Global investigations, Dawn Raids, Internal Investigation for India

Global investigations around the world: India

Sherbir Panag, Tanya Ganguli and Lavanyaa Chopra, Law Offices of Panag & Babu

This is an extract from the fifth edition of GIR's The Practitioner’s Guide to Global Investigations. The whole publication is available here.

General context, key principles and hot topics

1 Identify the highest-profile corporate investigation under way in your country, describing and commenting on its most noteworthy aspects.

Enforcement activity in India (like the world over) has been affected by the covid-19 pandemic. Investigations under way, for the most part, are those that commenced prior to the pandemic – and offshoots of the same. Investigative focus has remained on fraud associated with banking and non-banking financial institutions, books and record manipulation, bribery of government officials, with money laundering charges emanating from these predicate offences and investigations.

Prominent among these investigations are those into the Punjab and Maharashtra Cooperative Bank Limited (PMC Bank), which involved, among other things, the creation of fake accounts, concealing non-performing assets and disbursement of loans to real estate companies without adequate collateral. The investigation into PMC Bank has followed the trend of multiple law enforcement authorities and regulators investigating the matter simultaneously, as in the Infrastructure Leasing and Financial Services case. Indian law enforcement authorities, in addition to directors and key managerial personnel, have been focused on auditors and other professional advisers to understand the role played in covering up, delaying detection or professional standard breaches that have caused wrongful loss. This expanded focus has also included credit rating agencies, where ratings of entities that have been subject to large investigations, or have collapsed, were not reflective of these issues.

2 Outline the legal framework for corporate liability in your country.

Corporations can be held criminally liable under the Indian Penal Code 1860 (IPC) as the definition of ‘person’ includes both natural and juristic persons and thereby any company or body of persons, whether incorporated or not. In 2005, the Indian Supreme Court held that corporations can be punished for offences, including those that require mens rea, while holding that if a corporation is convicted, it shall be required to pay a fine – but the mere fact that a corporation cannot be imprisoned will not serve as a bar to prosecution.

As part of a shift towards substantively recording corporate liability, legislation is moving towards a more express position, as opposed to an implied position, as in the case of the 2018 amendment to the Prevention of Corruption Act 1988 (PCA) (India’s principal anti-corruption legislation), wherein a commercial organisation can be held liable for bribery (by an associated person to obtain or retain business or advantage).

3 Which law enforcement authorities regulate corporations? How is jurisdiction between the authorities allocated? Do the authorities have policies or protocols relating to the prosecution of corporations?

Corporations would be governed by two broad classes of law enforcement authorities: regulatory authorities (which also have enforcement powers) that have superintendence of the sector or serve as a principal regulator; and enforcement authorities, which are charged with undertaking enforcement action in the case of criminal misconduct. Most authorities have a clearly delineated enforcement charter, typically limited by statute, and several have formal prosecution manuals (though not all).

In matters of fraud, the Serious Frauds Investigative Office (under the Ministry of Corporate Affairs), Economic Offences Wing of the police (by state) would be key. In respect of bribery, the Central Bureau of Investigation (which can also be called on to investigate cases of fraud) and the state anti-corruption bureaus would have jurisdiction. In matters involving money laundering and offences pertaining to foreign exchange, the competent authority is the Enforcement Directorate, and in tax matters the Directorate of Revenue Intelligence has jurisdiction.

The market regulator is the Securities and Exchange Board of India, which has jurisdiction over all publicly listed companies.

It is common for all authorities to conduct investigations relevant to their parent statute in matters involving complex criminal misconduct, as each would have a different statutory burden and obligation.

4 What grounds must the authorities have to initiate an investigation? Is a certain threshold of suspicion necessary to trigger an investigation?

There are a number of regulatory authorities that have been empowered under specific laws to investigate and prosecute offences in India. The powers bestowed on these regulatory authorities often overlap and hence, at times, those authorities may work in tandem for specific investigations. Various authorities can therefore commence an investigation with respect to the same matter under different legal grounds. The threshold of suspicion necessary to trigger an investigation varies from case to case. In practical terms, the legal threshold may not be followed strictly when multiple authorities are investigating a matter, as the advent of one investigation could typically result in another.

5 How can the lawfulness or scope of a notice or subpoena from an authority be challenged in your country?

A company can challenge a notice in the appellate body of the authority from which the notice was received or before the court of competent jurisdiction. For example, when a notice is sent by the Enforcement Directorate, the company can challenge the notice before the adjudicating authority under the Prevention of Money Laundering Act (PMLA).

However, a company would always have recourse to challenge a summons or notice via the writ jurisdiction of the concerned high court of judicature (per state).

6 Does your country make use of co-operative agreements giving immunity or leniency to individuals who assist or co-operate with authorities?

As a general matter, the Indian legal system does not recognise co-operative agreements; however, the courts may grant pardon to an accused person or company (on the recommendation of the prosecutor). Co-operation can be a ground for leniency at sentencing after conviction.

India does not follow the system of deferred prosecution agreements or non-prosecution agreements; however, Indian authorities may decline to prosecute a company if it can show that the criminal misconduct that has been alleged has been performed by an individual or legal person without due authorisation and contrary to its interests.

7 What are the top priorities for your country’s law enforcement authorities?

Enforcement priorities have largely remained consistent during the past five years. Focus has remained on addressing corruption, money laundering and large-scale fraud. While it would be difficult to highlight which of these would take precedence over the others, of late, to ensure the integrity and stability of markets and investor confidence, fraud against financial institutions has been a key priority area. To this effect, the Indian government has followed an aggressive strategy of seeking the extradition of Indian businesspersons who have fled the country by also introducing legislation to this effect via the Fugitive Economic Offenders Act 2018 (the FEO Act).

8 To what extent do law enforcement authorities in your jurisdiction place importance on a corporation having an effective compliance programme? What guidance exists (in the form of official guidance, speeches or case law) on what makes an effective compliance programme?

Compliance as a defence to criminal misconduct was not statutorily recognised until recently. Although companies were incentivised to have a compliance programme to serve liability and risk mitigation objectives, the approach was more ad hoc. The 2018 amendment to the PCA has recognised compliance as an absolute defence against prosecution; however, no guidance or rules to this effect have yet been issued or framed.

