The Asthana Judgment and the Puzzle of Section 17-A, PC Act

A few weeks ago, a Single Judge Bench of the Delhi High Court dismissed the petitions filed by Mr. Rakesh Asthana and others, seeking to quash the criminal investigations initiated against them by registration of a First Information Report [FIR] under provisions of the Indian Penal Code 1860 [IPC] and the Prevention of Corruption Act 1988 [PC Act] [See, Devender Kumar v. CBI, WP (Crl.) 3247 of 2018, decided on 11.01.2019]. The allegations, briefly, were that the concerned officers were extorting the complainant into paying them huge sums of money to close investigations being run by the CBI. It took the complainant almost a year after the first alleged incident of extortion to register a complaint with the CBI, which then lodged an FIR against the concerned CBI officers. 

The Section 17-A Issue

The High Court judgment dismissing the petitions discusses several arguments, but the focal point of attack for the CBI officers was a lack of sanction under the new Section 17-A of the PC Act, that was inserted in 2018. This Blog has discussed Section 17-A in depth earlier, and for convenience the text of the provision is copied below (the judgment copies the incorrect provision, amazingly):

(1) No police officer shall conduct any enquiry or inquiry or investigation into any offence alleged to have been committed by a public servant under this Act, where the alleged offence is relatable to any recommendation made or decision taken by such public servant in discharge of his official functions or duties, without the previous approval [relevant authorities mentioned] 

... 

Provided that no such approval shall be necessary for cases involving arrest of a person on the spot on the charge of accepting or attempting to accept any undue advantage for himself or for any other person: 

Provided further that the concerned authority shall convey its decision under this section within a period of three months, which may, for reasons to be recorded in writing by such authority, be extended by a further period of one month. [Emphasis supplied]

Briefly, the point to be noted is that Section 17-A applies to investigations. This is different from the existing provisions in Indian law that require police to obtain sanction before prosecuting public servants.

The High Court's View on Section 17-A
In dismissing the petitions, the High Court naturally held that there was no need for prior sanction to register the FIR. How did it come this conclusion? The analysis is distilled in Paragraph 36 onwards, and I have shortened them to two broad points:

• One, Section 17-A is only designed to protect bona fide decisions. If the act is "ex-facie criminal or constitutes an offence" prior approval is unnecessary. The alleged acts — extortion and threatening persons — cannot be in "discharge of official functions or duties of the public servant" and so no sanction is needed. 
• Section 17-A is not attracted as this case involves "no recommendation or decision on record by a public servant in the discharge of his official functions" [Emphasis mine].

There is other rhetoric as well, on the lines of speedy investigations being in the best interests of all and that the law does not defer to personalities, but these are the broad legal reasons for the High Court's view. The first point is an old one and sourced from the existing law on sanction to prosecute, where the Supreme Court has restricted sought to eliminate any need for sanction where acts are per se a crime, such as entering into a conspiracy. The second point, though, is new, and an ingenious take on the text of Section 17-A PC Act. While the section mentions nothing about decisions "on record", the Court has introduced that to exclude this case from the need for sanction.

A Critique of the High Court View

The thrust of the Delhi High Court decision is to interpret Section 17-A as a safeguard for the good officer. In the words of the Court, the purpose of sanction "can be read to be only to provide protection to officers who discharge their official functions and / or duties with diligence, fairly, in an unbiased manner and to the best of their ability and judgment, without any motive for their personal advantage or favour." 

This approach has held the judiciary in good stead in cases involving sanction to prosecute officers for several decades, but is not without faults. The most natural one being that this involves placing the cart before the horse: the judiciary ends up judging whether the act was bona fide or not at the outset, whereas that job is for the sanctioning authority. 

This logical problem is greatly accentuated in the case of Section 17-A of the PC Act, which triggers at the stage of investigation itself. After all, this is the first step in the case, and it is impossible for the allegations to be concrete as the FIR is not the outcome of a thorough investigation. Moreover, the language of Section 17-A is very loose — it seeks to not only protect the decision, but also acts that are relatable to it. 

In focusing on a bona fide decision, is the judgment not giving a simple way out of Section 17-A sanction by telling us that complaints should be framed so as to avoid any mention of official decisions? It is impossible to apply the bona fide decision test with any sense of objectivity. If we keep going down this road, what Section 17-A will be reduced to is the judiciary vetting every FIR, in addition to the vetting by the executive branch that the provision originally contemplated.

This then brings me to the second point, of requiring decisions on be "on record" for Section 17-A to apply. As ingenious as the solution may be, the fact is that these words are not there in Section 17-A and thus amount to the court re-writing the statute. This re-writing is usually impermissible unless the law has a gap or a clear and obvious error. Both seem to not apply here, which make this ground a rather weak one.

Conclusion: The Puzzle of Section 17-A 

The Delhi High Court's decision in Devender Kumar offers one of the few judicial engagements of Section 17-A currently available and deserves to be discussed widely. At its heart, the Delhi High Court is driven by the idea that Section 17-A is driven to protect bona fide decisions in the same way as the existing law did. But in extending the protection of sanction from prosecution to investigation, it becomes very difficult for courts to actually figure out when decisions are good or bad. This makes it equally difficult to accept the High Court's view of the purpose behind Section 17-A. Rather, one would argue that the purpose is exactly to confer a blanket protection to public servants, except if they are caught red-handed. This is perhaps why the expedited sanction of three months is provided for as well. This blanket view will also take away the need for courts to review each case to decide if sanction is needed or not. It will be fascinating to see how different courts perceive the issue going forward, and also to see how many courts engage with the other ground of Devender Kumar of only applying Section 17-A to recorded decisions. 

