Had a freewheeling conversation with Sarthak (from Letter of Law) on law, life, literature, poetry and everything in between.
A very insightful column by Ms. Sonam Singh (DJS). First published at Livelaw. Here goes:
DAUGHTER-IN-LAW’S RIGHT TO RESIDENCE UNDER THE DV ACT AND THE SUPREME COURT 
Pitaji, Mataji, Bahu and Beta were all living together happily, after the marriage of Bahu and Beta. Their house – let’s call it, Swarg, where they all stayed, was owned by Pitaji. Mataji and Bahu used to cook together in the common Rasoi.
After a few years, differences arose between Beta and Bahu. Now, Pitaji wanted Bahu to leave Swarg. The question that arises is whether Bahu can be asked to leave Swarg, since the property exclusively belongs to Pitaji?
EARLIER POSITION OF LAW
As per DV Act, a woman has a right of accommodation in ‘shared household’. What is a ‘shared household’ has been a cause of huge legal controversy. Is it only when the property belongs exclusively to husband or one in which he has a share or even those properties which belong to in-laws but where the lady has stayed would also qualify as ‘shared household’ and a right to residence can be sustained in that property? This has been a vexed question.
Mapping the precedent to the present case, as per the judgment of S.R. Batra v. Taruna Batra, ‘Swarg’ could never be characterised as Bahu’s ‘shared household’, in case Pitaji or Mataji were the exclusive owners of the property. Meaning thereby, in any suit for possession/mandatory injunction filed before a civil court by Pitaji or Mataji on the basis of title, Bahu can be asked to leave for want of a legal title.
The only exception carved-out, when Bahu could seek residence, was when Swarg was a joint family property and Beta lived as a member or had a share in it. This led to a lot of concern and justifiably so. Batra was largely perceived as a bit too harsh. There were also questions of the court having read an ambiguity where there was none and unduly narrowed the scope of a protective legislation.
DEL HC LAID THE PATH WITH ITS PROGRESSIVE JUDGMENTS
It is interesting to note that the Del HC in its judgments of Eveneet Singh v. Prashant Chaudhri & Ors. , Preeti Satija v. Raj Kumari and Anr. and Navneet Arora Vs. Surender Kaur and Ors., which were delivered much before Ahuja and after Batra with its progressive views held that the residential right of the daughter-in-law is not “dependent on title but mere factum of residence”.
Although, in Satija and Arora, the Del HC did not provide any relief as such and matters were sent back for fresh adjudication to the original courts. The only exception was of Eveneet Singh but in that as well, the Del HC denied the right of the daughter-in-law to reside in the “shared household” on the ground that the existing illness of the mother-in-law could get aggravated because of their acrimonious relationship. It directed the husband to provide an alternate accommodation or rent in lieu of it within 10 weeks and till that time, the daughter-in-law was permitted to reside in the shared household.
The latest case in these series is of Vinay Verma v. Kanika Pasricha & Anr. , wherein the Del HC has laid down certain guidelines in order to determine as to who should bear the obligation of providing accommodation to Bahu, whether it is Pitaji/Mataji or Beta. Nevertheless, the court did not provide Bahu a right of residence in the shared household, if Pitaji is proved to be the owner.
After the pronouncement of the judgment by the apex court in Satish Chander Ahuja v. Sneha Ahuja, now the daughter-in-law has the right of residence in her matrimonial home, irrespective of the fact whether her husband has any ownership right or share in it.
It held that the judgment of Batra did not lay down the correct law. It stated that the definition of “shared household” provided under Section 2 (s) of DV Act cannot be interpreted to mean only that household which is a joint family property or a property in which husband of the aggrieved has a share.
The court in Ahuja went back to the basics. It appreciated that under Section 2(s) of DV Act, the “shared household” was always defined as a house where Bahu had lived uninterruptedly, irrespective of who the owner was. It also included properties which were taken on rent by any of the family members with whom Bahu was residing. The only criterion is that they all should have stayed together in a domestic relationship for a long period. This is in tune with India’s reality, where Beta and Bahu, reside with Pitaji and Mataji, after marriage in a common household. The initial intent of the law was somewhat defeated by the reading in Batra.