That being said, there remains strategic merit in putting forth a compliance programme to demonstrate bona fide intentions and credentials, to enable law enforcement authorities to potentially distinguish between the conduct of the company and that of individuals who have acted outside the remit of their authority or employment. This could potentially result in the investigation into the company being closed, while proceeding against individual employees accused of misconduct.

Cyber-related issues

9 Does your country regulate cybersecurity? Describe the approach of local law enforcement authorities to cybersecurity-related failings.

Cybersecurity is governed by the Information Technology Act 2000 (the IT Act) and the rules notified thereunder. The Ministry of Communications and Information Technology (MCIT) is empowered under section 87 of the IT Act to formulate these rules. Under section 69B, the central government may authorise any agency of the government to monitor and collect data generated, transmitted, received or stored in any computer source. In line with the same, the MCIT has notified the Information Technology (Security Procedure) Rules 2004, the Information Technology (Procedure and Safeguard for Monitoring and Collecting Traffic Data or Information) Rules 2009 and the Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules 2011, which lay down the practices to be followed and the standards to be adhered to regarding cybersecurity.

The key powers available to authorities under the IT Act (in addition to those of search, seizure and issuance of summons) are:

• confiscating computer systems or other devices that have been used to contravene the law; and
• entering public places, and searching and arresting without a warrant, if the person is guilty or is reasonably suspected of committing a crime.

For cybersecurity-related failings, Chapter 9 of the IT Act deals with penalties, compensation and adjudication. Under section 43A of the Act, when any corporate body, possessing, dealing with or handling any sensitive personal data in a computer resource that it owns, controls or operates, is negligent in implementing and maintaining reasonable security practices and procedures, and thereby causes wrongful loss or wrongful gain to any person, the corporate body shall be liable to pay damages by way of compensation to the person so affected. In terms of law enforcement approach, we are yet to see aggressive enforcement or prosecution of companies for security breaches. Corporate response has been reactive to non-enforcement actors such as hackers, breaches, ransomware, etc., as opposed to enforcement activity.

10 Does your country regulate cybercrime? What is the approach of law enforcement authorities in your country to cybercrime?

The Code of Criminal Procedure 1973 (CrPC), the IT Act, the IPC and the Indian Evidence Act 1872 (the Evidence Act) regulate this sphere. Actions such as tampering with computer source documents, propagating or sending offensive messages via a communication service, dishonestly receiving stolen computer resources or communications, identity theft, among other things, are listed as punishable offences under the IT Act. The IT Act also grants powers to issue directions for the interception, monitoring or decryption of any information through any computer resource, and to authorise the monitoring and collection of traffic data or information through any computer resource for the purposes of cybersecurity.

Although the legal framework is broad to factor in a wide spectrum of cybercrime offences, enforcement as a whole has been weak, principally because of a limited capacity to handle the scale of digital penetration in India.

Cross-border issues and foreign authorities

11 Does local criminal law have general extraterritorial effect? To the extent that extraterritorial effect is limited to specific offences, give details.

Criminal law can have extraterritorial effect as laid down by the IT Act, CrPC and sections 2 to 4 of the IPC. Every person (including a person who is not a citizen of India) shall be punished under the IPC for committing an offence in India. Any person liable for an offence under any Indian law who is to be tried for an offence committed outside India shall be dealt with according to the provisions of the IPC for that act in the same manner as if the act had been committed within India.

The provisions of the IPC apply to any offence committed by any:

• citizen of India in any place without and beyond India;
• person on any ship or aircraft registered in India, wherever it may be; and
• person in any place without and beyond India committing an offence targeting a computer resource located in India.

The word ‘offence’ includes every act committed outside India which, if committed within India, would be punishable under the IPC.

The IT Act also applies to any contravention or offence under the IT Act committed outside India, by any person, irrespective of nationality, or any contravention or offence committed outside India by any person, if the act or conduct involves a computer, computer system or computer network located in India.

To initiate or supplement criminal proceedings beyond the territorial jurisdiction of Indian criminal courts, there are reciprocal arrangements regarding process. Further, Chapter VIIA of the CrPC discusses reciprocal arrangements for assistance in certain matters and procedures for the attachment and forfeiture of property.

12 Describe the principal challenges that arise in your country in cross-border investigations, and explain whether and how such challenges depend on the other countries involved.

The key challenges in cross-border investigations remain those associated with the enforcement of extradition and mutual legal assistance treaties (MLATs).

13 Does double jeopardy, or a similar concept, apply to prevent a corporation from facing criminal exposure in your country after it resolves charges on the same core set of facts in another? Is there anything analogous in your jurisdiction to the ‘anti-piling on’ policy as exists in the United States (the Policy on Coordination of Corporate Resolution Penalties) to prevent multiple authorities seeking to penalise companies for the same conduct?

The concept of double jeopardy is enshrined in Article 20 of the Constitution of India. The doctrine of double jeopardy protects a person from being tried and punished twice for the same offence but not from different offences arising out of the violation of different laws by the same set of facts. However, a corporation facing criminal exposure in India after it resolves charges on the same core set of facts in another country may not avail itself of protection against double jeopardy.

Although the judiciary has attempted to prevent multiplicity of case, multiple agencies with similar powers under the PCA, PMLA and Companies Act 2013 (the Companies Act) are competent to investigate different aspects of similar sets of facts.

14 Are ‘global’ settlements common in your country? What are the practical considerations?

Global settlements are not the norm, as India does not recognise deferred prosecution agreements or non-prosecution agreements and otherwise does not allow for the compounding of serious economic offences by way of settlement. If an investigation by law enforcement authorities is not closed, then the matter will conclude by way of judicial determination either at trial or quashing of the investigation.

15 What bearing do the decisions of foreign authorities have on an investigation of the same matter in your country?

It is a settled principle that decisions in criminal cases by courts in foreign countries cannot be enforced in India. It was held by the Bombay High Court in Prabodh K Mehta v. Charuben K Mehta (2018) 3 Bom CR 1 (Bom)(FB) that the conviction of an individual in a foreign court will not be ipso facto binding on Indian authorities.

