludes with the fraud, the concerned partner(s) of the firm as well as the firm itself shall be jointly and severally liable of civil/criminal consequences of fraud.
If an officer of a company, which has been wound up or which is in the process of being wound up, hinders the process of liquidation by failing to provide the liquidator with a true picture (eg, in relation to its assets) in order to defraud or conceal the truth, the officer would be subject to imprisonment for a period of three to five years and a fine ranging from 1 lakh to 3 lakh rupees (ie, INR100,000 to INR300,000).
IPC
Criminal breach of trust
The essential ingredients for establishing an offence of criminal breach of trust are:
- entrusting any person with property; and
- the person entrusted dishonestly misappropriating or converting to his/her own use of that property.
A more egregious form of breach of trust is when the entrustment/dominion over the property is given to someone with a fiduciary duty/relationship towards the person making such entrustment. Depending on who has committed the criminal breach of trust, punishment for criminal breach of trust can be imprisonment ranging from three years to ten years in addition to a fine.
Cheating
The essential ingredients of the offence of cheating are:
- deception of a person fraudulently or dishonestly; and
- inducing such person to deliver any property or to intentionally induce the deceived person to do or omit to do anything (including delivery of a property to any person) which he/she would not do or omit if he/she was not deceived.
Cheating is punishable by imprisonment for up to seven years and a fine.
Forgery
Forgery is the act of creating a false document or electronic record with the intention of causing damage or injury, supporting a claim or title, causing a person to part with their property, or entering into an express or implied contract, or with the intent to commit fraud or the possibility that fraud may be committed by the act of forgery. Forgery is punishable with imprisonment of up to two years. If the forgery is committed for the purpose of cheating, the same is punishable with imprisonment of up to a period of seven years.
Falsification of accounts
This offence is satisfied if it is established that the accused was a clerk, officer, or servant of the company at the relevant time and, while acting in such capacity, they wilfully and with the intent to defraud, destroyed, altered, mutilated, or falsified any accounts (books, papers, etc) which belonged to their employer. The offence is punishable by up to seven years of imprisonment or a fine or both.
Dishonest misappropriation of property
Key ingredients of this offence are:
- property belongs to a person other than the accused;
- accused person appropriates the property or converts it to their own use; and
- most importantly, they did so “dishonestly” – ie, with the intention of causing wrongful gain to one or wrongful loss to another person.
Persons who have been found guilty of the aforementioned offence are subject to imprisonment of up to two years.
Other criminal and fraud offences by corporates
There are specialised pieces of legislation that recognise criminal offences by a corporate, such as bribery, money laundering, evasion of tax, and violation of securities and foreign exchange laws, which have been discussed.
3.2 Bribery, Influence Peddling and Related Offences
Bribery of foreign public officials and bribery between private parties is not criminalised in India at present. At the same time, the PCA deals with offences involving “public servants”. As per the PCA, “public servant” is understood to mean a person who is performing a public duty and works with either a public, government, or a local authority.
Under the PCA, giving any undue advantage to another person (directly or through a third party) to induce or reward any public servant to perform or improperly perform any public duty, is an offence punishable with imprisonment up to a period of seven years or with a fine or both.
“Public duty” or public function in this context is understood to mean a duty discharged in public or community interest by the state. A banker or a stock exchange officer irrespective of whether the bank or stock exchange is privately owned are also considered to be public servants as their entities employ them to perform a public duty.
The PCA makes a commercial organisation (including foreign entities carrying on business in India) liable if any person associated with such organisation offers any undue advantage to induce or reward any public servant in exchange for any advantage for the business or conduct of its business. Such persons may include directors, employees, consultants, and service providers.
The test to determine an associated person in respect of a commercial organisation would be by reference to all the relevant circumstances and not merely by reference to the nature of relationship between such person and the commercial organisation.
Interestingly, by way of an amendment to the PCA in 2018, the facilitators who accept bribes for influencing the public servant are also considered to be offenders punishable with imprisonment, which could range between three to seven years.
3.3 Anti-bribery Regulation
At present, there is no specific obligation to disclose bribery and influence peddling in India. The only deterrent is provided by the strict penalty and punishment prescribed under the PCA. There is, however, a defence available to the bribe giver in the event that they have been compelled to bribe, and that after being so compelled, they informed the law enforcement agency within seven days of the act of being compelled.