Having said that, questions remain as to the exact contours and limits on this right. For instance, if the property does belong to Pitaji, how long can Bahu stay in it? Forever? How will the decree in favour of Pitaji be executed? What would be Bahu’s right qua strangers/third persons? Also, who would determine these questions? DV Court or Civil Court?
IF PITAJI IS THE OWNER, FOR HOW LONG CAN BAHU RESIDE IN THE “SHARED HOUSEHOLD”?
After Ahuja, in a suit for possession/mandatory injunction, if Pitaji was successful in proving himself to be the owner of the shared household, Bahu will be able to reside in the property, up until Beta provides for an alternative accommodation (of the same level) or rent in lieu of it.
HOW WILL THE DECREE IN FAVOUR OF PITAJI BE EXECUTED?
The next question which arises is as to how the decree in favour of Pitaji be executed. Earlier, as per Batra, the civil courts were simply issuing warrants of possession, once Pitaji proved to be the exclusive owner of the shared household. The civil court did not decide on the right of residence of Bahu.
Now, applying Ahuja, the civil court will have to decree the suit for eviction, in favour of Pitaji contingent on the fact that Beta will provide an alternate accommodation or rent in lieu of it. However, there is no clarity as to what will happen if the husband commits default in payment of rent, let’s assume, after 6 months? Will the possession of Bahu be restored in the shared household? For how long will the order of residence u/s 12 DV Act continue, considering the order was considered in transient in nature? These questions have remained unanswered.
ISSUE OF RIGHT OF RESIDENCE TO BE CONSIDERED BY THE CIVIL COURT?
The apex court in Ahuja held that in a suit for possession/mandatory injunction by Pitaji, the civil court has to decide on the right of residence of Bahu. It cannot turn a blind eye to Bahu’s residential right and simply award possession in favour of Pitaji, who is the exclusive owner of the property. The civil court has to ensure that the issue of Bahu’s residence is delved into in order to harmonize the civil rights with the ones provided under DV Act.
Further, it is often seen that while the case filed by Pitaji is pending before the civil court, Bahu relies on DV Act before the criminal courts.
In those criminal proceedings, the most sought-after relief is that of interim relief of residence in the shared household. In view of Ahuja, if Bahu is successful in availing an interim relief that she cannot be dispossessed from Swarg, then the civil court will have to be mindful of itbecause otherwise the relief granted would be purposeless. Hence, keeping in mind the interim relief granted by the special court, the civil court can balance the rights of the parents to enjoy their own property and also protect the hapless woman.
DOES AHUJA PROVIDE A COMPLETE PANACEA?
Whether the judgment of Ahuja provides a complete panacea, for all problems relating to women’s right of residence? The answer is yes and no.
Yes, to the extent that it solves the problem of Bahu, as she will not be rendered homeless, till the time her husband provides for an alternate accommodation or pays her rent in lieu of it.
No, because it only gives a limited time frame for providing residence or rent. Pitaji has the right to enjoy his property and generate income from it. Ultimately, Bahu has to move out of Pitaji’s self-owned property.
BALANCE BETWEEN THE RIGHTS OF DAUGHTER-IN-LAW AND OF PARENTS
So, what is the way forward? The answer is a balance of the rights of the parties. As per Section 17 of DV Act, a woman has a right of residence in a shared household and cannot be evicted except in accordance with “procedure established by law”.
The intention of DV Act was always to protect the marginalized women, who have no voice of their own. One of the important objects is to ensure that such women are not rendered homeless. However, in view of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007, (in short “PSC” Act”) the rights of the senior citizens, who deserve a peaceful life in their own property also have to be protected. They can ask Beta and Bahu to leave from their own self-owned property, which they earned from their own sweat and blood!
The Del HC in Vinay Verma recognized that both DV Act and PSC Act are special statutes and govern the overlapping nature of relationships. It had acknowledged that there has to be a balance between the daughter-in-law’s right of residence and the parent’s right to enjoy their own property and generate income from it.
The SC also recognized in Ahuja that the right of residence of the aggrieved is not indefeasible and while granting relief under Section 12 DV Act or in any civil proceedings, the civil court has to balance the rights of the parties.
Although Ahuja is a welcome step in protection of the rights of women, but there are certain unanswered questions with respect to how the final outcome will be executed. Question of what will happen in case of default of payment of rent by Beta? Whether Bahu’s possession in shared household be restored in case of failure of payment by Beta? Question of duration of order of residence u/s 12 DV Act? Hopefully, those questions will be answered soon.
