In the process of evolution of the society towards urbanisation and modernisation, white-collar crimes have emerged as one of the biggest challenges, a concept which was coined and elucidated upon by Edwin Sutherland. Crimes travelled from the streets to organised corporates.
However, the crime in the streets is mostly basely grievous or heinous compared to more sophisticated corporate offenses mostly having a drastic economic impact on the society. With the passage of time, the crime related to corporates is now brought into cognizance by various agencies other than the Police who are empowered by various laws revealing the seriousness of such crimes. Crimes committed by corporates/organisations are sometimes referred to as Corporate Crime or white-collar crime.
Such organisations or a corporates being a legal entity and not a realistic person cannot be put behind bars and can only be fined or sanctioned for the commission of such crimes. However, their officers such as directors, trustees, key managerial persons, other senior management and/or other employees who commit offenses are held liable as officers in default under Companies Act or under other laws.
Somehow, there were many grey areas related to various crimes being committed by such officers. Soon, after several large corporate scams (including Harshad Mehta, Satyam, etc), corporate crimes emerged into public light resulting in various laws to be enacted by the Government of India in order to define, investigate, prosecute and penalise concerned perpetrators for such offences.
Current laws governing Corporate Crime:
Indian Penal Code, 1860 (“IPC”)
The law was made in the days of the British colonialism and since then major changes to it have not been made. It broadly covers the crime of the streets, and some corporate crimes such as fraud, cheating, misrepresentation, criminal breach of trust, criminal conspiracy, forgery etc. However, these weren’t exhaustive to regulate corporates crimes. IPC gives power to police such as CBI, Crime Branch, Special Cells, Economic Offenses Wing, etc.
An accused is brought to the Adjudicating Authority i.e., Magistrate typically after a chargesheet is filed by police against the accused. Generally, before this period i.e., during the police investigation stage, any statement given to police in custody or otherwise can be retracted as being coercive by the accused.
Indian criminal jurisprudence being mostly adversarial as no additional burden of proof is on an accused or no additional presumptions can be in favour of the police. The entire burden of proof is on the prosecution side (police) to prove the accused guilty beyond reasonable doubt and establish the ingredients of the offense(s) an accused is charged with.
Securities and Exchange Board of India (“SEBI”) Act, 1992
SEBI is the regulatory body for security and commodity market in India. SEBI Act,1992 was enacted to provide security to the investors and to restrain various types of offense(s) including insider trading, front running, market manipulation, synchronised block trades, etc., being conducted by employees and/or others involved in trading of the listed companies. SEBI keeps a close eye on all the share related transactions happening within India.
In the case of Satyam Computer Services Ltd vs SEBI[2], an application was filed under Sections 388B, 397, 398, 401, 402, 403 read with 406 and 408 of the Companies Act, 1956, by the Government of India. The Chairman of Satyam Software Services Ltd, Ramalinga Raju, confessed to a fraud of Rs 7,136 crore committed by him and a few others.
The scam highlighted several loopholes in the Indian corporate governance structure - unethical conduct, fraudulent accounting, insider trading, oversight by auditors, ineffectiveness of Board, failure of independent directors and non-disclosure of material facts to the stakeholders. Mr. Raju was charged with criminal conspiracy, breach of trust, and forgery, an imprisonment of 7 years and a fine of Rs 5.5 Crores.
Serious Fraud Investigation Office (“SFIO”) under Companies Act, 2013
SFIO was empowered by section 211 of the Companies Act, 2013. It is an agency carrying out investigation of serious corporate and/or organised frauds. SFIO directly reports to the Ministry of Corporate Affairs. It is a multi-disciplinary organisation having experts from financial sector, capital market, taxation, information technology, customs, company law, forensic audit, law and investigation for the prosecution of white-collar crimes and frauds under the Companies Act, 2013.
Foreign Exchange Management Act, 1999 (“FEMA”)
FEMA was passed by the government to regulate international trade and foreign exchange control. It authorises and grant the power and right to the Enforcement Directorate to conduct investigation in the event of contravention of FEMA, and rules & regulations made thereunder.