3.4 Insider Dealing, Market Abuse and Criminal Banking Law
Indian securities and commodities law recognises insider trading and market manipulation as offences.
Insider Trading
Insider Trading is regulated under the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”).
With respect to insider trading, it is an offence if an insider:
- deals in securities of a publicly traded company based on any Unpublished Price Sensitive Information (UPSI);
- communicates any UPSI to any person, with or without their request for such information except as required in the ordinary course of business or under any law; or
- counsels or procures for any other person to deal in securities of a body corporate on the basis of UPSI.
The definition of “insider” as per the PIT Regulations is wide enough to cover any person who is or has during the six months prior to the concerned act been associated with the concerned company, directly or indirectly, in any capacity. If the communication or procurement of UPSI was done for legitimate purposes, performance of duties, or discharge of legal obligations, it would not constitute as an offence. While there is a presumption against the accused, the Supreme Court of India has ruled through a series of decisions that such a presumption is subject to the existence of foundational facts.
A person found to be indulging in fraudulent and unfair trade practices by SEBI is subject to paying a penalty which shall not be less than INR500,000 but which may extend to INR250 million or three times the amount of profits made out of such practices, whichever is higher.
Market Abuse in the Form of Market Manipulation
Stock price manipulation is regulated and is made an offence under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”).
SEBI prohibits the use or employment of any manipulative/deceptive device/artifice to defraud in connection with the issue, purchase, or sale of any securities listed or proposed to be listed. It also prohibits a person from committing fraud upon any person in connection with the issuance, dealing with the listed securities or securities proposed for listing. It is also an offence to indulge in manipulative, fraudulent, or unfair trade practice in the securities markets. The PFUTP Regulations clarify that any act of diversion, misutilisation, or siphoning off of assets or earnings of a publicly traded company, as well as any concealment of such acts, is regarded as manipulating the books of accounts or financial statements of the company that directly or indirectly manipulates the price of its securities. This is deemed as a “manipulative, fraudulent, and an unfair trade practice” in the securities market.
Dealing in securities would be treated as manipulative, fraudulent/unfair trade practice if it involves acts such as knowingly indulging in creation of false or misleading appearance of trading in the securities market and dealing in a security intending to operate only as a device to inflate, depress, or cause fluctuations in the price of a security for wrongful gain/avoidance of a loss.
In addition to the above, if any person contravenes or attempts to contravene or abets the contravention of the provisions of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) or of any rules or regulations made thereunder, he/she can be punished with imprisonment of up to ten years, or with a fine – which may extend to 25 crore rupees (ie, INR250 million) – or with both. Offences under the SEBI Act, which are not punishable with imprisonment or imprisonment and a fine can be compounded under Section 24A of the SEBI Act.
Criminal Banking Law
Offences in relation to banking are generally dealt with under the IPC. Additionally, there are certain special statutes that prescribe penalties in relation to certain offences. These include the Reserve Bank of India Act, 1934 (“RBI Act”) which provides for penalty in case of wilfully making or omitting to make material statements by any person under any application, return, statement, etc, in connection with an invitation of deposit of money from the public. Separately, failure to produce books of accounts as required under the RBI Act entails a fine of up to INR2,000 for each offence with an additional fine if the offence persists. Also, if a person other than the entity of the RBI or as expressly permitted by the government of India draws, accepts, makes, or issues any bill of exchange or promissory note for payment of money payable to the bearer on demand, then such a person shall be punishable with a fine, which may extend to the amount of the bill of exchange or promissory note.
The RBI also regulates Non-Banking Financial Companies (NBFC) and has the power to remove directors of a NBFC, supersede the Board of Directors of such NBFC, determine the policy, and give directions to NBFCs, to collect information from NBFCs, take action against the NBFC auditors for failure to comply with directions or provisions of the RBI Act, prohibit acceptance of deposit and alienation of assets, inspect the NBFC, and file a winding-up petition on behalf of the NBFC.
The RBI is also the regulatory authority for payment systems under the Payment and Settlement Systems Act, 2007 (“PSS Act”). The PSS Act provides that any person responsible for violation of the PSS Act shall be punishable with imprisonment for a term not less than one month to ten years or with a fine which may extend to 1 crore rupees (INR10 million), or with both. On repeat offence or failure to comply, the RBI can levy a further fine which may extend to 1 lakh rupees (INR100,000) for every day that the contravention continues and every person who, at the time of the contravention, was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company itself, shall be guilty of the contravention. Under both the RBI Act and the PSS Act, it is only the RBI that can file a complaint with the court.