However, the conviction will not be overlooked and will be recognised under the principle of comity. Indian authorities may seek relevant information from the foreign courts for the purpose of proceeding with an investigation in India. Although the conviction will not be completely relied on, the information that is available by way of the decision of the foreign courts may form a source of evidence while proceeding with an investigation in India.

It is also important to note that the stance of the Indian judiciary varies in civil matters. Under sections 13 and 14 of the Civil Procedure Code 1908 (CPC), foreign judgments are automatically enforceable in India, unless there is proof in support of the contrary and it is contested by the parties.

Economic sanctions enforcement

16 Describe your country’s sanctions programme and any recent sanctions imposed by your jurisdiction.

Sanctions against a corporation can be in the form of a fine or imprisonment of key personnel associated with the commercial organisation involved in the wrongdoing or misconduct, or both. Penalties imposed on corporations can also take the form of fines.

In 2018, the Securities and Exchange Board of India (SEBI) banned a big four auditing firm, PricewaterhouseCoopers Private Limited (PwC), from auditing listed companies in the country for two years following PwC’s failure to detect fraud of more than US$1 billion at Satyam Computer Services (an IT services company), which is one of India’s largest corporate fraud matters to date.

17 What is your country’s approach to sanctions enforcement? Has there been an increase in sanctions enforcement activity in recent years, for example?

The sanction regime remains largely focused on United Nations sanctions and as such provides for penalties as well as imprisonment. Sanctions enforcement has largely remained low in India, which has been a consistent position.

18 Do the authorities responsible for sanctions compliance and enforcement in your country co-operate with their counterparts in other countries for the purposes of enforcement?

Indian law enforcement authorities co-operate with the law enforcement authorities of other countries through MLATs and other formal and informal frameworks for security and enforcement co-operation. This stands true for sanctions compliance and enforcement as well, though is at the lower end of the spectrum.

19 Has your country enacted any blocking legislation in relation to the sanctions measures of third countries? Describe how such legislation operates.

India’s Parliament has not promulgated any blocking legislation. However, the government has the option of imposing countermeasures that prevent Indian entities from avoiding compliance with extraterritorial sanction measures.

20 To the extent that your country has enacted any sanctions blocking legislation, how is compliance enforced by local authorities in practice?

India has not enacted sanctions blocking legislation. However, if countermeasures are enacted, companies could find themselves caught between the conflicting directives of the sanctioning country and the country seeking to implement countermeasures.

In June 2019, India introduced retaliatory tariffs on certain goods imported from the United States in response to the higher tariffs imposed on steel and aluminium imports by the Trump administration.

Before an internal investigation

21 How do allegations of misconduct most often come to light in companies in your country?

Allegations of misconduct most often come to light by way of the following means:

• whistleblower complaints;
• red flags highlighted as part of due diligence conducted during acquisitions and takeovers;
• competitors and industry sweeps;
• traditional police investigations;
• suspicious activity reports;
• audits and compliance checks; and
• media investigations and reporting.

Information gathering

22 Does your country have a data protection regime?

India presently does not have any express legislation governing data protection or privacy. The key legislation in this sphere is the IT Act. Additionally, the transfer of personal data is currently governed by the Sensitive Personal Data and Information Rules 2011.

The IT Act deals with payment of fines and imprisonment under civil and criminal laws for cases of wrongful disclosure and misuse of personal data, and violation of contractual terms regarding personal data. In Justice Puttaswamy (Retd) v. Union of India (2017) 10 SCC 1, also known as the Aadhar judgment, the Supreme Court of India, while establishing the right to privacy as a fundamental right, held that it was not an absolute right and could be made conditional on reasonable grounds.

23 To the extent not dealt with above at question 9, how is the data protection regime enforced?

The IT Act, through the Finance Bill, merged the Cyber Appellate Tribunal with the Telecom Disputes Settlements and Appellate Tribunal, which are the two adjudicatory bodies for infringements of the IT Act. When compensation for failure to protect the confidentiality of sensitive information is less than 5 million rupees, the IT Act provides for the government to appoint an adjudicatory officer with the powers of a civil court. Although there are penalising provisions, the enforcement of the provisions is not widespread.

24 Are there any data protection issues that cause particular concern in internal investigations in your country?

Companies are required to incorporate policies and practices that impose stringent measures concerning document collection and internal investigations. Under the IT Act and the Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules 2011, a company can be penalised for negligence in handling sensitive personal information. Further, recipients of sensitive personal data or information may be obliged under attorney–client privilege laws to exercise extreme caution while handling data during investigations.

25 Does your country regulate or otherwise restrict the interception of employees’ communications? What are its features and how is the regime enforced?

The IPC criminalises the disclosure or destruction of any document or electronic record that may be required to be produced as evidence in legal proceedings. During an investigation, it is general practice to circulate a document-hold memorandum or evidence preservation notice to those employees who are suspected of having documents relevant to the investigation, in an effort to preserve the documents. This would also be likely to include access to electronic data for further analysis, such as email forensics.

Dawn raids and search warrants

26 Are search warrants or dawn raids on companies a feature of law enforcement in your country? Describe any legal limitations on authorities executing search warrants or dawn raids, and what redress a company has if those limits are exceeded.

Search warrants are governed by section 93 of the CrPC, which establishes certain stipulations regarding the issuing of search warrants:

• they can be issued only by a magistrate;
• the magistrate must apply his or her judicial mind while issuing a search warrant; and
• there must be a search and seizure report (known as a panchnama) following any search or seizure.

Chapter XIV of the Companies Act makes provisions pertaining to inspection, enquiry and investigation in corporate entities. Central government has established the Serious Fraud Investigation Office (SFIO) under section 211 of the Companies Act to investigate fraud relating to a company. The provisions of the CrPC apply, mutadis mutandis, to every search and seizure made under these provisions.

Further, section 41 of the Competition Act 2003 (the Competition Act) empowers the director general of the Competition Commission of India to conduct dawn raids. The director general is required to obtain a warrant from a magistrate before conducting a raid after satisfying the competent court with material documents and evidence of anticompetitive conduct.