Further, if a corporate commits any contravention of FEMA and rules & regulations made thereunder, in addition to the corporate any person in charge of or responsible for the conduct which can be either Director, Manager or any other employee would be liable. Punishment for a breach of FEMA and rules & regulations made thereunder may be up to three times the sum involved in such contravention and/or imprisonment for a term which may extend to five years.
In the recent case of Xiaomi Technology India Private Limited vs Directorate of Enforcement(“ED”), the ED seized Rs 5,551.27 crore of Xiaomi Technology India Private Ltd under section 37A of FEMA lying in the bank accounts under violation of section 4 of FEMA in connection with the illegal outward remittances made by the company.
Further, Adjudicating Authority of FEMA had issued the notices under Section 16 of the FEMA to Xiaomi Technology India Private Ltd. and its two executives, Citibank, HSBC and Deutsche Bank AG for the contravention of Sections 10(4) and 10(5) of FEMA and directions issued by the Reserve Bank of India (RBI), as they allowed foreign outward remittances in the name of royalty through the banks, without conducting mandatory due diligence and without obtaining any underlying documentation technical collaboration agreement from Xiaomi.
Prevention of Money Laundering Act, 2002 (“PMLA”)
PMLA was introduced mainly to scrutinize monetary transaction which seems unusual or suspicious thereby to follow all the possible trails connecting it with all the individuals or corporates related to such transaction. To check if the trail ends up in a crime e.g., in black money arising out of tax evasion, financial frauds or overevaluation/undervaluation of the property or other crimes mentioned in the Schedule of PMLA.
Under PMLA, an accused is investigated and brought to the Adjudicating Authority by ED, if charged with the crime of money laundering. Any statement given before ED during investigation cannot be retracted as being coercive by the accused. Unlike IPC, under PMLA certain additional burden of proof is on the accused. Certain presumptions are also in favour of the prosecution. Therefore, ED investigation and prosecution under PMLA have severe consequences compared to usual Police investigation and prosecution.
In the infamous case of Neerav Modi vs Deputy Director[3], the scam amounted to Rs. 13,400 crores which was one of the most publicised and controversial money laundering cases in the history of India. The scam was orchestrated by the diamantaires Mehul Choksi and his nephew Nirav Modi, along with the assistance of more than 50 employees from the Brady House Branch, Punjab National Bank in Fort, Mumbai.
The Competition Act, 2002 (“CA”)
CA was implemented in order to prevent monopoly and unfair or restricted trade practices in the market by a corporate and/or organisation and to promote competition in the market. It also provides the framework for the establishment of Competition Commission in India. Its objective is to safeguard the interest of the consumer and safeguard free and fair competition as well as free trade.
In the case of Builders Association of India v Cement Manufacturer’s Association (also known as Cement Cartel Case)[4], an information was filed under section 19(1)(a) of the Competition Act, 2002 against Cement Manufacturer’s association and 11 other cement companies for violation of section 3 (anti-competitive agreement) and 4 (abuse of dominant position) of the act. The respondents were held responsible under section 3(3)(a) and 3(3)(b) of the act and monetary penalty was imposed on respondents of Rs 6,300 crores along with directions to cease and desist from indulging in any anticompetitive activity.
Conclusion:
Even though white-collar crimes are hard to identify, the Government of India and its evolving law regime has constantly been a watch dog for the society. However, white-collar crimes cannot be limited to single law/act, as a result, various agencies empowered through numerous laws/acts regularly scrutinize the corporate activities and brings out the notorious ones out there in the light. On top of that their legal process from investigation till conviction or acquittal is pretty strong and there is not much power is given to other courts to intervene. Once under the radar of such agencies it is very difficult to escape for an offender.
Such evolution towards stricter laws, defining offences, their investigation and prosecution is much desired and a step in the right direction. However, sufficient checks and balances must be put in place to safeguard against politicization or misuse of such strict laws so that they do not end up becoming draconian.