Amendments to the Prevention of Corruption Act: Attachment and Forfeiture

The 2018 amendments to the Prevention of Corruption Act [PC Act] promise to bring major changes to how corruption offences will be prosecuted in India. The previous posts discussed the creation of a new offence under Section 8 for giving bribes, reforms to corporate liability under the PC through a new Section 9, and major changes to how the regime prosecutes public servants. In this post, I take up the insertion of a new chapter to the PC Act, which will make it possible for law enforcement to target the unlawful gains allegedly made from corrupt conduct. Since this is the last post in this stock-taking exercise, some general observations follow the more specific discussion.

Attachment and Forfeiture: The Text and the 1944 Ordinance

The 2018 amendments have added Chapter IV-A to the PC Act titled "Attachment and Forfeiture of Property". The idea being that persons should not be allowed to profit from corrupt acts, making it necessary for law enforcement to have powers to recover all the tainted assets one procured through PC Act offences. The new Chapter IV-A contains only one provision, Section 18-A, which says:

Section 18-A.(1) Save as otherwise provided under the Prevention of Money Laundering Act, 2002, the provisions of the Criminal Law Amendment Ordinance, 1944 shall, as far as may be, apply to the attachment, administration of attached property and execution of order of attachment or confiscation of money or property procured by means of an offence under this Act. 

(2) For purposes of this Act, the provisions of the Criminal Law Amendment Ordinance, 1944 shall have effect, subject to the modification that the references to "District Judge" shall be construed as references to "Special Judge".

As this straightforward provision suggests, all that Section 18-A does is to apply the Criminal Law Amendment Ordinance, 1944 [1944 Ordinance] to "attachment, administration of attached property and execution of order of attachment or confiscation of money or property" which is the result of PC Act offences. So the procedure under the 1944 Ordinance will be used to govern how the government goes after fruits of corrupt acts. What is this 1944 Ordinance? It was part of a wave of anticorruption measures introduced by an irked British Raj at a time when black-marketing and petty corruption were rife during the times of World War II. It mainly sought to recover money / property that persons gained by cheating Her Majesty's government or misappropriating such property. These were not the only kinds of criminal conduct imagined, and a Schedule to the 1944 Ordinance states the offences to which the procedure applies. Since existing criminal procedures did not clearly envisage this kind of action, the colonial regime fashioned a new process to allow for this recovery. Due to some judicial gymnastics by the Indian Supreme Court [discussed previously on this Blog], a colonial Ordinance (not statute) remains valid in independent India and for several years was the main legal basis for any attempts by the Indian government to seize criminal gains.

The broad outlines of that process are as follows. The process is triggered by law enforcement filing an application, which can be filed even before any criminal case is filed in court [Section 3, 1944 Ordinance]. This is filed before a "District Judge", who has powers to attach the allegedly tainted assets, or an amount equal to the criminal gains made, in the manner prescribed under the Civil Procedure Code 1908 [Section 3, 1944 Ordinance]. The attachment order can be made without hearing the accused if the District Judge is convinced there is some merit in the allegations [Section 4, 1944 Ordinance]. But for such an interim order to be made absolute, a chance to be heard must be given, not only to the accused but to other persons interested in the property too [Section 5, 1944 Ordinance]. If the District Judge is convinced that the application was bogus, she can revoke the order, but if she doesn't then the order will continue to run [Section 5, 1944 Ordinance]. For attachment - a temporary arrangement - to result in transfer of property / money, a criminal case must be filed and end in a conviction [Sections 10 and 13, 1944 Ordinance].               

The Problems with Chapter IV-A

Should persons convicted of corruption be permitted to benefit from their corruptly obtained gains? Arguably not. But, that is only the start of the matter. In this part, I argue that Chapter IV-A is hardly free of problems. The procedure applies to money or property procured by means of an offence. But procured is not defined anywhere. How would it work for public servants? Would "procure" target only the immediate gains made by the corrupt public servant in the form of bribes, or could it apply to the offence of being found in possession of assets disproportionate to your salary? And what about private persons. If the government alleges I bribed my way to get a government license, would this provision enable a seizure of my entire business built on that basis? The choice of having "procure" in Section 18-A stems from the fact that it is part of the language under the 1944 Ordinance. Which brings me to the other, broader aspects of problems with Chapter IV-A. The first of these is a problem of sheer redundancy. As mentioned above, the 1944 Ordinance has a Schedule which details the different offences to which this procedure applies. Item 4-A of that Schedule states that the Ordinance already applied to cases under the PC Act. So what was the need for Section 18-A in the 2018 amendments? Frankly, I haven't the faintest idea. There is then the issue of perpetuating the 1944 Ordinance itself: a procedure that is, in fact, the subject of pending legal challenges before the Supreme Court. I find it difficult to accept that India's Parliament still cannot come up with a new statutory process on the subject and is forced to retain a colonial era ordinance, passed during an emergency, based on arguably tenuous judicial reasoning? 