The Companies (Arrests in Connection with Investigation by Serious Fraud Investigation Office Rules 2017 were notified by central government on 24 August 2017. Under the notification, the SFIO is required to follow a number of procedures before making an arrest. These act as a limitation and further delay the SFIO’s initiatives to arrest an accused. For instance, the arrest of an individual in connection with a government company or a foreign company under investigation must be made with prior written approval from central government. Further, the initiation of this arrest must also be given to the managing director or other person in charge of the affairs of the company.

Furthermore, a seizure report must be issued. A seizure report is the official record of a raid. It documents the operation and must be prepared by the law enforcement authorities conducting the raid. Among other things, the seizure report must specify the material particulars pertaining to the raid, such as the address of the site being raided, particulars of the person occupying the site at the time of the raid, particulars of the investigating officer or officers, and details of any independent witnesses present. Most importantly, the seizure report must contain a detailed statement of all the materials, documents, objects or articles seized from the site. The completed report must be vetted by two independent witnesses who observed the raid. The investigators usually request company representatives to sign the seizure report and can provide a copy of it on request.

27 How can privileged material be lawfully protected from seizure during a dawn raid or in response to a search warrant in your country?

A company may object to the review or taking of copies of privileged documents during a dawn raid, including confidential communications between a client and its external attorney. Sections 126 to 131 of the Evidence Act govern attorney–client privilege in India. However, attorney–client documents are not protected in the strictest sense from the police or other law enforcement agencies, should they be found during a dawn raid or a search under a valid warrant. It would depend on the law enforcement agency’s discretion whether to respect the company’s request not to access such documents; however, these can be challenged before the court as admissible evidence.

28 Under what circumstances may an individual’s testimony be compelled in your country? What consequences flow from such compelled testimony? Are there any privileges that would prevent an individual or company from providing testimony?

Principally, an individual’s testimony cannot be compelled in India for acts of bribery or fraud. The Constitution of India under Article 20(3) states that no person accused of any offence shall be compelled to be a witness against himself or herself. Further, under section 161 of the CrPC, individuals being interviewed by the police are not bound to answer questions that could expose them to a criminal charge or to a penalty. Compelled testimonies constitute an infringement of an individual’s rights and freedom.

Whistleblowing and employee rights

29 Describe the whistleblowing framework in your country. What financial incentive schemes exist for whistleblowers? What legal protections are in place for whistleblowers?

The PCA itself does not provide any protection to whistleblowers. A separate act – the Whistleblower Protection Act 2011 – is primarily intended to protect whistleblowers with respect to disclosure of:

• acts of corruption by a public servant;
• wilful misuse of power by a public servant; and
• wilful misuse of discretion or the commission, or attempted commission, of a criminal offence by a public servant.

The Whistleblower Protection Act has been passed by both houses of Parliament but has not yet been brought into effect by the government by way of a notification in the Official Gazette. There are no provisions for providing financial incentives for whistleblowers. Moreover, the Act does not deal with corporate whistleblowers, and therefore does not extend its jurisdiction to the private sector.

The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 require listed companies to devise an effective whistleblowing policy. Further, the Central Vigilance Commission can initiate investigations based on allegations or complaints by employees of a government corporation.

30 What rights does local employment law confer on employees whose conduct is within the scope of an investigation? Is there any distinction between officers and directors of the company for these purposes?

Employees are typically required by their contract or the internal policy of the employer to co-operate in an internal investigation. In appropriate cases, non-participation may entitle the employer to take disciplinary steps against an employee. However, the employer has no coercive powers, and all individuals have a right against self-incrimination under Indian laws.

In general, employment in India is at will, allowing either the employee or the employer to terminate an employment contract with notice or without (in cases such as misconduct). However, in respect of workmen, as defined by the Industrial Disputes Act 1947, an entirely different set of procedures need to be followed.

31 Do employees’ rights under local employment law differ if a person is deemed to have engaged in misconduct? Are there disciplinary or other steps that a company must take when an employee is implicated or suspected of misconduct, such as suspension or in relation to compensation?

The rights of an employee deemed to have engaged in misconduct depend on the employment contract and the compensation policy of the company. These may include various retaliatory actions, such as denial of pay rises, suspension or termination of employment or warnings.

A number of Indian companies have resorted to clawbacks of bonuses or stocks from key managerial persons who have been involved in misconduct and acted against the interests of company shareholders. In May 2019, Yes Bank – one of the leading private sector banks in India – announced that it would be clawing back bonuses amounting to approximately 20 million rupees from a former managing director.

32 Can an employee be dismissed for refusing to participate in an internal investigation?

As employment contracts are generally at will and an employee’s refusal to participate in an internal investigation is noted, this could be a ground for the employer to consider dismissal.

Commencing an internal investigation

33 Is it common practice in your country to prepare a document setting out terms of reference or investigatory scope before commencing an internal investigation? What issues would it cover?

Structuring the scheme of an investigation will follow a preliminary analysis of the allegation framework and the documents available that pertain to it. Thereafter, the investigators shall draw up broad terms for conducting an investigation, which will entail the following:

• deciding who has to be investigated – the informant, reporter or whistleblower, the accused, witnesses and other relevant individuals;
• the objective and scope of the investigation;
• the legal issues under consideration;
• a potential defence strategy, if any;
• materials in the form of documents, business structures, emails, official call records, etc., required for substantiating the allegation that initiated the investigation; and
• setting a deadline for concluding the investigation and submitting the findings of the investigation.

34 If an issue comes to light prior to the authorities in your country becoming aware or engaged, what internal steps should a company take? Are there internal steps that a company is legally or ethically required to take?

If an issue comes to light prior to the authorities becoming aware or engaged, the company shall first conduct an internal investigation and seek legal advice on how to proceed with the issue. Subsequently, on conclusion of the internal investigation, the company shall, based on the findings of the investigation, implement countermeasures or adopt policies to prevent similar issues from arising in the future.

The company shall generally have an effective whistleblower policy, which shall ensure that the identity of the whistleblower is kept confidential. Companies listed on the stock exchange are required to have an effective whistleblower policy in place. Further, depending on the applicable laws, it may be mandatory for a company to make disclosures to law enforcement agencies.

However, there are no legal or statutory requirements for a company to take any internal steps on becoming aware of any issue, except in the case of a complaint alleging sexual harassment in the workplace. The Sexual Harassment of Women (Prevention, Protection and Redressal) Act 2013 requires every branch or office or company employing 10 or more persons to constitute an internal complaints committee.