Separately, there are certain pieces of local legislation which regulate money lending at a state level. Persons running such businesses may be punishable for various acts including making false statements. These may be punishable with imprisonment extending up to five years in certain cases, or fines up to INR50,000. This is in addition to the law providing for courts to re-open such transactions entered in a usurious manner and/or not enforce such contracts.
3.5 Tax Fraud
Principle Offences in Relation to Tax Fraud
Tax fraud consists of the following principal offences:
- fraudulently removing, concealing, transferring, or delivering any property or any interest in such property with an intention to prevent recovery of taxes;
- parting with a company’s property in contravention of the Income Tax Act;
- failure to deposit tax deducted or collected at source;
- wilful attempt to evade tax imposable or reportable under the Income Tax Act;
- failure to furnish return where tax liability exceeds INR10,000;
- failure to produce accounts and documents if information is sought by the IT authorities, or failure to get accounts audited as directed by the IT authorities;
- failure to furnish returns in search (raid) cases;
- abetment to the offence of filing of false returns; and
- making false statement to evade taxes, penalty, or interest or abetting or inducing any person to make or deliver a false account or a false declaration.
Punishment
Punishment prescribed in relation to the aforesaid offences may entail penalty and rigorous imprisonment for a minimum of two months and maximum term of seven years along with a fine, depending on the nature of the offence.
Undisclosed Income
If a person holds foreign income or assets that are undisclosed, they can be prosecuted under the Black Money Act. Offences under this legislation in addition to penalty, also entail rigorous imprisonment ranging from six months to seven years. As part of the Income Tax Act and the Black Money Act, taxpayers are required to make full and true disclosure of their income and assets, failing which they may be prosecuted and fined.
In case of prosecution, culpable mental state is presumed, unless the defendant proves otherwise. Culpable mental state includes intention, motive or knowledge of a fact or belief in such, or reason to believe a fact.
3.6 Financial Record-Keeping
The Companies Act mandates a company to maintain its books of accounts for a period of up to eight preceding financial years. If there is an inquiry or investigation pending against the company under the Companies Act, the company may be required to maintain its books of accounts for a longer period of time. Further, if the senior management, including the managing director and the CFO or any person authorised by the Board, fails to comply with such obligations, then such person will be punished with imprisonment for a term extending to one year and/or fines between INR50,000 and INR500,000.
The managing director, the whole-time director in charge of finance, the CFO, or any other person charged with the duty of complying with the requirements of maintaining the financial statement of the company shall be punishable with imprisonment for a term, which may extend to one year or with fines between INR50,000 and INR500,000, or with both. This would be the case if the books:
- do not show the true and fair view of the state of affairs of the company;
- do not comply with the accounting standards notified under the Companies Act; or
- are not in the form or forms provided for one or more different classes of companies in the Companies Act.
If the concerned officer mentioned above is found to maintain false books of accounts they may, depending on the facts and allegations, be subject to the various offences mentioned in 3.1 Criminal Company Law and Corporate Fraud.
The PMLA also mandates that every person or entity that falls under the definition of “reporting entity”, shall maintain a record of all transactions, maintain a record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients for a period of five years from the date of transaction between a client and the reporting entity, or five years after the business relationship between a client and the reporting entity has ended or the account has been closed, whichever is later. By a recent amendment, chartered accountants, company secretaries, and certified management accountants have been notified as the “reporting entity” under the PMLA for certain transactions.
3.7 Cartels and Criminal Competition Law
Cartelisation and anti-competitive practices are regulated by the Competition Commission of India constituted under the Competition Act, 2002 (“Competition Act”) which provides for civil penalties and only provides criminal liability when there is non-compliance with the orders/directions issued under the Competition Act, or fails to pay the fine imposed under sub-section (2), he/she shall be punishable with imprisonment for a term which may extend to three years.
In terms of the Competition Act, agreements in respect of production, supply, distribution, storage, acquisition or control of goods, or provision of services, which cause or are likely to cause an appreciable adverse effect on competition within India are prohibited and, if entered, would be void. Further, an enterprise that imposes unfair, discriminatory conditions on purchase or sale of goods/services, or imposes unfair or discriminatory price on the purchase/sale of goods or services (including predatory prices) would be regarded as abusing its dominant position.