 By Sonam Singh, Metropolitan Magistrate cum Civil Judge, Delhi Judicial Services. Views of the author are personal.
 Common kitchen
 2007 3 SCC 169
 2010 SCC Online Del 4507
 2014 SCC Online Del 188.
 2014 SCC Online Del 7617
 2019 SCC OnLine Del 11530
 2020 SCC OnLine SC 841
 Section 19 (1) (f) of DV Act
Always keen to work with bright young legal minds who are passionate about law and justice.
BUT you’ll have to meet me half-way and give me a reason to want to know you. A reason to work and engage with you, and a reason to share the little that I know about law, and – in turn, learn from you.
Template/Format based applications, therefore, are a strict NO. They don’t help me know you at all. Also, I am not a “Sir/Madam”. Never have been, and don’t intend to be. Please don’t do this. I’m not going to read another line of your application if that’s how you start. The essence of legal practice is the ability to step out of your own skin and walk the town in someone else’s. Think like me, or whoever is reading you email. Why should I continue to read your email when you haven’t put in the effort of communicating well with me. Good writing reflects good and clear thinking. Think well. Write well. Your application should reflect how you think and who you are. Don’t be generic. Talk about your dreams and ideas, not the dreams and ideas of the one whose internship application you blindly aped.
Therefore, please avoid cookie-cutter applications which lack individuality, and are boring to read.
Be creative. Show us the value that you can add to the team – in terms of law, and life. We are happy to share the little that we know with you, but you’d have to show us that it’s worth the effort and you’d be amenable to learning, and have the basics in place.
Instead of using adjectives such as I am “hardworking” or a “team player”, demonstrate in your application a challenging situation that you dealt with and came out winning from. As someone wise said : Show, don’t tell! Story telling is one of the most important parts of being a lawyer and the sooner you learn it – the better it is. I don’t care what law school you are from. But it’s important to me that you’re passionate about the subject.
Good writing is fun to read. Talk to me (in your application) – for instance, about the evolution of an interesting legal concept, a case law that you read and don’t agree with, or a tough legal proposition that you worked on, or an article that you once wrote. Write to me, for instance, about the challenges of the criminal justice system and how we can make it better. Talk to me about how litigation would look like 20 years from now. Ideas, concepts, dreams. Show me that you have led, or are – at-least, willing to lead an examined life.
Write, for instance, a story, or a poem, or – even crazier – a letter that your future self would write back to your present self, talking about your journey in the profession. Anything! Just keep it interesting and ensure that it brings out who you really are!
I really hope you’d give me a reason to work with you.
On my side of the bargain, I’d try not disappointing either….
Look forward to working with you!
PS : request you to note that there’s no other way to apply except the above. No calls/SMS/Whatsapp/DM.
Delighted to be on the Young Singapore International Arbitration Centre (SIAC) Committee for yet another term, representing India. Hope to be able to make a meaningful contribution to the fabulous institution that SIAC is and the cause of Arbitration in India.
Do send me suggestions/recommendations/ideas 🙂
A chat with The Logical Indian on the legality and propriety of Disha Ravi’s arrest, police remand, and the law of Sedition.
First published by SCC Online #ExpertsCorner
“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”
Who is the master of them all? The written letter of the law, or the subjective whim of an investigator?
This is the question that Section 447 of the Companies Act (“CA, 2013”) poses.
Section 447 makes Fraud a penal offence. Prior to introduction of Section 447, provisions under the Indian Penal Code, 1860 (“IPC”) such as Section 406, 420,465, 477A, etc. would normally be pressed into action in such cases. But, given the complex nature of corporate frauds, their sheer impact, and the heightened need to investigate and punish them more effectively, the need for a special provision was felt.
This is the genesis of Section 447 of the CA, 2013. So far so good.
The definition of the ‘fraud’ under CA, 2013, however, leaves a lot to be desired. In fact, it is a definition that fails to define. Let us see how. Section 447 reads:
447. Without prejudice to any liability including repayment of any debt under this Act or any other law for the time being in force, any person who is found to be guilty of fraud involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud….
Interestingly, the section itself does not define what fraud is. This is what takes us to the Explanation.