What makes the decision to retain the 1944 Ordinance for PC Act cases all the more puzzling is the proliferation of attachment and forfeiture provisions across recent statutes. Successive governments have become more enchanted with having these powers to enforce laws. Today, similar provisions are part of the Narcotics, Drugs and Psychotropic Substances Act 1985, Prevention of Money Laundering Act 2002, Benami Transactions (Prohibition) Act 1988 (since 2016), Lokpal and Lokayuktas Act 2014, and most recently the Fugitive Economic Offenders Ordinance 2018. Multiplication of such laws means each statute creates a new authority that will hear such cases before which the concerned law enforcement agency must file a claim. This only adds to the confusion, since it is common for a criminal transaction to be prosecuted under different statutes. Why not streamline the entire process and let one authority blossom from that muck, to consider all cases where the government seeks attachment and forfeiture of allegedly criminal gains? Not only does it help reduce government expenditure in creating and staffing more tribunals and bodies, but it will also help reduce potential conflicts of jurisdiction, and of conflicting legal interpretations coming about. Of course, a single authority will make life a lot easier for the accused persons as well.

Conclusions and Summing Up: New Act, Old Problems

These four posts have managed to take stock of the various key features of the 2018 amendments to the PC Act. What does one make of the changes which will soon become law? Media outlets have broadly been discussing whether or not the bribe-giving offence makes sense, and whether the PC Act now stands diluted in respect of cases against public servants. I think those questions have been answered to some degree through the posts. The bribe-giving offence makes sense, but the benevolent exceptions carry far too many loopholes to be effectively implemented without judicial support. The provisions of the PC Act have certainly been diluted - supposedly to protect honest officers - and this dilution is not as serious if we look at the offences, but more so when we look at the new provisions on getting prior sanctions. In addition to these issues, I also discussed the new regime on corporate criminal liability, which I am surprised has not been the subject of greater attention in the media yet.

But all this is what the new statutory regime is going to be on paper. None of which redresses what is a bigger set of problems with anticorruption measures in India: shoddy enforcement. I have talked about this before on this Blog and I apologise for being repetitive, but at the end of the day all these changes will end up as little more than political brownie points unless serious consideration is given on improving enforcement of the law. Can we really expect major changes to the scene if India's main anticorruption agencies - the CBI and the ED - remain subservient to vested political interests? Can we imagine the government winning cases in court if prosecutors have minimal resources, are poorly paid, grossly overworked, and rarely continue with a case from start to finish? Bringing about those changes requires more than printing new copies of statutes. It requires considerable political effort to generate consensus and then invest serious resources in reforming the legal process. But this is effort that no government is willing to bear as it does not translate into guaranteed political gains. If the new PC Act regime continues to operate without any changes on that structural level, the new legislation will continue to be plagued by some very old problems.

Amendments to the Prevention of Corruption Act: Prosecuting Public Servants

The previous posts on this Blog discussed two new additions brought by the 2018 amendments to the Prevention of Corruption Act, 1988 [PC Act], namely a standalone offence punishing bribe givers, and a foundational change in how corporations can be prosecuted on corruption charges. In this post, I discuss changes made by the amendments that affect the traditional concern of Indian anticorruption legislation: prosecuting corrupt public servants.

The Existing Regime

Before moving on to the changes, it is worthwhile to spend a minute on the existing regime. The PC Act carried two main provisions to combat corruption: Sections 7 and 13. To avoid getting entangled in the technicalities, let's take a simpler version of how they worked, focusing only on the more important parts. There was Section 13(1)(e), which punished public servants caught in possession of assets disproportionate to their income. And then there was the muddling overlap between Sections 7 and 13(1)(d). The former targeted public servants accepting / obtaining anything beyond their salary (cash / property etc.) to do their job. Section 13(1)(d) only targeted them obtaining things, by corrupt means or abusing their position as a public official. The differences, then, were two: (i) according to several court decisions, Section 13(1)(d) needed a demand by public servants, and (ii) Section 13(1)(d) did not need the illegal transaction to revolve around performance of public functions. Totally different from this conundrum was the problem of Section 13(1)(d)(iii), which courts read as not requiring any demand or public function. It was seen as a strict liability offence, whose requirements were met as long as the public servant got any "valuable thing or pecuniary advantage" for another person without any public interest. 

2018 Amendments to Substantive Law: The Text

Very little of that existing regime has been left in place by the 2018 amendments. Section 13(1)(d)(iii) no longer exists. The rest of Section 13(1)(d) has been merged with Section 7 to form one composite offence. The new Section 13 only carries two offences - the erstwhile Sections 13(1)(c) and 13(1)(e). Since the bulk of changes are codified in the new Section 7, let's focus on that:

Section 7. Any public servant who, - 

(a) obtains or accepts or attempts to obtain from any person, an undue advantage, with the intention to perform or cause performance of any public duty improperly or dishonestly or to forbear or cause forbearance to perform such duty either by himself or by another public servant; or 

(b) [ditto], as a reward for the improper or dishonest performance of a public duty or for forbearing to perform such duty either by himself or by another public servant; or 

(c) performs or induces another perform to perform improperly or dishonestly a public duty or to forbear performance of such duty in anticipation of or in consequence of accepting an undue advantage from any person, 

shall be punishable, with imprisonment ... not less than three years but which may extend to seven years ... 