35 What internal steps should a company in your country take if it receives a notice or subpoena from a law enforcement authority seeking the production or preservation of documents or data?

A company that is the subject of an external investigation must co-operate fully and furnish complete and correct information and documents within the time provided by the law enforcement agency.

If the law enforcement agency has sought the production or preservation of documents or data, the company should impose a document hold to ensure the preservation of certain documents and information that may be necessary for completion of the inquiry, or in anticipation of any future litigation. Further, the appointment of a document custodian to maintain control over the relevant documents and information would be advisable.

36 At what point must a company in your country publicly disclose the existence of an internal investigation or contact from a law enforcement authority?

Disclosure of the existence of an internal investigation or contacting a law enforcement authority will depend on the nature and gravity of the case. Under section 39 of the CrPC, an individual can be penalised for not reporting the commission of a crime by another entity, or the intention to do so. However, in other circumstances, the counsel or advocate of the entity will advise with respect to the disclosure of an investigation or contacting an authority. In India, there is hardly any incentive to approach law enforcement agencies, since it does not provide for any guarantee of immunity or leniency.

37 How are internal investigations viewed by local enforcement bodies in your country?

Investigations allow corporate entities to flag problem areas. The past few years have been significant as regards the development of white-collar criminal jurisprudence in India. Owing to greater pressure for compliance, an increasing number of organisations now opt to conduct internal investigations. Internal investigations aid in keeping a check on the affairs of the corporate entity and protect against unwarranted raids, and any other actions by authorities.

Moreover, before approaching a law enforcement agency, it is advisable that companies carry out their own investigation to substantiate the claims themselves. Commercial organisations can thereby analyse whether the procedures in place were adequate to prevent wrongdoings and subsequently claim it as a defence. This also aids in highlighting a company’s strong stance against such misconduct, and may prevent an adverse action by the law enforcement authorities against them.

Attorney–client privilege

38 Can the attorney–client privilege be claimed over any aspects of internal investigations in your country? What steps should a company take in your country to protect the privilege or confidentiality of an internal investigation?

Legal advice given by a lawyer to a client is privileged under the Evidence Act, the Advocates Act 1961 and the Bar Council of India Rules. As a rule, attorney–client privilege is subject to certain exceptions (e.g., communications made in furtherance of illegal purposes or offences discovered in the course of advising a client are not privileged).

In Larsen & Toubro Limited v. Prime Displays (P) Ltd (2003) 114 CompCas 141 (Bom), it was held that a document that has come into existence in anticipation of litigation will be covered by privilege. The documents should have come into existence while seeking legal advice or for use for the purpose of defence or prosecution of the legal proceedings. Legal advice is not confined to telling a client the law; it must include advice as to what actions or steps shall be undertaken in a certain set of circumstances.

39 Set out the key principles or elements of the attorney–client privilege in your country as it relates to corporations. Who is the holder of the privilege? Are there any differences when the client is an individual?

The Evidence Act governs the law regarding privileged communication that is attached to professional communications between a legal adviser or counsel and a client. No one shall be compelled to disclose to a court any confidential communication between an individual and his or her legal adviser or counsel, except when offering himself or herself as a witness, to the extent necessary for providing evidence.

The key elements for ensuring privilege in correspondence are:

• to provide sound legal advice and advocacy;
• to maintain the client’s privacy;
• that parties should have agreed on the representation of the client;
• that the client can waive privilege; and
• to protect client communications, including the slightest action or inaction.

The client is the holder of the privilege. When the client is a corporation, the privilege is part of corporate control whereby the officers and directors decide whether to assert or waive the privilege. However, principally there is no difference in the privilege when the client is an individual or a corporation.

40 Does the attorney–client privilege apply equally to in-house and external counsel in your country?

Attorney–client privilege does not apply equally to in-house and external counsel. External counsel with the required expertise are often engaged to conduct internal investigations.

Documents created in the course of an internal investigation, or as an outcome of an investigation, are generally protected. The extent of privilege available to communications with in-house counsel would be limited. The privilege would extend only to the legal advice and work undertaken by the in-house counsel in lieu of litigation. It shall not cover any work of an executive nature undertaken by the in-house counsel.

41 Does the attorney–client privilege apply equally to advice sought from foreign lawyers in relation to (internal or external) investigations in your country?

Foreign lawyers are prohibited from practising in India. Under the English law of privilege, communications between clients and their foreign lawyers will be protected on the basis of the law of the land where protection is sought. In India, the position is unclear, although ‘barristers’ (i.e., barristers ‘of England or Ireland, or a member of the Faculty of Advocates in Scotland’, as defined under the General Clauses Act 1897) are bound by the attorney–client privilege.

42 To what extent is waiver of the attorney–client privilege regarded as a co-operative step in your country? Are there any contexts where privilege waiver is mandatory or required?

Section 126 of the Evidence Act provides certain exceptional grounds on which the attorney–client privilege shall stand denied. This includes communications with an attorney regarding furtherance of any illegal purpose or becoming aware of facts that either a crime or fraud has been committed since the commencement of the attorney’s employment. The client’s intention to reveal such information to the attorney is irrelevant.

Under section 128 of the Evidence Act, the privilege will be considered to be waived if the client calls his or her attorney or legal adviser as a witness and questions him or her on the matter. In Mandesan v. State of Kerala 1995 Cri LJ 61, it was remarked by the sitting judge that there shall be express consent either by the client or the attorney to waive privilege.

43 Does the concept of limited waiver of privilege exist as a concept in your jurisdiction? What is its scope?

Sections 126 to 129 of the Evidence Act do not contemplate limited waiver and a client may waive privilege entirely or not at all. The same shall be expressly consented to by either of the parties. Further, the Act does not contemplate sharing of attorney–client communications or work-product with a third party with common intentions without waiving protections.

44 If privilege has been waived on a limited basis in another country, can privilege be maintained in your own country?

Privilege that has been waived on a limited basis in another country will be maintainable in India only if the same is proven in India. Indian courts will assess the laws of the country under which the privilege has been waived on a limited basis.