After conducting an inquiry, if the Competition Commission of India (CCI) finds contravention of the aforesaid prohibitions, it may take various actions including imposition of penalty of up to 10% of the average turnover of the enterprise for the three preceding financial years.
In case of anti-competitive agreement entered into by a cartel, CCI may impose upon each producer, seller, distributor, trader, or service provider included in that cartel, a penalty of up to three times its profit for each year of the continuance of such agreement or 10% of its turnover for each year of the continuance of such agreement, whichever is higher.
Further, failure to comply with the orders or directions of CCI, shall be punishable with a fine which may extend to 1 lakh rupees (INR100,000) for each day during which such non-compliance occurred, subject to a maximum of 1 crore rupees (INR10 million). Failure to comply with the orders or directions issued or failure to pay the fine shall be punishable with imprisonment for a term which may extend to three years, or with a fine which may extend to 25 crore rupees (INR250 million), or both.
The CCI can also order for the recovery of compensation from any enterprise for any loss or damage shown to have been suffered because of the particular enterprise violating directions issued by CCI or contravening any decision or order of the Commission. Similar powers have also been given to the Appellate Tribunal under Section 53Q of the Competition Act.
3.8 Consumer Criminal Law
As per the Consumer Protection Act, 2019 (CPA), which deals with consumer protection in India:
- offence of false or misleading advertisement prejudicial to the interest of consumers is punishable with imprisonment for a term which may extend up to two years and with a fine of up to INR1 million – each subsequent offence is punishable with imprisonment for a term which may extend to five years, and with a fine which may extend to INR5 million; and
- offence of manufacturing products containing adulterants, for sale or storing, selling or distributing or importing, result in imprisonment ranging from six months to life, in addition to a fine ranging from INR100,000 to INR1 million, depending on the impact/injury it has caused to the consumer. Where the manufactured goods are spurious, the imprisonment would range from one year to life along with a fine which would range from INR300,000 to INR1 million, depending on the impact/injury such action has had on the consumer.
Additionally, prosecution for non-compliance with orders of the central authority under the CPA shall be punished with imprisonment for a term which may extend to six months or with a fine which may extend to 20 lakh rupees (ie, INR2 million), or with both. Action may also be initiated under the provisions of the IPC for offences such as cheating.
3.9 Cybercrimes, Computer Fraud and Protection of Company Secrets
Cybercrimes are dealt with under the IPC as well as under the Information Technology Act, 2000 (“IT Act”). Some of the major offences in the cyberspace are given below.
IPC
Section 4 of the IPC provides for extraterritorial jurisdiction to prosecute any person in any place without and beyond India committing an offence targeting a computer resource located in India. In addition, while the IT Act provides for specific offences targeting computer networks, acts that are not specifically covered under the IT Act can be prosecuted under the IPC. However, for offences that fall within the scope of both the IT Act and the IPC, which have the same ingredients, a charge under the former makes a charge under the latter impermissible.
Hacking and Data Theft
Number of actions ranging from hacking into a computer network, data theft, contaminating computer networks, systems with viruses, causing damage to computer networks, systems, etc, as well as disrupting any computer networks, systems, denying access to authorised persons of computer systems, networks, etc, destroying information residing in computers, tampering/manipulating of computer systems, etc, have been prohibited under the IT Act. The maximum punishment for the above offences is imprisonment for up to three years or a fine of up to INR500,000 or both.
The offence of “theft” of movable property and “mischief” under the IPC will also apply to the theft of any data, online or otherwise. Under the IPC, theft is punishable by imprisonment for up to three years or a fine, or both, while mischief is punishable with imprisonment for up to three months or a fine, or both.
The IT Act also prescribes punishment for dishonestly receiving a stolen computer resource or communication device, which may result in imprisonment of up to three years or a fine of up to INR100,000, or both. The IPC also provides for an identical offence where the fine is uncapped. Sending, by means of a computer resource or a communication device, any information that is grossly offensive or has a menacing material, or any information, knowing that it is false, but for the purpose of causing annoyance, inconvenience, danger, obstruction, insult, injury, criminal intimidation, enmity, hatred or ill will, or issuing an e-mail for the purpose of causing annoyance or inconvenience or to deceive or mislead the addressee or recipient about the origin of such messages, is punishable with imprisonment for a term which may extend to three years as well as a fine.