Explanation 1. - ... obtaining, accepting, or attempting to obtain an undue advantage shall itself constitute an offence even if the performance of a public duty by public servant, is not or has not been improper.

...

Explanation 2. - ... (i) the expressions "obtains" or "accepts" or "attempts to obtain" shall cover cases where a [public servant], obtains or accepts or attempts to obtain, any undue advantage for himself or for another person, by abusing his position as a public servant, or by using his personal influence over another public servant; or by any other corrupt or illegal means; ... 

I spoke earlier of overlaps between Sections 7 and 13(1)(d) in the PC Act. The legislature has chosen to resolve that issue by deleting half of Section 13(1)(d), and clubbing those parts with the scope of Section 7. This has been done through Explanation 2 to Section 7, which carries forward large chunks of the old Section 13(1)(d) PC Act. What, then, is the conduct prohibited by Section 7 after the amendments? It punishes three kinds of transactions between public servants and others involving an "undue advantage" changing hands / about to change hands:

• Section 7(a) requires that the exchange be accompanied by the public servant intending to perform / cause performance /forbear performance of a public duty either improperly or dishonestly, be it her duty or that of another public servant;      
• Section 7(b) requires that the exchange to be as reward for improper or dishonest performance / forbear performance of a public duty in the past by a public servant;
• Section 7(c) requires the improper or dishonest performance / forbearance of public duty, or inducing such conduct in another public servant, in anticipation or in consequence of accepting an undue advantage.

Substantive Amendments: Hits and Misses

The deletion of Section 13(1)(d)(iii) from the PC Act marks the end of a long saga of a fight between the bureaucracy and the government. Ever since 2010, when the Delhi High Court ruled that the offence did not require proof of any associated mental state, it became possible to prosecute public servants simply for making a bad decision. For instance, if an official in a Public Sector Bank grants a loan to X, who then defaults, technically the public servant obtained a valuable thing or pecuniary advantage for another person without any public interest. Although the Delhi High Court's decision incorporated safeguards against such a broad reading, the bureaucrats were not convinced, and had been lobbying for change. The 2018 amendments mark their victory.

Creating a broad corruption offence and reducing overlaps and resulting confusion between Sections 7 and 13(1)(d) is a good idea. But unfortunately, it suffers from poor execution, as the new Section 7 is still plagued by unnecessarily confusing text, as I illustrate below. 

• First, the confusion with 7(c). It targets two kinds of scenarios: (i) a public servant does her job dishonestly / improperly expecting to get an undue advantage for doing so, (ii) a public servant does her job dishonestly / improperly having accepted an undue advantage for doing so. Scenario (i) can easily be described as the public servant being rewarded for doing her job dishonestly / improperly - which is exactly what Section 7(b) targets. Scenario (ii) can be seen as a public servant intentionally accepting an undue advantage to do her job dishonestly / improperly - which is part of what Section 7(a) covers. Thus, arguably Section 7(c) is not really covering any extra ground. 
• Second, consider Explanation 1, which effectively says that the Section 7 offence is complete as long as a public servant gets an undue advantage, without a need for improper performance of duty. But we already knew this, since Section 7 uses the words improperly or dishonestly to describe the conduct of public servants. Why add an unnecessary explanation? 
• Lastly, consider Explanation 2(i), which makes explicit the links between the new Section 7 and the old Section 13(1)(d). Perhaps this is useful to make it clear to the police and courts that this offence also deals with what the old Section 13(1)(d) covered. But, this is simply not the case. Even though some language is carried forward, the old Section 13(1)(d) does not survive. I say this, because all that the old offence required was a public servant obtaining an undue advantage without any need to draw links between this transaction and the performance of a public duty. Basically, it criminalised a public servant extorting persons into giving bribes. But all three clauses in Section 7 hinge around the performance of a public duty, besides exchange of an undue advantage. Ultimately, Explanation 2(i) is unnecessary: since the means by which a public servant obtains the undue advantage are irrelevant for the offence, why talk about it?      

2018 Amendments to Procedural Law  

Section 19 of the PC Act creates a need for prior sanction to prosecute public servants on corruption charges; i.e., prior government approval before judicial proceedings can begin. This provision has a cousin in the general law on criminal procedure - Section 197 of the Criminal Procedure Code 1973 [Cr.P.C.]. There used to be two points of difference between these provisions. First, Section 19 PC Act only applied to active public servants, while Section 197 Cr.P.C. covered both active and retired public servants. Second, Section 19 PC Act applied in almost all cases under that law, while Section 197 Cr.P.C. applied to all kinds of cases, but only if the allegations concerned acts / omissions of the public servant in discharge / purported discharge of official duties [for a discussion of the judicial treatment of this test, see here]. The 2018 amendments to Section 19 PC Act have eliminated the first distinction; now sanction to prosecute cases under the PC Act will also apply to public servants employed "at the time of commission of the alleged offence". Section 19 PC Act will now also carry different rules on sanction in cases that are not instituted by law enforcement, giving public servants more opportunities to stop proceedings at the outset. While the amendments codify Supreme Court directions for a 3 month time-limit on sanction, there is no rule that failure to comply with that limit will result in sanction being deemed to have been granted.      