45 Do common interest privileges exist as concepts in your country? What are the requirements and scope?

Sections 126 to 129 of the Evidence Act do not contemplate sharing of attorney–client communications or work-product between persons with a common interest without waiving protection. The scope of attorney–client privilege extends only to the persons and circumstances mentioned under sections 126 to 129 of the Evidence Act.

46 Can privilege be claimed over the assistance given by third parties to lawyers?

Communications between an attorney and a client are privileged even if they contain information from third parties. This privilege also extends to interpreters, clerks or servants of the attorney. Information sought or requested by the client and provided by an employee or third party for legal advice or litigation is also protected. However, communications between the employees of a client in the ordinary course of business, not in anticipation of litigation, is not protected. Accordingly, there is no protection accorded to:

• statements made by an employee on or relating to the subject matter of the proceedings that were not requested to be provided to the attorney; or
• written communications from one employee to another that is potentially useful to the attorney.

To claim privilege, the communications should be of a private and confidential nature, and must have been provided in confidence. Communications made in the presence of third parties would be privileged if it were proven that it was the intention of the client.

Witness interviews

47 Does your country permit the interviewing of witnesses as part of an internal investigation?

It is common practice to carry out interviews of witnesses during internal investigations. There are no set statutory rules for conducting a witness interview involving an employee in India, and the purpose of the interview usually depends on the requirements or procedures to be followed in the investigation. Based on the preliminary documentary review pertaining to an investigation, there may be a need to proceed with interviews of a certain set of sampled individuals.

Authorities are not required to be consulted before initiating witness interviews. However, in most cases, the witnesses shall be informed about the interview beforehand.

48 Can a company claim the attorney–client privilege over internal witness interviews or attorney reports?

Companies and corporations enjoy a right to privilege with respect to information disclosed or documents provided to external legal counsel for the purposes of an internal investigation. Internal witness interviews and attorney reports constitute legal advice and therefore fall under the ambit of the attorney–client privilege.

However, in practice, in-house counsel are required to sign employment contracts with confidentiality clauses, whereby damages can be claimed from in-house counsel in the event of a breach of a confidentiality clause.

49 When conducting a witness interview of an employee in your country, what legal or ethical requirements or guidance must be adhered to? Are there different requirements when interviewing third parties?

Upjohn warnings are typically issued before commencing an interview. Additionally, investigations are required to be conducted in accordance with principles of natural justice. Generally, documentation of an investigation relates to interviewing the complainant, alleged accused and other relevant witnesses. Two of the key principles to keep in mind while conducting witness interviews are that:

• proper representation to the interviewee that the attorney–client privilege extends, belongs solely to and is controlled by the company or corporation that has engaged the counsel to conduct the investigation; and
• the corporation may decide to waive the aforementioned privilege and disclose the information provided by the interviewee to any government or enforcement agency, or any third party.

50 How is an internal interview typically conducted in your country? Are documents put to the witness? May or must employees in your country have their own legal representation at the interview?

It is imperative to assess the logistics of conducting an interview. Most investigations endeavour to elicit complete information at the first opportunity during the initial interviews. Interviews help investigators to understand the motives and truthfulness of the person being interviewed.

Planning for interviews includes a number of processes that are determined in each case. However, the following factors must always be explored:

• selecting or sampling the interviewees;
• fixing the venue and scheduling time slots for conducting the interviews;
• investigating the witnesses’ background;
• deciding the sequence of conducting interviews, especially when a significant number of individuals are to be interviewed. Moreover, this step shall include anticipating witness questions and preparing an outline for each of the witness interviews; and
• documenting and recording the findings of the interviews.

Reporting to the authorities

51 Are there circumstances under which reporting misconduct to law enforcement authorities is mandatory in your country?

There is no legislation mandating the reporting of misconduct in India. Most companies prefer to conduct an internal investigation to substantiate the allegation themselves before proceeding to inform the law enforcement authorities. Disclosures made by companies have to be voluntary. A disclosure will be viewed as the company co-operating with law enforcement and may contribute towards acquiring a favourable judgment in court. However, listed companies must check their disclosure obligations in accordance with the listing agreement signed with the stock exchange.

52 In what circumstances might you advise a company to self-report to law enforcement even if it has no legal obligation to do so? In what circumstances would that advice to self-report extend to countries beyond your country?

The self-reporting mechanism in India is at a nascent stage. Statutes providing leniency in return for disclosures are scarce in India and are limited to the Competition Act and the Income Tax Act 1961. Self-reporting to the concerned authorities in cases of serious fraud, corruption or criminal acts have to be voluntary. Self-reporting may be advisable when followed by a robust internal investigation undertaken by the corporation itself. However, under the Prevention of Corruption (Amendment) Act 2018, a company that has been compelled to pay bribes may be exempted from liability, on reporting it to the relevant law enforcement authority within seven days of the date of making the illegal payment.

Advice to self-report in other countries would depend on the laws in that country. For example, in the United States, there are mandatory self-reporting clauses under various pieces of legislation. Additionally, the US Department of Justice and Securities and Exchange Commission (SEC) consider self-reporting as a mitigating factor for providing leniency in cases of bribery, corruption and fraud.

53 What are the practical steps you need to take to self-report to law enforcement in your country?

Before approaching the law enforcement authorities, it is imperative to first substantiate the allegations internally. Therefore, an internal investigation must be carried out wherein the purpose of the investigation is clearly defined, and an internal report is prepared that sets out the findings of the investigation.

Responding to the authorities

54 In practice, how does a company in your country respond to a notice or subpoena from a law enforcement authority? Is it possible to enter into dialogue with the authorities to address their concerns before or even after charges are brought? How?

The company would first want to ensure that the communication received is in fact a notice from a law enforcement agency. The company shall contact its counsel, note the scope of the search by the authorities and keep a record of any items that are seized during the procedure. Notices may be issued under various circumstances, and legal assistance may be sought to determine the nature of the legal communication received.

The following must be analysed in such a circumstance:

• full name of the issuing court, tribunal or authority in the document’s title or letterhead;
• the parties addressed or the company’s name, or both;
• a specific date, time and location for appearance or the materials demanded;
• in certain cases, the penalty for non-compliance;
• the document title; and
• the provision under which the notice has been issued, the liability or the charges alleged.