Fraudulent or dishonest use of the electronic signature, password, or any other unique identification feature of a person is punishable with imprisonment for a term which may extend to three years and fine which may extend to INR100,000. Cheating by impersonation is also an offence under the IPC punishable with imprisonment for a period which may extend to three years, or with a fine, or both. Further, “forgery”, “forgery for the purpose of cheating”, and usage of “forged documents” are also offences under the IPC and the punishment may extend to seven years of imprisonment and a fine.
Where there is a conflict between the provisions of the IT Act and the IPC, the Supreme Court of India has held that the IT Act, being a special statute, shall prevail over the IPC.
3.10 Financial/Trade/Customs Sanctions
The Indian foreign trade/customs laws provide for an export and import control mechanism. However, restrictions are provided on import/export of specified items from specified countries and with certain organisations and individuals/entities associated with such organisations. For some regulated commodities, the quantity of such commodity could also be regulated. Commodities that are listed in the List of Special Chemicals, Organisms, Materials, Equipment, and Technologies (SCOMET List) or other multilateral treaties and arrangements are also controlled and regulated by, and subject to permission from the central government.
Trade sanctions that are imposed on countries or entities are typically on the basis of resolutions passed by the UN, other multilateral international organisations, sanctions, and embargos.
Items restricted to be imported from/exported to identified countries/organisations/entities are typically aligned with United Nations Security Council Resolutions/items specified by other multilateral organisations, such as the International Atomic Energy Agency.
3.11 Concealment
Under the IPC, whoever intends to facilitate, or knowingly causes the facilitation of the commission of an offence punishable with death or imprisonment for life, voluntarily conceals by any means, the existence of a design to commit such offence or makes any representation which they know to be false in respect of such design, shall:
- if the offence be committed, be punished with imprisonment for a term which may extend to seven years;
- if the offence is not committed, with imprisonment for a term which may extend to three years; and
- in either case shall also be liable for a fine.
When the concealment is done with respect to any other offence punishable with imprisonment, such concealment is punishable with imprisonment for a period of one fourth of the longest term of such imprisonment if the offence is committed, and one eighth of the longest term of such imprisonment if the offence is not committed.
The offence of concealment is separate from the predicate offence. However, a person may also face consequences for facilitating or aiding the commission of the predicate offence.
3.12 Aiding and Abetting
In the case of a common intent offence, the IPC applies the principle of joint liability, which means each person is liable as if they did that act alone.
Separately, abetment is constituted by instigating a person to commit an offence, or engaging in a conspiracy to commit the offence, and, pursuant to such conspiracy doing an act or omitting to do an act where it is legally required to do the act, or intentionally aiding a person to commit the offence. When an offence is committed as a result of an abettor’s instigation or assistance, the abettor shall be punished in the same manner as the principal perpetrator.
A conspiracy is committed when two or more persons agree to do an illegal act, or to do an act that is not illegal, by illegal means. A person who is a party to a criminal conspiracy to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for two years or more, shall be punished the same way as if they had abetted the offence. Whereas a person who is a party to a criminal conspiracy other than as punishable above, shall be punished with imprisonment for a term not exceeding six months, or with a fine, or both.
There are certain statutes such as the PCA that also provide for a punishment for abetment of offences committed under the PCA, which include imprisonment for a minimum term of three years, extending up to seven years, along with a fine. The PCA provides for distinct offence of bribing a public servant, punishable with imprisonment for a term which may extend to seven years or with a fine, or both. The PCA, in addition, provides for the offence of abetment, punishable with imprisonment for a term which shall not be less than three years, but which may extend to seven years and shall also be liable for a fine.
3.13 Money Laundering
PMLA is India’s primary legislation dealing with the offence of money laundering. The relevant prosecution agency under PMLA is the ED. PMLA is based on the international anti-money laundering initiative by the Financial Action Task Force. In order to invoke PMLA, ED needs to establish two foundational facts. The foundational facts are (i) that a scheduled offence has been committed, and (ii) that it has resulted in the generation of “proceeds of crime” (PoC). PoC refers to any property which has been derived as a result of the predicate offence.
First, PMLA gets invoked only if an offence mentioned in the schedule to the PMLA – ie, the scheduled offence – has been committed, which includes offences under the IPC, anti-narcotics laws, and anti-terrorism laws and has been recently amended to include evasion of indirect tax as a predicate offence.