Explanation.—For the purposes of this section—
(i) “fraud” in relation to affairs of a company or any body corporate, includes any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss;
On a mere glance, two things immediately stand out:
- There is no definition of Fraud in the main provision. It is the Explanation to the section that seeks to define what Fraud is. The definition in the Explanation is – and wait for it – an inclusive one. It is merely illustrative. Simply put, this means that the section does not define Fraud exhaustively and there can be other acts which may qualify as ‘fraud’, over and above those stated in the section.
- Finally, the last part of the section which renders culpable the act of injuring of the ‘interests’ of “any other person” is simply too wide.
Let us unpack each of the above briefly:
First things first, the definition comes out of the Explanation and not the section itself. There is substantial jurisprudence on the purpose of an ‘Explanation’ to a provision. An Explanation is supposed to clarify. But here the explanation does just the opposite. It obfuscates. It does illustrate what would qualify as ‘fraud’ but leaves the door wide open. Put differently, it says ‘x, y, and z’ would be fraud, but, wait a minute, there may be other things that may qualify as ‘fraud’ – too. Now, this is where the problem lies. Who decides what those other things may be? The Investigator? And that too post facto. This is not how criminal laws are supposed to work.
The provision is astonishingly open-ended, and in my humble opinion, unconstitutionally vague. It is an established legal position that there cannot be blurred signposts to criminality. There is a constitutional requirement that a criminal statute be precise, specific, and unambiguous. The idea being that a citizen cannot be kept guessing about what is criminal and what is not and should be able to understand as to what exactly constitutes a crime. Criminal laws which do not explicitly and definitively state which conduct/omission attracts criminal sanctions – may be challenged on the ground of being void for vagueness. This is because vague statutes can lead to arbitrary and discriminatory prosecutions and concentrate too much power in the hands of the investigators.
A definition such as the one for Fraud that we saw above would leave the investigators with way-too-much latitude to, mean what they mean out of the term. Such breadth may lead to over-criminalization and abuse.
In Skilling v. United States 561 U.S. 358 (2010), it was held that a
“penal statute must define the criminal offense (1) with sufficient definiteness that ordinary people can understand what conduct is prohibited and (2) in a manner that does not encourage arbitrary and discriminatory enforcement.”
Similarly, in State of Madhya Pradesh v Baldeo Prasad AIR 1961 SC 293, the Court struck down a law criminalising “goondas” on the basis that it did not really define who a “goonda” was. In this case, the definition of a goonda laid down by the Central Provinces and Berar Goondas Act, 1946, was of an inclusive character, and indicated no definitive tests for deciding whether the person was a ‘goonda’ or not.
Section 447 of the CA, 2013 suffers from a similar anomaly.
The way it is worded and the kind of discretion it gives an investigator reminds one – of what Bentham calls – Dog’s Law:
“Just as a man makes laws for his dog. When your dog does anything you want to break him of, you wait till he does it, and then beat him for it. This is the way you make laws for your dog….”
This cannot be the way laws are made for men, especially in a jurisprudence governed by the rule of law, and not the rule of men. And, for greater reason, when personal liberty is at stake.
The vagueness of what ‘fraud’ is under 447 of the Act is further compounded by the use of expressions such as : acts/omissions injuring the “interests” of “any other person”. Now what are these “interests” and who all can fall within the scope of the expression “any other person” is left to the investigator, and then – the Court. The inclusive nature of the definition and both these expressions are capable of too wide a meaning, and add to the vagueness of the section, and possibility of abuse.
Given the above, there is a need to either read down, or statutorily amend Section 447 of CA, 2013 and tailor it narrowly – and with precision and clarity. In the present shape, the section is unconstitutionally vague, subjective, open-ended and prone to misuse & over-criminalization. In our enthusiasm to check the scourge of white-collar crime and corporate frauds, we must not cut corners with fairness and due process. A just, fair and reasonable criminal justice system mandates clear signposts to criminality. In other words, what we need is: The Rule of law, and not the rule of the investigator.
 Authored by Bharat Chugh. The Author wants to thank Yashdeep, Sonam, Anoushka and Anushna for their invaluable inputs.
Just looked at the High Court order denying bail to the comedian Munawar. With great respect, here are my two cents on how the decision is untenable in law, in my humble opinion:
- The decision ignores the fundamental principle of criminal law : Presumption of Innocence.