Whether the company can address these issues before the charges are brought varies from case to case. When a notice is issued to a company during the course of a criminal investigation by the police department or enforcement agency, it could be possible to discuss the issues with the investigating officer to aid investigation. However, this option is not available in every situation.

If the notice has been issued by a court or tribunal, then the company must enter proceedings before the tribunal and no dialogue may be possible after charges are brought. In such cases, the company must send an appropriate representative to court.

55 Are ongoing authority investigations subject to challenge before the courts?

If investigations are initiated, a petition for quashing the first information report (a written document prepared by the police when they receive information about the commission of a cognisable offence) may be filed before the high court of the concerned state. However, if the National Company Law Tribunal is taking cognisance of the matter, there cannot be a challenge to an ongoing investigation.

56 In the event that authorities in your country and one or more other countries issue separate notices or subpoenas regarding the same facts or allegations, how should the company approach this?

If different notices have been issued by different law enforcement agencies, they would have to be responded to separately. This is because different violations or offences could arise from the same set of facts. These violations or offences could be subject to the jurisdiction of different law enforcement agencies and each of these agencies must be provided with an explanation.

The company may request the courts to admit information or decisions of a foreign court along the same set of facts. However, such a request is merely persuasive and not binding. Additionally, judgments or orders of local courts arising out of the same set of facts may also be presented.

57 If a notice or subpoena from the authorities in your country seeks production of material relating to a particular matter that crosses borders, must the company search for, and produce material, in other countries to satisfy the request? What are the difficulties in that regard?

Although an Indian company is not obliged to procure and produce evidence from a foreign counterpart, the concerned enforcement agency may request evidence through the relevant tribunal or court. Although there are formal means (through bilateral treaties) of seeking the production of information from other jurisdictions, these can have their limitations in terms of delays, ambiguities and incomplete information.

Further, letters rogatory, also known as letters of request, are formal requests from a court in a foreign jurisdiction for judicial assistance, especially to begin the process of examining the relevant individual as a witness or gathering relevant evidence. In 2017, the Ministry of Home Affairs issued its Comprehensive Guideline for Investigations Abroad and Issuance of Letters Rogatory in 2007. The Indian government has resorted to letters rogatory with respect to high-profile corruption matters. For instance, the Enforcement Directorate issued letters rogatory to the United Kingdom in the loan fraud cases against the liquor baron, Vijay Mallya.

58 Does law enforcement in your country routinely share information or investigative materials with law enforcement in other countries? What framework is in place in your country for co-operation with foreign authorities?

Both the law enforcement agencies and the court systems can share information and investigative materials with foreign countries. For legal co-operation in civil and commercial matters, MLATs are signed with the countries concerned. These assist in seeking co-operation for judicial proceedings, collection of evidence, investigation and witness examination.

For sharing information and investigative materials for criminal matters, the court or tribunal may issue letters rogatory to the court within whose jurisdiction the accused or witness resides or the evidence may have been found.

Furthermore, India has guidelines for its law enforcement on extradition proceedings against fugitives, especially economic offenders under the FEO Act.

59 Do law enforcement authorities in your country have any confidentiality obligations in relation to information received during an investigation or onward disclosure and use of that information by third parties?

Disclosure obligations primarily depend on the nature of the document and the legal status of the company. Courts normally do not promote disclosure of sensitive information revealed during an investigation. However, there is no specific legislation imposing confidentiality obligations on law enforcement. Discovery statements (those made to the police that can be proved by subsequent discovery of facts) under section 27 of the Evidence Act can be further used as evidence by the judiciary for furtherance of a case.

Under the SEBI (Listing and Disclosure) Regulations 2015, companies are required to make disclosures pertaining to their compliance of mandatory requirements and adoption of the non-mandatory requirements. Further, refusal to produce information or documents may be viewed as a sign of non-co-operation, which can eventually result in the law enforcement making adverse findings.

60 How would you advise a company that has received a request from a law enforcement authority in your country seeking documents from another country, where production would violate the laws of that other country?

There is no specific legislation providing for an Indian law enforcement agency to request a company in India to provide documents from another country. As counsel, we would normally advise the client to refrain and to reject such a request. However, the advice may be altered or modified on the basis of other compelling aspects, such as the gravity of the offence and the charges levied.

61 Does your country have secrecy or blocking statutes? What related issues arise from compliance with a notice or subpoena?

Although India has statutes that provide for the protection of data, there is no blocking statute. The aim of these data protection laws is to ensure that sensitive personal data is not leaked without the permission of the data provider.

These protections do not apply when a statutory or judicial authority seeks information; therefore, companies must comply with the requests made by the appropriate authority. Under the IT Act, authorities may access computer systems or other devices to collect information that may constitute evidence for a court proceeding or government investigation.

62 What are the risks in voluntary production versus compelled production of material to authorities in your country? Is this material discoverable by third parties? Is there any confidentiality attached to productions to law enforcement in your country?

Confidentiality for voluntarily produced documents cannot be ensured. The material so reproduced before law enforcement agencies could be reproduced to the court. Therefore, it is at the discretion of the courts if the information or material produced should form part of the judgment.

Under section 91 of the IPC, a court can compel the production of any document. However, under section 129 of the Evidence Act, no one can be compelled to disclose confidential information protected by attorney–client privilege; a client would need to waive privilege before protected information is disclosed. If the client does waive privilege, his or her attorney can be compelled by the court to provide as evidence any previously protected communication or document.

Further, an international agency (for example, Interpol or a foreign government) that seeks the assistance of the Indian law enforcement agencies in gathering information with respect to an investigation, a witness or evidence may be provided with the confidential information.

Prosecution and penalties

63 What types of penalties may companies or their directors, officers or employees face for misconduct in your country?

Company officials or employees may be penalised with imprisonment, fines, debarment or disgorgement, or a combination of any of these sanctions, depending upon the nature and gravity of the offence and the governing provision. For example, under section 24 of the SEBI Act 1992, a person found guilty may be imprisoned and fined 250 million rupees, or three times the amount of profit made, whichever is higher.

In many cases, often the assets of the accused individuals are also attached until the investigation is completed.

