Commercial Organisations: Sections 9 and 10

Sections 9 and 10, inserted in 2018, introduced corporate liability for bribery into Indian law. Section 9 makes a commercial organisation liable to fine where a person associated with it gives or promises an undue advantage to a public servant to obtain or retain business or a business advantage, subject to a defence that the organisation had adequate procedures in place. Section 10 makes a director, manager, secretary or other officer personally liable where the offence was committed with his consent or connivance. Between them they created, for the first time, an affirmative compliance obligation on companies doing business in India.

1. The Offence under Section 9

1. A commercial organisation, as defined in the Explanations to the section.
2. A person associated with it gives or promises to give an undue advantage to a public servant.
3. With the intention of obtaining or retaining business for the organisation, or of obtaining or retaining an advantage in the conduct of its business.
4. The penalty is fine. The organisation is liable to fine and to nothing else, since a body corporate cannot be imprisoned; the imprisonment falls on the officers under Section 10.
5. The defence. It is a defence for the organisation to prove that it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.

2. Commercial Organisation

The definition is drawn to reach foreign as well as Indian entities, and its structure should be learnt as four limbs.

• A body incorporated in India which carries on a business, whether in India or outside India.
• Any other body incorporated outside India which carries on a business, or part of a business, in India.
• A partnership firm or an association of persons formed in India which carries on a business, whether in India or outside India.
• Any other partnership or association of persons formed outside India which carries on a business, or part of a business, in India.
• Business is defined to include a trade or profession or the provision of a service, which brings professional firms and service providers within the section.

3. Person Associated with the Organisation

A person is associated with a commercial organisation if he performs services for or on behalf of it, and the capacity in which he does so does not matter: he may be an employee, an agent or a subsidiary. Whether a person performs services for or on behalf of the organisation is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between them. Where the person is an employee, it is to be presumed unless the contrary is proved that he is a person performing services for or on behalf of the organisation.

• Employees are covered, with the presumption operating in the prosecution's favour.
• Agents, distributors, consultants and intermediaries are covered where they perform services for or on behalf of the organisation, which is why third-party due diligence is the central element of any compliance programme.
• Subsidiaries are expressly included, so a parent may be liable for a payment made by a subsidiary performing services on its behalf.
• The test is functional. A contract describing a person as an independent contractor does not conclude the question, since all the relevant circumstances are to be considered.

4. The Adequate Procedures Defence

The defence is the counterpart of the wide liability. The organisation must prove, and the burden is on it, that it had in place procedures designed to prevent persons associated with it from undertaking such conduct, and that those procedures were adequate. The Central Government is empowered to prescribe guidelines on what such procedures should contain, and until guidelines are in force organisations look to the standards applied internationally and to the practice of the regulators. The elements generally regarded as necessary are these.

1. Top-level commitment. A clear and communicated policy, owned by the board, that bribery is prohibited without exception, including facilitation payments.
2. Risk assessment. A documented assessment of the organisation's exposure by country, sector, transaction type, business opportunity and business partnership, reviewed periodically.
3. Proportionate procedures. Controls on gifts and hospitality, on political and charitable contributions, on sponsorships, on the use of agents, and on payments outside the ordinary course, supported by financial controls and authorisation limits.
4. Due diligence on third parties. Screening of agents, distributors, consultants and joint venture partners, with anti-bribery representations, audit rights and termination rights in the contracts.
5. Communication and training. Training appropriate to role and risk, and a channel by which concerns can be raised confidentially and without retaliation.
6. Monitoring and review. Internal audit of the controls, investigation of reports, disciplinary action where breaches are found, and a record of all of it, since the defence is proved by documents rather than by assertion.

5. Liability of Officers under Section 10

Where an offence under Section 9 is committed by a commercial organisation and it is proved that the offence was committed with the consent or connivance of any director, manager, secretary or other officer of the organisation, that person is guilty of the offence and is liable to imprisonment of not less than three years, extending to seven years, and to fine. For a partnership firm or an association of persons, director means a partner in the firm or a member of the association.

Two points of construction follow. Section 10 requires consent or connivance and not mere neglect, which distinguishes it from the vicarious liability provisions in other statutes that also cover negligence; a director who did not know and was not wilfully blind is not liable. And liability under Section 10 depends on the organisation's offence being established, so the adequate procedures defence, if successful, removes the foundation for the officer's liability under this section as well, though it does not protect an officer who is himself a giver under Section 8 or an abettor under Section 12.

6. Related Topics and Provisions