Foreign Bribery and Section 447 of the Companies Act 2013

[Suraj is a student at University School of Law and Legal Studies, Guru Gobind Singh Indraprastha University.]

Transnational crimes have become prevalent with the proliferation of the economy. There are various laws in place to combat domestic corruption and bribery. However, considering the limitations of various domestic laws in addressing transnational crimes, the United Nations Convention against Corruption (UNCAC) established general norms to combat corruption. It encompasses bribery of Foreign Public Officials (FPO) and officials of Public International Organizations (OPIO). India is a signatory to the UNCAC and has ratified it, and efforts have been made to introduce laws on foreign bribery by introducing bills such as the Prevention of Bribery of Foreign Public Officials and Officials of Public International Organisations Bill 2011 (Bill 2011), however, the Bill 2011 lapsed and did not see the light of the day. In effect, there is no law in India to prohibit bribery of an FPO or OPIO, resulting in its low Corruption Perception Index.

In light of this, the article begins by proposing Section 447 of the Companies Act 2013 (Section 447) as an interim measure, and then delves into a critical analysis of this section, highlighting its shortcomings. The discussion includes an examination of whether the supply side of bribery falls within the scope of this section and identifies issues related to investigation and initiation that will hinder the system's ability to effectively manage foreign bribery cases. It then proceeds to present an example where Section 447 could have been applied and concludes by pressing the need for enacting a specific legislation.

Section 447 as an Interim Measure and Issues

Section 447, which provides the punishment for fraud, can be considered as an interim measure to deal with bribery of an FPO or OPIO. However, it does come with some notable challenges.

Does Section 447 cover the supply side of bribery?

From the bare reading of the provision, it is apparent that the demand side of the bribery can be brought under the Companies Act 2013; however, it is contentious for the supply side. As per the UNCAC, for the establishment of offense, the essential element is to “obtain or retain business or other undue advantage in relation to the conduct of international business.” The Foreign Corrupt Practices Act, US federal law that targets the supply-side of bribery, has a similarly placed provision, namely, “obtaining or retaining business for or with, or directing business to, any person.” The Bill 2011 also uses similar language i.e., “in relation to the conduct of international business in order to obtain or retain business.”

In M Narayanan Nambiar v. State of Kerala, the court defined bribery as “conferring of benefit by one upon another, in cash or in kind, to procure an illegal or dishonest action in favour of the giver.” Since bribery is associated with a positive aspect or commercial advantage – obtaining or retaining business – which would potentially benefit the interested parties involved, it is questionable as to how an act of bribing an FPO or OPIO for the purpose of obtaining or retaining business would amount to deceiving, to gain undue advantage from, or injuring the interest of, the company, creditors, shareholders or any other person under Section 447. The phrase “any other person” shall get its colour from the antecedent terms.

Can the section's nature justify including the supply side of bribery?

Contrarily, it can be argued that the definition of fraud is inclusive and not exhaustive in nature, and therefore, other acts, over and above what is stated in the section, can be considered as fraud, essentially bringing the supply side of bribery under it. The fundamental question would be who will decide what fraud is and that too post facto. Such construction leads to open-endedness and is problematic. It is a settled legal position that a criminal statute has to be precise, specific, and unambiguous. It was held in HS Vankani v. State of Gujarat that a “construction should not be put on a statutory provision which would lead to manifest absurdity, palpable injustice and absurd inconvenience or anomaly.” The courts have to avoid construction that leads to an unworkable, inconsistent or impracticable result. Moreover, provisions that are vague and ambiguous can be challenged on such grounds. In the State of Madhya Pradesh v. Baldeo Prasad, the apex court struck down the Central Provinces and Berar Goondas Act 1946 for not defining who a “goonda” is. The definition of goonda was inclusive in nature and it did not give any definitive test to determine whether a person is a goonda or not. In Shreya Singhal v. Union of India, Section 66A of the erstwhile India Penal Code 1860 was struck down for being unconstitutionally vague.

Therefore, such interpretation of the provision of fraud will open a Pandora's Box that will interfere with fairness and due process; hence, it cannot be argued that the exhaustive nature of Section 447 is a tenable ground to bring supply side bribery under its purview. Apart from the substantive aspect of law, significant problems exist with the procedural dimension.