Far more significant than this expansion, though, is the insertion of Section 17-A into the PC Act. This provides that investigations regarding "any recommendation made or decision taken by [a] public servant in discharge of his official functions or duties" also need prior government sanction. Thus, police cannot even start corruption investigations without prior approval, a process that can take up to three months, although there is an exception for cases where a public servant is caught red-handed while obtaining / accepting an undue advantage [Provisos to Section 17-A]. Note, though, that while Section 17-A applies to PC Act offences, its structure is akin to Section 197 Cr.P.C. - prior sanction is needed only if allegations concern any recommendation / decision in discharge of official functions or duties. 

Section 17-A And Sanction: Old Wine in New Bottles

While prior sanction for investigations are not as common as prior sanction for prosecution, there is a legacy of laws protecting public servants against investigations too. The most famous being Section 6-A of the Delhi Special Police Establishment Act, 1946 [DSPE], which only shielded senior bureaucrats in cases pursued by the CBI, and was struck down as unconstitutional in 2014 primarily because of this selectivity in scope. In the years since, there have been selective attempts to revive that protection, most recently in the State of Rajasthan. Section 17-A marks a re-introduction of such protections at the federal level, this time without any rank-based logic. Though one suspects that it will be more common for this protections to be claimed in allegations against senior bureaucrats who occupy decision-making roles.

Are such protections for public servants legal? The Supreme Court considered the constitutionality of Section 197 Cr.P.C. in 1956, when one Matajog Dobey argued that this violated the equal protection clause of Article 14. Why, Dobey argued, should public servants not be taken to court like the rest of us? The Court disagreed, finding merit in the colonial logic that public servants needed this rule to protect them against vexatious litigation. As I mentioned above, the Supreme Court took up the issue of requiring prior sanctions for investigations in 2014 when it considered the legality of Section 6-A of the DSPE Act. But it did not rule that such protections from investigations were bad per se, and instead chose to tackle the arbitrariness of only protecting certain kinds of public servants and not the entire set. That is where the law stands today: public servants are certainly in a different class, but the extent of their privileges remains unsettled.

While discussing amendments passed by the State of Rajasthan in 2017 here, which introduced very similar rules for that state, I suggested that this temerity of the Supreme Court might render it difficult for any court to now turn around and say that requiring prior sanction for investigation, when applied to all public servants, is unconstitutional. In that post, I also described how, rather than condemn the idea of sanction outright, the judiciary used the "official duties" language in Section 197 Cr.P.C. to regulate what kinds of conduct could require prior sanction (An entire monograph can be dedicated to the unprincipled way in which it has done this). Since 1997, when the judiciary went beyond mere regulation to hold an earlier avatar of Section 6-A of the DSPE was unconstitutional, there has been a constant tussle between judiciary and executive. Courts would nullify protections from investigations, only for governments to reinstate it in new ways. Section 17-A appears to be the central government's response to the judicial nullification of Section 6-A of the DSPE Act. I suspect that the cyclical trend will send the ball back to the judiciary, as the legality of Section 17-A will certainly be challenged before the Supreme Court. Once and for all, the Court can then set the record straight and tell us what it thinks about laws shielding public servants from investigations, putting them truly in a class of their own above the rest of us plebeians.  

Conclusions and Next Post

As this post discussed, not only do the 2018 amendments to the PC Act introduce brand new areas to the law, they also make substantial changes to the core concern of Indian anticorruption legislation: the prosecution of corrupt public servants. By streamlining the substantive offences, the amendments have taken a step in the right direction. Sadly, these progressive steps suffer from familiar flaws in terms of poor legal drafting. But equally important, if not more, are the changes brought about to the law on requiring prior sanctions to prosecute public servants for corruption. Not only have existing shields against prosecutions been fortified, but an entirely new protection against investigations has been introduced. This provision cements just how big a shift has been made from the old regime: not only did is Section 13(1)(d)(iii) deleted from the PC Act, but conduct which was earlier a basis for prosecution is now the subject of additional protections through the amendments. Perhaps because of this, it is difficult to avoid a sense that the PC Act will now carry lesser bite while going after public servants. In the next and final post of this series, I will look at the addition of a forfeiture regime to the PC Act, an area where more bite has seemingly been added to the law. 

Amendments to the Prevention of Corruption Act: Corporate Criminality

The previous post discussed amendments to Section 8 of the Prevention of Corruption Act, 1988 [PC Act], which will now punish giving bribes as a standalone offence rather than a case of abetting bribe taking by the public servant. The post did not discuss one proviso that the amended Section 8(1) carries: providing that when an offence under Section 8 is committed by a "commercial organisation", it is punishable by fines. This is my gateway to discuss the new regime on corporate criminal liability that the PC Act will introduce, the fulcrum of which is amended Sections 9 and 10. This second post in the series focuses on what this new regime is, and its potential positives and pitfalls. 

Prosecuting Corporate Corruption: The New Text 

Before moving to the text, let's take a step back and cover some basics on the criminal liability of commercial organisations [called "corporation" hereafter]. Corporations are purely legal creatures, so to hold them criminally responsible we need to use the conduct and mental state of some humans. So far so good. But which humans are to be considered? Some jurisdictions, like the U.K., recognise a narrow basis for affixing liability to corporations. Commonly called the "alter-ego" or "directing-mind" theory, under this rule only the acts of humans in management roles or other decision-making capacities can be the basis for imputing liability to corporations. Contrary to this, other jurisdictions - most prominently the United States, adopt a much broader rule where the conduct of any employee can be imputed to a corporation, as long as this resulted in some benefit to the corporate entity.