The second fact that needs to be established is the existence of any of the prescribed processes or activities under the PMLA connected with the PoC. The test here is that the property should have been derived as a result of the criminal activity relating to a scheduled offence. The process or activity can be in any form, be it one of concealment, possession, acquisition, use of PoC, or claiming it to be untainted property. Any involvement in even one of these process or activities connected with PoC would constitute money laundering.
In the event that the person named in the criminal activity relating to a scheduled offence is finally discharged, acquitted by a court of competent jurisdiction, or if the scheduled offence is quashed, then PMLA prosecution falls away. The offence of money laundering is considered to be a continuing offence, the cause of action for which renews with every day of the possession of PoC. The offence of money laundering is not dependent on or linked to the date on which the scheduled offence or the predicate offence has been committed. The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime.
The PMLA casts a reporting obligation on notified entities to:
- verify the identity of its clients and the beneficial owner before entering into a financial transaction;
- maintain records of a financial transaction executed on behalf of its clients and their identity, for a period of five years; and
- retain the obligation of furnishing information to the Financial Intelligence Unit.
The ED may impose a monetary penalty on such reporting entity for failure to meet its obligation under PMLA, which shall not be less than INR10,000 but may extend to 1 lakh rupees (INR100,000) for each failure. For details on prosecution and enforcement authorities, refer to 2.6 Prosecution.
4.1 Defences
A strong defence strategy in a criminal offence has two hallmarks:
- version of facts to be pleaded needs to be plausible; and
- version of facts is backed by credible and admissible evidence.
During a trial, an accused person has a chance to establish their defence against the charges brought by the prosecution, including by cross-examining witnesses and bringing witnesses of their own.
The burden of proof must be discharged beyond all reasonable doubt in criminal prosecutions. The onus of proof rests on the prosecution. Even in cases where there is reverse burden of proof such as the PMLA, the prosecution still needs to prove the foundational facts before triggering the reversal of burden of proof on the accused.
Another defence available to accused persons is that of assailing the chain of custody or deviation from due process as provided under the IPC and the CrPC. The two statutes have ample safeguards and provisions supervising the procedure for seizure of case-related property and articles.
As mentioned, in cases under the PCA, it is a valid defence for a commercial organisation against vicarious liability if the company proves that it had in place adequate procedures, as prescribed, to prevent persons associated with it from undertaking such conduct.
A similar defence is also provided for vicarious liability prosecution where, in addition to showing that a person was not in charge or responsible for the contravention, an accused person will not be liable to punishment if he/she proves that the contravention took place without his/her knowledge or that he/she exercised due diligence to prevent such contravention.
4.2 Exceptions
While there are no de minimis exceptions for white-collar offences, certain statutes start reporting obligations and liability over a certain amount (eg, reporting under tax laws and PMLA – similarly, any gift received by a “public servant” below INR5,000 is not considered a bribe under PCA).
The IPC statutorily prescribes general exceptions, which are the defences provided to the accused that exculpate criminal liability. In other words, there are some exceptions provided under the IPC, such as the right to private defence, which can make an act or omission a non-contravention, or a lower degree contravention, on account of the actions falling within the exceptions.
Under Indian law, acts or omissions by children, or a person of unsound mind, or committed by a person justified by law, or committed under the influence of intoxication, or committed by a person in good faith, or acts committed by a person under threat or duress are generally either exempt from prosecution or prosecuted to a lesser degree than what the offence would have otherwise attracted. However, the burden of proof for availing benefit of the exception is high and inferences will be drawn from the overall facts and circumstances of the case and the credible evidence presented by the accused person to show that such mitigating factors and influences existed.
4.3 Co-operation, Self-Disclosure and Leniency
Every person is mandated under law to co-operate with the relevant investigation agencies in matters of inquiry/investigation. This includes providing the requisitioned materials/information/documents as sought by the investigation agencies during the course of inquiry/investigation, and appearance before the relevant investigation officer when summoned either to provide any information/materials/documents or to record a statement.
There is also a legal duty to furnish correct and accurate information to the investigation officer when called upon to do so. It is punishable under law to fail to provide relevant information/materials/documents or to provide false information. The aforesaid rule is, however, subject to the constitutional right against self-incrimination. Further, except for certain offences listed under Section 39 of the CrPC, or any other law, calling for active disclosure, there is no general duty to disclose the commission of an offence.