64 Where there is a risk of a corporate’s suspension, debarment or other restrictions on continuing business in your country, what options or restrictions apply to a corporate wanting to settle in another country?

In most cases, the suspension, debarment or other restrictions on a corporation in India will not result in automatic suspension or debarment in another country. Restrictions or options applying to a company in another country will depend on the nature and magnitude of the offence and whether that offence is listed as a criterion for suspension in another country.

Legislation in other countries with extrajudicial reach may affect the corporation’s options in India and that country. However, that would entail only after investigations regarding the claim are carried out in that country.

65 What do the authorities in your country take into account when fixing penalties?

To determine liability in any offence, the two elements to be established are (1) the commission of the punishable act and (2) the intention to commit that act.

Individuals at lower levels of management or within the workforce often do not participate in the decision-making process in a company and since the corporate entity cannot develop an intention on its own, directors and top management are therefore regarded as the ‘directing mind’ of the corporate entity. These aspects are scrutinised while ascertaining and accruing the liability of an entity. Other factors, such as the nature of the offence, its effects and gravity, parallel provisions and the threshold of compliance, are also taken into account. Further, co-operation and good conduct on behalf of the company towards the law enforcement authorities can contribute towards the courts imposing more lenient penalties on the accused.

Resolution and settlements short of trial

66 Are non-prosecution agreements or deferred prosecution agreements available in your jurisdiction for corporations?

Neither non-prosecution agreements nor deferred prosecution agreements are available in India for corporations. These terms are not recognised under any of the Indian statutes. However, the Competition Commission of India has the power to impose lesser penalties under the Competition Act if it is satisfied that any producer, seller, distributor, trader or service provider included in any cartel, which is alleged to have entered into an anticompetitive agreement, has made a full and true disclosure in respect of the alleged violations. If that disclosure is vital, the Commission has the power to impose upon the producer, seller, distributor, trader or service provider a lesser penalty, as it may deem fit, than is provided for under this Act or the rules or regulations. Depending how useful or at what stage such a disclosure is made, the penalties may be reduced.

67 Does your jurisdiction provide for reporting restrictions or anonymity for corporates that have entered into non-prosecution agreements or deferred prosecution agreements until the conclusion of criminal proceedings in relation to connected individuals to ensure fairness in those proceedings?

These provisions do not exist under the Indian legal system.

68 Prior to any settlement with a law enforcement authority in your country, what considerations should companies be aware of?

Offences of fraud, corruption and bribery are non-compoundable under India’s criminal law and the PCA does not have any provision in support of plea bargaining.

Additionally, when a case concludes in favour of a company, then the application of double jeopardy will prevail, wherein the accused company or entity cannot be tried again on the same or similar charges and on the same facts, following either acquittal or conviction.

69 To what extent do law enforcement authorities in your country use external corporate compliance monitors as an enforcement tool?

Private entities are prohibited from being involved in investigations under the Companies Act unless they are the ones being investigated or required by statutory or legal authority to make disclosures. Further, although India does not impose corporate monitors on companies involved in bribery or fraud, the SEC does impose corporate monitors on companies that may have operations in India. The SEC has previously imposed corporate monitors on Walmart for two years to guard against corruption in its foreign ventures.

70 Are parallel private actions allowed? May private plaintiffs gain access to the authorities’ files?

In India, parallel private investigations can be conducted by companies in addition to government investigations. Internal investigations by companies allow for an understanding and the detection of the root cause of the crisis. The findings of these investigations can subsequently be shared with law enforcement agencies and form part of the evidence. Although this mechanism is not part of any present legislation, such a step by a company may be considered by the court and result in leniency in penalties. Additionally, under The Right to Information Act 2005, a person can request access to any government record or document, provided it is not confidential.

Publicity and reputational issues

71 Outline the law in your country surrounding publicity of criminal cases at the investigatory stage and once a case is before a court.

There are no specific laws or policy guidelines regarding publicity of cases relating to white-collar crimes at the investigatory stage. However, in 2016, the Supreme Court of India held that a ‘first information report’ is a public document and, therefore, the media may publish information pertaining to such cases at any stage (including the investigation stage). The press in India is free to attend legal proceedings and report ongoing matters. Generally, the Indian media report on investigations as soon they commence, especially in high-profile cases.

72 What steps do you take to manage corporate communications in your country? Is it common for companies to use a public relations firm to manage a corporate crisis in your country?

Companies may either have an in-house public relations department, with communications and publicity managers, or outsource the services to another entity specialising in handling publicity-related tasks. Companies also consult their legal and compliance teams before disclosing any such information to the public.

73 How is publicity managed when there are ongoing related proceedings?

Since all investigations are not made public, companies under normal circumstances attempt to ensure that no public disclosure is made at all. If investigations or proceedings become public, public relations agencies are engaged to manage the media. Consultants who have experience in handling government relations during a crisis are also engaged for damage control. Companies may also, at times, provide public disclosures on their official website, if they are directed to do so during the investigation procedure.

Duty to the market

74 Is disclosure to the market in circumstances where a settlement has been agreed but not yet made public mandatory?

Normally, information pertaining to a settlement would be disclosed soon after a settlement has been agreed. However, plea bargaining or similar settlement mechanisms are not prevalent in India in matters pertaining to fraud and corruption, which are considered to be serious crimes.

Anticipated developments

75 Do you expect to see any key regulatory or legislative changes emerge in the next year or so designed to address corporate misconduct?

India has witnessed a rise in corporate misconduct in the banking sector, especially in relation to non-banking financial companies. There have also been numerous incidents of high-profile corporate misconduct within well-known audit companies. The government is expected to create regulations governing specific sectors that have been at the forefront of this corporate misconduct.

Further, the Whistle Blowers Protection (Amendment) Bill 2015, which has not yet been enforced in India, provides for a mechanism for receiving and enquiring into public interest disclosures against various acts of corruption, wilful misuse of power or discretion, or criminal offences by public servants.

Ref: https://www.lexology.com/library/detail.aspx?g=bb111eab-efc5-44f0-84fa-7b1e7540095c&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2021-05-26&utm_term=

https://globalinvestigationsreview.com/guide/the-practitioners-guide-global-investigations/2021/article/india