When the Indian Supreme Court recognised criminal liability for corporations it chose to follow the U.K. model and adopted a narrow basis of liability. Because of this, corporate prosecutions in India needed allegations against management-level persons for the case against a corporation to stick. In what is a seismic shift, the legislature has marked a break away from this position for corruption offences in the recent amendments. India will now follow a model more akin to the U.S., potentially making it much easier to prosecute corporations. Let's turn to the text:

Section 9. (1) Where an offence under this Act has been committed by a commercial organisation, such organisation shall be punishable with fine, if any person associated with such commercial organisations gives or promises to give any undue advantage to a public servant intending -  

(a) to obtain or retain business for such commercial organisation; or 

(b) to obtain or retain an advantage in the conduct of business for such commercial organisation: 

Provided that it shall be a defence for the commercial organisation to prove that it had in place adequate procedures in compliance of such guidelines as may be prescribed to prevent persons associated with it from undertaking such conduct [to be created under Section 9(5) read with Section 29A].

Some further points of interest:

• While "an offence under this Act" indicates this regime applies to all offences under the PC Act, Section 9(2) clarifies that it is unnecessary for the human to be prosecuted under Section 8 for the Section 9(1) offence to stick against a corporation. 

• Section 9(3) explains various terms, such as "commercial organisation" [Section 9(3)(a)], "business" [Section 9(3)(b)], and "person associated ..." [Section 9(3)(c)].

• A person is "associated" with the corporation if she performs "services for on or behalf" of the corporation, which shall be determined by looking at all the relevant facts and not merely the nature of relationship between the two [Section 9(3)(c), Explanation 2]. 

• The "person associated" need not be an employee, and can equally be an "agent or subsidiary" of the corporation [Section 9(3)(c), Explanation 1]. 

• Lastly, if the "person associated" is an employee, it is presumed that she performed "services for or on behalf of" the corporation [Section 9(3)(c), Explanation 3].    

Before moving on, note that Section 9 is not the only relevant provision in context of corporate crime. Section 10 goes after management level officers after Section 9 cases are proved in court:

Section 10. Where an offence under Section 9 is committed by a commercial organisation, and such offence is proved in the court to have been committed with the consent or connivance of any director, manager, secretary or other officer ... such [person] shall be guilty of the offence and shall be liable to be proceeded against and shall be punishable with imprisonment for a term which shall not be less than three years but which may extend to seven years.

The Promises and Pitfalls of Reform
A directing-mind test can prove too limiting in a corporate context where decision-making authority is increasingly decentralised. Not only this, it also offers an easy escape hatch to avoid corporate liability by concentrating focus on a select corps of officers. Recognising both of these problems, many jurisdictions - even the U.K. - moved away from the rule in the corruption context. The 2010 U.K. Bribery Act carries a "Failure to Prevent Bribery" offence under Section 7, which seems to have inspired our legislature the most. More recently, Argentina and Malaysia both took radical steps to move away from a directing-mind approach for corruption cases, to impute corporate liability based on acts of any employee. In finally shedding the alter-ego in Section 9, the Indian statutory regime better reflects the realities of the modern corporate context and offers a potentially more robust tool to prevent and prosecute corporate corruption in the country.

The shift to a broader basis of liability carries a downside: law enforcement agencies get extremely powerful tools to regulate corporate conduct which can be misused. By making offences cognizable and empowering police to arrest "persons associated" with corporations, the problem becomes more stark. Naturally, then, we need some corresponding protections for corporations to protect against abuse and ensure a degree of fairness in legal enforcement. The global norm seems to be having protections for corporations that install adequate compliance procedures. The U.K., Argentinian, and Malaysian examples mentioned above all have such provisions. The new Indian amendments also provide corporations this kind of protection in the proviso to Section 9(1), as extracted above.

But there is a catch. Having a defence at a criminal trial is not a protection against prosecution, and the difference can be huge in the corporate context. Installing adequate compliance procedures is a cost, and the bigger the corporation, the higher that cost is bound to be. For the corporation to make these expenditures, it needs incentives to do so. Since potential prosecutions for management level personnel under Section 10 have been pegged to the corporate crime under Section 9, there is certainly some incentive to install adequate compliance regimes. But is that enough? I would argue that it isn't. Effectively, the law is telling corporations to spend the money, but that more money will still have to be spent in facing a criminal trial for years, where eventually it can plead innocence by pointing to compliance procedures.

Nobody, especially corporations whose reputation carries considerable financial value, want to go to court and have their name dragged through mud. Which is why globally, it is more common for the legal system to reward those corporations with adequate compliance regimes by helping them avoid prosecutions altogether. They do not get a get-out-of-jail-free card, mind you, and still end up having to cooperate with investigators, paying fines, and being monitored for a few years afterwards under Deferred Prosecution or Non Prosecution Agreements. In the United States, the Department of Justice has been issuing "Principles of Federal Prosecution for Business Organizations" that implement this regime. Similarly, in the U.K., the Crown Prosecution Service is instructed to not prosecute cases where it finds corporations met the Statutory Guidance. Within India itself, this idea of avoiding prosecutions exists in context of the Information Technology Act, 2000, which triggers legal action only if online platforms do not pull down objectionable content within 36 hours after a takedown notice or court order. Since the statutory rules on compliance under the PC Act are yet to be drafted, I expect the powerful corporate lobby in India will try and push for a regime which avoids prosecution altogether. In the event that comes to pass, it will be fascinating to see what follows: will India start seeing innovations of the kinds seen in the U.S., or will corporations be getting a clean chit. 