- The decision also ignores the rather limited scope of scrutiny at the time of grant of bail. A bail hearing is not where you appreciate evidence, or embark on a scrutiny of the case on merits, and return findings on the conduct of the accused (on merits).
- The statements of the witnesses (and assertions of the Complainant) appear to have been taken on their face value and accepted to be correct. This is untenable under the law. These statements are to be tested at trial. Burden of proof is on the prosecution, and is a strict one. A bail hearing is not a trial, or even a mini-trial – for that matter. Taking statements of witnesses at their face value, at the stage of bail, not only turns the presumption of innocence right on its head – but also amounts to denial of fair trial (since it deprives the accused of a crucial right of cross examination). Please bear in mind that the Accused – at this stage – has no means of rebutting what the Judge feels the ‘merits’ of the case are.
- In case of any reflection on merits during a bail hearing, the damage to the Accused is irreparable. (Ask, how would the accused be compensated for this detention should he be acquitted after a full blown trial. What if accused is able to prove, at trial, that : i) he did not say what is being attributed to him; or, for instance, ii) there was no intent to create enmity/malicious intent to insult/defile (Mens Rea being absent!) and the speech is protected by the constitutional freedom to speech and expression, etc, etc. By the time the trial ends (which would take years!) should the accused remain in custody?).
- It is settled law that Bail cannot be denied or withheld as a mark of disapproval of the accused’s alleged conduct or as ‘punishment’. This is for the simple reason that the prosecution allegations are, for want of a better term, mere allegations. A suspicion or an allegation is not proof. All of these things are required to be proved at Trial, and not just proved; proved beyond all reasonable doubt.
- The prime considerations to be kept in mind at the time of Bail are : Chances of Accused absconding from the process of law, the chances of Accused tampering with the evidences and/or influencing witnesses. A perusal of the judgment reveals that there was no evidence to suggest any of these. Collection of further evidence (as highlighted by the Court) can continue even without keeping the accused in detention.
- Admittedly, in the facts of the case, witness statements stand recorded, and alleged video evidence (of which curiously there is no discussion in the order) also stands seized.
- The case, therefore, is based on oral and documentary evidence, which is already in the custody of the Police.
- In such circumstances, there is absolutely no need of custodial interrogation or detention.
- The denial of Bail, therefore, is unfortunate, and untenable under the law.
- The decision is unfortunate as, in my humble opinion, it disregards the principle of presumption of innocence, has the effect of prejudging guilt, disregards the limited scope of scrutiny at the time of bail, and fails to apply the correct test (which is to be applied at the time of bail).
- Observations such as, the State must ensure that our peaceful co-existence/society is not “polluted by negative forces” are similarly unfortunate. At the cost of repetition, bail cannot be denied as a mark of disapproval of Accused’s conduct and denial of bail cannot be ‘punitive’. Reflections and comments on Accused’s conduct can only be after a full blown trial and after the Accused is given an opportunity to contest those. Not at the time of Bail.
- One hopes that the order is corrected by the Supreme Court soon.
First published on SCC Online Blog
There’s hardly any webinar on the effects of the pandemic that gets concluded without the wise panellists exhorting us – in Churchill’s words not to, “let a perfectly good crisis go to waste”. The intent, of course, is for us to gather newer skills and keep reinventing ourselves, in order to stay relevant. While we may or may not learn, white collar criminals seem to know this better than anyone else and they are not letting this crisis go to waste.
Hate to sound like an alarmist, but the truth is White Collar Crime (“WCC”) is on the rise and it is further expected to grow – by alarming proportions – in the next few months and years. A crisis is often followed by a rise in the number of financial crimes. We are already seeing a huge rise/spike in cases relating to cyber-crime, employee fraud, illegal profiteering, accounting malpractices, money laundering, corruption in the grant of government contracts, bail-outs, stimulus packages, and so on. A large amount of money is being pumped into economies worldwide to alleviate the crisis.
We all know that it was not really the best of all possible worlds – financially, even before COVID, but the pandemic really made it worse. It has given rise to a vicious triangle (known as the Fraud Triangle); a deadly cocktail of Pressure, Opportunity and Rationalisation which has always provided a great breeding ground for WCC.