In the event that an accused person pleads guilty to an offence during or before commencement of trial, the courts have discretion to take a lenient view while sentencing them. However, while exercising this discretion, the court cannot award a sentence, which is lower than the minimum sentence prescribed for such offence. This is, however, subject to plea bargains. Refer to 2.8 Plea Agreements.
Additionally, with a view to obtaining evidence of any person supposed to have been directly or indirectly concerned in, or privy to, an offence, the court at any stage of inquiry or trial may grant pardon to such person on the condition of their making a full and true disclosure of the circumstances within their knowledge with respect to the offence in question, whether as a principal or abettor of such offence. However, the aforesaid power of the court is applicable only to grave and serious offences, which prescribe minimum punishment of seven years or more.
4.4 Whistle-Blower Protection
The government of India, in May 2014, notified the Whistle Blowers Protection Act to establish a mechanism for receiving complaints relating to disclosure on allegations of corruption or wilful misuse of power by public servants and to further provide adequate safeguards against victimisation. However, the Act is yet to be operationalised.
One of the drawbacks of the Act is that it does not cover corporate whistle-blowers. Apart from the above, there are certain other voluntary mechanisms in India to deal with whistle-blowing. The SEBI Act mandates that every listed company must have a whistle-blower policy in place. Moreover, SEBI has also introduced a reward mechanism from 2019 onwards to encourage employees of listed companies to come forward with their concerns.
In 2020, the Ministry of Corporate Affairs implemented a new format for conducting statutory audits of companies, known as the Company Auditors Report Order, 2020, and has been made applicable for audits beginning from financial year 2021–2022. A salient feature of this order is that the auditor of the company will now be obligated to generate reports regarding whistle-blower complaints filed against the company during the said financial year.
The Companies Act also creates an obligation on auditors to report fraud in the company they are auditing. Failure to do so shall render such auditor not to be eligible to be appointed as an auditor of any company for a period of five years from the date of passing of the order and the auditor shall also be liable for such action for fraud under Section 447 of the Companies Act.
5.1 Burden of Proof
According to Indian criminal law, the doctrine of “innocence until proven guilty” is well recognised. Unless a statute specifically provides for reversing the onus of proof, the burden of proof will always rest with the prosecution, which must prove its case “beyond reasonable doubt” against each accused person.
A reverse onus clause is prescribed under certain special statutes, including the PMLA and IT Act wherein there is a presumption of guilt against a person charged for the specialised offence and it is up to the accused person to prove their innocence. The constitutionality of reversing the burden of proof has only been upheld in India in the most extreme cases, such as terrorism, organised crimes, drug offences, and sexual violence against children. However, even in such a case, the prosecution has to prove that the foundational facts are established before the reverse onus is triggered.
5.2 Assessment of Penalties
There is no formal sentencing policy in India. Consequently, there is a wide discretion with courts in matters concerning the sentencing of the accused, subject to prescription of a minimum punishment. Penalty upon conviction can take two forms, namely imprisonment and/or a fine.
A number of broad guidelines have been outlined by the Supreme Court with respect to the award of sentences to accused persons or penalties to be imposed. As per these, while awarding sentences, courts must consider the principle of proportionality and deterrence.
Courts may impose a fine as an alternative for imprisonment or can add it to the imprisonment. For certain offences, statutes stipulate the maximum quantum of fines that may be imposed by the court. However, when the sum is not expressed under the statute, the quantum of the fine for which the offender is liable is unlimited, though the guiding principle here is that fines shall not be excessive.
In determining the quantum of fines in cases in which the relevant statute does not specify the amount, the court will generally look at the severity of the offence, the extent of the victim’s loss or damage, and the capacity of the perpetrator to pay the fine.
While there is no concept of deferred prosecution agreement and non-prosecution agreement in India, plea bargaining is available in India for certain offences. As stated, in cases where plea bargaining has been allowed, upon hearing the parties, if the court finds that minimum punishment for the offence committed by the accused has been provided by law, it may impose either half or one fourth of such minimum punishment. Generally, the sentence for any offence is awarded subsequent to the pronouncement of the judgment convicting an accused, by the same court itself, after hearing the accused at a sentencing hearing. Such hearing entails consideration of various factors as the authors have highlighted, and the term of the sentence and the fine (if applicable) are passed accordingly.
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