The Big Lapse on Sentencing Reform

At the end of the day, what matters most is the eventual punishment. What happens to corporations if they are found guilty of paying bribes? Do they fear hefty penalties, or a situation like the infamous case of Arthur Andersen in the United States - the accounting firm that went bust facing criminal charges? Not really. The new amendments to the PC Act leave untouched the sentencing formula of the earlier system, where penal provisions only provide for a "fine" to be imposed on corporations. This is not statutorily linked to wrongful advantage gained by the paying bribes, nor is there any clear authority to revoke corporate licenses or impose curbs on business activities if the corporation is found guilty (such powers seem to exist for charitable organisations). Sentencing will remain entirely dependent on the judges' discretion. From my limited experience of seeing corruption trials with corporate defendants, I saw three scenarios most commonly play out: judges either levied no separate fine on corporations, imposed the same fine as the human defendant, or simply doubled the amount of fines imposed. In all of these, often no explanation was offered for how the amounts were fixed. 

This is where the tendency to ape foreign legislation can become problematic. Yes, Section 7 of the U.K. Bribery Act also only stipulates a fine to be imposed. But the U.K. has an entirely different sentencing regime to that of India. Not only are courts mandated to explain their reasons for awarding the sentence, but the Sentencing Council issues Guidelines for courts to follow in figuring out how to arrive at that sentence as well. In 2014, the Council published Guidelines for Fraud, Bribery and Money Laundering Offences that requires courts to consider ten different factors to fix a sentence for Section 7 offences, in which removing all gains from corruption is almost a pre-requisite. 

By retaining the old system, the amendments have seriously missed out an opportunity of ushering in much-needed reforms. It means that the significant deterrent and regulatory force that anti-corruption legislation carries ends up lost on other bad actors in the field, undermining one of the main reasons for creating corporate criminal liability in the first place. Thus, despite having a broader scope for corporate liability, it might remain worryingly common that corporations brush off corruption charges and continue to engage in illegal acts.

Conclusions and Next Post

The PC Act amendments have ushered in a new regime for holding corporations criminally liable for engaging in corruption offences, one which theoretically renders it easier to prosecute corporations than before. Having moved to this legal theory in the corruption context, one wonders whether the Indian legal system will witness an en masse shift abandoning the old alter-ego theory altogether. As discussed in the post, once the amendments come into force, there is probably going to be immense lobbying as corporates try to create rules that gives them more benefits than merely a legal defence at trial after making costly outlays for installing a compliance regime to check bribery. In the long run, it might also result in disrupting how India regulators prosecute corporate bribery, encouraging more conversations between regulators and corporate defendants to keep a case away from court. Having now discussed two of the major new avenues explored by the PC Act, the next post returns to more familiar terrain for the law and discusses changes made by the 2018 amendments to prosecuting public servants for corruption.

Amendments to the Prevention of Corruption Act: Punishing Bribe Givers

In what might just be the biggest statutory shake-up since the Prevention of Corruption Act, 1988 [PC Act] came on the statute books, the Prevention of Corruption (Amendment) Bill 2018 was passed by the Rajya Sabha on July 19, and the Lok Sabha on July 24. That means it will become law unless the extremely  rare event of a President withholding assent occurs. News reports have posted bulletins, and some are ready with explainers as well, but there is naturally a lot that is left out by the media. In this multiple-part series, I take stock of what is likely to become the new regime for the regulation and prosecution of corruption offences in India. In this post, I take up the new Section 8 that punishes private persons for giving bribes.  

Punishing Bribe Givers: The Text

Many people subscribed to popular news outlets would have seen messages carrying the update about the amendments with punishment of bribe givers being the headline. There is good reason for this excitement: the existing mechanism under the PC Act did not create an offence of "bribe giving", and such conduct could only be indirectly punished. This was done through Section 12 of the PC Act, by alleging the private person aided or abetted the misconduct by the public servant. The only other kind of bribe giving punishable was under Section 8 which targeted the middleman acting as the conduit between the private person seeking the benefit, and the public servant amenable to corruption.

Not anymore. The recent amendments to the PC Act change Section 8, which will look like this:

Section 8: 

(1) Any person who gives or promises to give an undue advantage to another person or persons with intention - 

(i) to induce a public servant to perform improperly a public duty; or 

(ii) to reward such public servant for the improper performance of public duty; 

shall be punishable for a term which may extend to seven years ...

Provided that ... this section shall not apply where a person is compelled to give such undue advantage ... [and] shall report the matter to [law enforcement] within seven days from the date of giving such undue advantage. 

...

(2) Nothing in sub-section (1) shall apply to a person, if that person, after informing a law enforcement authority or investigating agency, gives or promises to give any undue advantage to another person ... to assist [law enforcement] in its investigation against the latter.

Section 8 also has an Explanation that says: (i) it doesn't matter if the bribe is given / promised to the person who is to perform / has performed the corrupt acts, and (ii) it doesn't matter if X gives / promises the bribes directly or through a third party. 