Let us see how:
Pressure: A rising tide is known to lift all boats, but, it is only when the tide goes out that you learn who has been swimming naked. A crisis such as a pandemic offers not only a great motivation for all sorts of financial chicanery but also lays bare the real financial position of a lot of entities. Because of the financial downturn, businesses are under tremendous pressure to make (or at least appear to make!) their financial targets/numbers. Most companies are missing their financial targets and that leads to enormous pressure. This is made worse by the kind of compensation incentive structures that we have. Executive compensation, as we all know, is mostly linked to profits, and the bottom line, unfortunately, is the only thing that separates success from failure in the cut-throat world of business. An unprecedented situation of pressure such as this, often yields itself easily to falsification of accounts, accounting malpractices, market manipulation, fraud and other financial shenanigans.
Opportunity: What has further exacerbated the situation is the presence of a great opportunity for people prone to such acts. With priorities elsewhere, internal controls, compliance and supervision have become somewhat lax. Travel related restrictions and physical closure of offices have created gaps in regulation and oversight. Attention – for the most part, is diverted to somehow keeping businesses afloat and saving jobs. Internal controls and incisive due diligences do not appear to be the top priority at this moment.
What provides an even greater opportunity is the fact that governments across the world are pushing in trillions of dollars into the economy as stimulus packages & bailouts. Further, the governments are procuring (especially in sectors such as healthcare) like never-before and, since time is of the essence, the usual safeguards in the process in public procurement (both in terms of pricing and quality) are being bypassed. Extraordinary circumstances indeed require extraordinary measures but the extents to which we are ready to make departures from best and healthy procurement practices is quite disconcerting.
Times such as these yield themselves easily to corrupt practices. And in this, we may do well to remind ourselves that – even historically, most anti-corruption laws owe their genesis to crisis, war-time procurement, and the resultant corruption. Everyone seems to have let their guard down. This, as history tells us, is a terrible idea.
Rationalisation: This is another important element in understanding WCC. The people who usually commit WCC are intelligent & sharp people (usually decision-makers at the higher rungs of organisations and companies) who are very good at rationalising (though terrible at being rational!). This rationalisation is nothing but a distortion of facts to make things appear better than they really are.
To illustrate this, the thinking of most white collar criminals mostly is, “It’s just a change of numbers on a spreadsheet; we are not killing anyone!”, or “We are doing this to save jobs, and we’ll push the money back-in, once times are better”.
This deadly cocktail of rationalisation and short-term thinking is extremely problematic and is further compounded by a tendency to want to remain in ‘denial’ – often despite all evidence to the contrary. There is no-one as blind as the person who doesn’t want to see, right?
A crisis – in fact, is time to introspect but not many companies (and that’s true across the world, and across times) have successfully engendered a culture of radical honesty where anyone can tell the emperor that “he has no clothes…”. Rationalisation and wilful blindness are rampant; meetings often mere echo chambers. This is even more problematic in times of crisis and needs to change.
The fact that the victims of WCC often are a body as diffused and abstract as ‘shareholders’, ‘investors’, ‘taxpayers’, ‘employees’ and not a single visible person – such as an 80-year-old widow, makes it easier for the perpetrators to rationalise. Since one can’t see the immediate victims, as one may – in a conventional crime such as murder, one finds it easier to rationalise and have less (or no) moral compunctions about one’s acts. The importance of putting a face to the victim cannot be emphasised enough. We need to ensure that victims of WCC do not remain invisible.
“If I look at the mass, I will never Act. If I look at the one, I will”. This statement by Mother Teresa provides a great insight into human nature and reminds us that we are most likely to act charitably to the suffering of “one’ who is before us, but the suffering of an abstraction such as “humanity”, “investors”, “shareholders” or “pensioners” fails to conjure up any humanity in us.
So, the point is made: Given the circumstances, White Collar Crime needs to be taken seriously. In case of a company, indeed a company has “no soul to be damned and no body to be kicked”, but, under our legal system, a company can still be prosecuted and face massive and often debilitating fines. There is, therefore, a need to understand the risks and keep a few things in mind. Here are a few suggestions:
i) Recognising that this is not the time to drop our guard: Compliance departments in organisations should, in fact, be working in over-drive. There should be frequent checks and training/hygiene drives should be ramped up too, especially for those organisation which do business in areas having a lot of government interface, and areas which are tightly regulated and considered high-risk traditionally – such as healthcare or defence. The same is also true for organisations dealing with sensitive personal data, take – for instance, companies in the fin-tech space.