Investigation issues

Generally, the offenses under the Prevention of Corruption Act 1988 (POCA) are investigated by the Central Bureau of Investigation (CBI) or the anti-corruption wing of the state police. As per Section 14 of the Bill 2011, provisions of POCA including those related to investigation shall be applied. However, under the Companies Act 2013 the scenario is different. In Vijayraj Surana v. CBI (Vijayraj Surana), it was ruled that Serious Fraud Investigation Office (SFIO) alone has authority to probe fraud under Section 447. Furthermore, in Ashish Bhalla v. State (Ashish Bhalla), it was held that SFIO has exclusive authority to investigate into the affairs of the company and no parallel investigation can be undertaken by another investigative agency related to the same offense. In Ashish Bhalla, the court recognized the adroitness of SFIO to investigate offences under the Companies Act as it an expert body specifically established for such purposes. However, the legislature did not envisage that Section 447 can be used to deal with cases of bribery of an FPO or OPIO. CBI was established particularly to investigate cases of bribery and corruption, and over the time has amassed a massive amount of experience to deal in this sphere, and therefore is better equipped to probe into such offenses.

Issues initiating the criminal justice machinery

For offences under the POCA and the Bill 2011, the criminal justice machinery can be put into motion by filing an FIR or raising a complaint, since the Code of Criminal Procedure 1973 – now, Bharatiya Nagarik Suraksha Sanhita 2023 – is to be applied with some modifications. However, for Section 447, the process is restrictive. It was held in Sumana Paruchuri v. Jakka Vinod Kumar Reddy (Sumana Paruchuri) that a private complaint for fraud under Section 447 is not maintainable. In Vijayraj Surana, reliance was placed upon the coordinate bench judgment which ruled, with respect to Section 447, “no Court shall take cognizance unless the complaint is made by the Director, SFIO or the officer of the Central Government authorized by a general or special order in writing in this behalf by that Government.” Section 212(6) of the Companies Act 2013 ensures that prosecution for fraud can only be launched after due investigation. This essentially provides a safeguard against frivolous complaints but comes with its own set of issues.

Matters related to corruption are of serious nature, require a culture of zero tolerance, and need immediate intervention by relevant and competent investigative agencies. In Sumana Paruchuri, the court suggested the person aggrieved under Section 447 to follow the procedure contemplated under the Companies Act 2013. Under Section 206 of the Companies Act 2013, the Registrar of Companies, on the basis of information, can conduct an enquiry. If there is any material, he can under Section 210 of the Companies Act 2013 report the Central Government in terms of conducting an enquiry. Under Section 212 of the Companies Act 2013, if the Central Government is “of the opinion” that investigation is necessary, it can direct the matter to the SFIO. Such a process creates hurdles and hampers the relevant investigative agency from intervening at the outset, thus not allowing them to deal with offenses such as bribery effectively. However, despite its limitations, the provision is not rendered completely ineffective.

Practical Application of Section 447

There are several instances where actions were not taken due to absence of specific law addressing foreign bribery. For example, as per “Tata Communications International Pte Ltd.—Possible non-compliance with U.S. Foreign Corrupt Practices Act”, Tata Communications Limited, an Indian company that was listed on the New York Stock Exchange, reported to the DOJ and the SEC about its subsidiary company, Tata Communications International Pte Ltd., making improper payments to officials of government purchaser in Southeast Asian countries. However, in such cases, in the absence of any specific legislation, measures under Section 447 can be taken.

Need for Specific Legislation

It is high time for India to introduce specific legislation to deal with bribery. However, a key question that arises is why the legislators should make a specific legislation instead of amending the existing POCA. This issue was considered by the Parliamentary Standing Committee on the 2011 Bill. They considered various reasons, including the complexities of amendment and POCA being limited to a domestic sphere, and concluded that a standalone legislation would be a more prudent approach. 

Also, instead of focusing solely on punitive measures, the legislative framework should adopt settlement procedures similar to those in the US and the UK, such as non-prosecution agreements and deferred prosecution agreements. Amnesty is granted through such agreements to a defendant in exchange for their cooperation, allowing them to avoid punishment if they meet certain obligations. Various indications suggest that these settlement procedures have enhanced the effectiveness of US anti-corruption efforts and the Organisation for Economic Cooperation and Development has appreciated the use of such instruments. These settlement agreements do not require extensive judicial intervention and resources and can help prevent corruption cases from getting stuck in the Indian judicial system.

Conclusion

Section 447 can serve as an interim measure for dealing with bribery of FPOs or OPIOs but has significant flaws and is not a long-term solution. It excludes the supply side of bribery and faces serious issues in investigation and initiation. Given the rise of bribery, its economic impact, and lacunae in Section 447, specific legislation to address foreign bribery is urgently needed.