Understanding the Bribe Giving Offence

Let's break Section 8 up to see the conduct it seeks to prohibit, and the mental state it requires to be linked to that conduct for it to be labelled criminal. Section 8 punishes giving / promising to give an "undue advantage" to induce / reward a public servant to "perform improperly a public duty". Putting it crudely, Section 8 covers the giving / promising of bribes as inducement / rewards for corrupt acts by public servants. The giving / promising need not be done directly, as explained by the provision. It must be made to another person, and while this can certainly be the targeted public servant, it can be any other person as well.    

This conduct must be performed intentionally for it to be punished under Section 8. It means nothing short of the clearest case ought to go through, since intention is the highest standard for mental state in criminal law. One imagines the prosecution will need to show (i) a clear offer / promise / giving of a bribe, (ii) a link between X (private person) and Z (corrupt public servant), and (iii) some evidence of the particular corrupt act that X wants from Z / Z has committed. This is what the Illustration to Section 8 also suggests (not reproduced above): it says P (private person) is guilty of the offence where she gives S (public servant) a sum of Rs.10,000 to ensure P is granted a license over all other bidders. Note, though, that the text itself does not require that S must get whatever is given by P to "another person" for getting S to ensure the license is approved.

As important as the offence itself is the Proviso to Section 8(1) that carves out an important exception to protect persons who are "compelled" to give bribes. This is an acknowledgment of existing social realities where public servants exploit their position to demand undue favours for performing their duties. To trigger the benefit of the Proviso, the victim must go and file a report with the concerned authorities within a week. Another important exception to Section 8 is codified in the second Proviso, which protects the long-standing use of "entrapment" (called trap cases in the field) as a technique to nab corrupt public servants. So, persons who conduct a sting operation to assist investigations cannot be prosecuted either.   

Potential Problems
Few would argue that bribe giving should not be punished. But, it is worthwhile to ask ourselves how will the police catch bribe givers? Bribery is a covert transaction: I am not going to tell everyone that I bribed a public servant, which means either (a) the public servant goes to the police, or (b) other aggrieved persons go file complaints. Let's take both scenarios. If the idea is for public servants to report bribes, they also need protection from prosecution. But while there is an exception to protect a cooperating bribe giver, there is no exception for cooperating bribe takers in the new law.

Perhaps the legislature thought - as many others might - that public servants are going to be an unlikely source of information and there is no need for an outright exception. The most likely source of initiating legal action is then the persons who suffer from corruption. Go back to the illustration, when P is awarded a license by S who was bribed. Many other bidders will be aggrieved on losing out, and it could be assumed that someone asks the police to investigate. There is an obvious problem but: in what is labelled a corrupt system, some aggrieved bidders will always smell foul play when they lose out, possibly giving rise to as many false cases as genuine ones. It is then incumbent on police to make sure that false cases are not carried through - not the kind of reassurance one wants in India where police distrust runs high.       

The problems continue when we consider the benevolent protection for oppressed bribe givers. Let's begin with the seven day reporting limit: What if police arrests a person for giving bribes before she files a complaint? Will it mean that no arrests for Section 8(1) offences can happen within seven days to avoid this scenario? Or will it mean, perhaps, that police will now find it easy to compel persons to cooperate in making cases against public servants by turning bribe givers into cooperators? Then there is the reporting itself. While the proviso calls for reporting the incident, it says nothing about what happens thereafter. How will police decide whom to believe in a potential swearing match between two purported victims - the allegedly oppressed bribe giver or the vexatiously prosecuted public servant? Will the alleged victims be required to make a statement on oath before a Magistrate, or file an affidavit?

And, finally, how to interpret "compelled", to identify when a person was compelled to pay bribes? There is no explanation in the proposed amendments, which means we must look elsewhere. The most famous interpretation of compulsion in India came from the Supreme Court in context of Article 20(3) of the Constitution, which says that "no person accused of an offence shall be compelled to be a witness against himself". There, in Kathi Kalu Oghad [1962 SCR (3) 10] a bench of Eleven Justices held compulsion meant physical duress: i.e., you needed objective physical acts to prove that you were forced to testify against your will. I imagine that this will not be the standard applied in context of the PC Act. But how broad a meaning of "compelled" will be appropriate, and what consequences might it have on the earlier interpretation arrived at in the context of Article 20(3) itself?

Conclusion and Next Post
The amended Section 8 of the PC Act creates a new offence that potentially opens a veritable flood of prosecutions in a country seemingly plagued by corruption.  The offence itself has been designed in a way to make prosecutions tougher though, as it requires proof that a person gave / promised an undue advantage intending it to be an inducement / reward for corrupt acts. The offence also carries a much-needed exception to protect against the unfair prosecution of persons who are victims of corruption. All of this will translate into several issues when the law comes into force, some of which I identified and discussed above. The few questions I raised confirm the beliefs that the new Section 8 is bound to be the site of significant litigation in the months and years to come. Another reason for that is the last proviso to Section 8(1), that was not reproduced in this post. This is not in the nature of an exception, but provides that commercial bodies can also be prosecuted for giving bribes, and will be the subject of the next post which will also take us to the amended Section 9.

(this post was updated on July 26, 2018, at 9:20 AM)