One needs to be wary of the risks. This is not the time to cut down on in-house legal/compliance staff and external legal advice. Cutting corners with the law with a view to save up some money is extremely short term/myopic thinking. The regulatory backlash and consequences would often far outweigh the compliance costs – for most high to moderate risk areas of work.
ii) Putting in place ‘adequate procedures’ to ensure that corrupt practices do not take place. These ‘adequate procedures’ are nothing but proper compliance and anti-bribery programmes. These commonly include:
- Exercises for identification of corruption risks; assessment of controls/checks and balances;
- Developing and ensuring compliance with proper policies and codes of conduct;
- Regular anti-bribery, anti-corruption training programmes for all relevant stakeholders;
- Proper vigil mechanism incentivising whistle-blowers to raise their concerns.
- Rules regarding maintenance of proper documentation to ensure illegal practices are ruled out.
- Investigation of suspected instances of illegality/corruption with a view to fix liability of individuals concerned.
- High-risk areas can be monitored with the help of data analytics. The compliance teams should have access to all the important data streams in order to boost efficiency.
The above procedures may not only help in preventing illegal practices but, in the event of a possible prosecution of the organisation, also afford a legally tenable defence to the company. Having ‘adequate procedures’ in place (to check corruption) is a specific defence for companies under the new Prevention of Corruption Act, 1988 (“POCA”) where – for the first time – even commercial organisations can also be prosecuted for corruption, and not just errant individuals. Marking a departure from the earlier legal position, POCA also makes bribe-giving an offence. There is, therefore, a need to be extremely careful.
iii) Introducing expedients such as creation of ‘ethical hotlines’ that provide an anonymous, safe and easy reporting mechanism.
iv) Change in corporate culture: A strong corporate culture of zero tolerance of corrupt practices. Merely detailing the rules on the company website or portal is simply not enough. There should be a cultural shift within the organization in order to ensure that everyone understands why a strong stance against financial crime is important and why doing business ethically is always a better idea. (In other jurisdictions, courts are increasingly looking into ‘corporate culture’ while deciding as to whether, in a given case, acts of employees/agents can be attributed to a corporation, or not and whether a company can be criminally liable in a case)
v) Protection of whistle-blowers and better incentives. “Show me the incentive and I’ll show you the outcome”. This quote by Charlie Munger really sums up the central force driving human behaviour, across countries and across times. We, as a legal system, (and as organisations) really need to get our act together on not just protection of whistle-blowers but also their incentivisation; whistle-blowers and witnesses – after all – are the eyes and ears of the system. Most white-collar investigations are complex and require ‘someone-on-the-inside’ to spill the beans, help and assist the investigation. But we haven’t done much to incentivise such assistance. Also, barring tax laws and some law on insider trading- no Indian law currently incentivises whistle-blowers. We, as human beings, function on incentives and having better incentives and protection for whistle-blowers will go a long way in strengthening corporate compliance, and ensuring that cases of white-collar crime are caught early.
vi) Prompt internal investigations/enquiries : Once a company learns of a potential fraud, proper fact-finding investigations should be undertaken at the earliest. Steps should be taken to preserve all the relevant data and information, to prevent obliteration of crucial evidence. A forensic investigator may also be engaged at the earliest to identify and plug-in any leaks and external counsel should be consulted to examine risk(s) and duty to report, if any.
vii) Data backups & cybersecurity: Given the huge spike in cyber-crime, corporations should be cautious of threats to their infrastructure both from the inside as well as outside. Data backups should either be centralized or stored in a warehouse and IT departments should be on the constant lookout for any cyber-attacks/ransomware attempts and vulnerabilities.
viii) Insider Trading: An unhinged economic environment can provide motivation to an employee to look for short term gain, and capitalize on non-public price-sensitive information. Companies should promptly update their insider trading policies and reinforce the same by way of audits, seminars and trainings to remind the employees of their legal obligations as well as the risks associated with insider trading.
All of these would go a long way in checking the risk of WCC. But more than anything else a rethinking of ‘incentives’, checking loopholes which may provide opportunities for cutting corners with law, encouraging radical honesty and disagreements in decision making, and broadly, effecting a change in corporate cultures, may go a long way in checking, or at least mitigating, the risk of WCC.