Prevention of corruption should not stymie the creation of credit
PremiumWe should tweak our legal framework to minimize the anxiety of bankers over false prosecutions
Recently, India’s lowered rank on the index of corruption compiled by Transparency International has been in the news. Regardless of international rankings, digitization and faceless interactions and self-attestations will continue to whittle away at opportunities for petty corruption. This column makes the case that governance is not an outright morality play, but a delicate balancing act between probity and economic activity. We wish to make it clear that we do not posit the two as polar opposites either.
The Prevention of Corruption Act (PoCA) was amended in 2018. It was immediately challenged at the Supreme Court (SC), stating that the anti-corruption measures in the original legislation had been diluted by the amendment. In the light of the fact that this challenge is currently pending before India’s apex court, it is important to highlight that the amendment to the Act is a welcome reform and should not be reversed as a reactionary measure.
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1 min read . 08:41 AM ISTSection 13 of the PoCA, as it was worded pre-amendment, was problematic because it overlooked mens rea (or intention), which is a necessary component of any criminal legislation. It essentially resulted in a situation where even a bona fide administrative decision, if retrospectively found to be inefficient such that it resulted in a loss to the exchequer, the officer concerned could be slapped with serious criminal charges. The offence of criminal misconduct in the PoCA was treated by our courts as a strict liability offence, such that the prosecution only needed to show that the decision taken was detrimental to public interest, as was evident in the case of Runu Ghosh and Others vs Central Bureau of Investigation (CBI) decided by the Delhi High Court in 2011. In 2016, The SC, in the case of CBI vs Ramesh Gelli, included even private-bank employees within the purview of the Act.
In April 2020, Professors Rajeswari Sengupta and Harsh Vardhan wrote (Policymaking at a time of high risk-aversion) that the SC’s judgement meant that all bank employees faced the risk of investigation and prosecution under the POCA for issues related to corruption. Nearly any loan that went bad could come under the scanner and this single step was likely to deter bank officers from taking commercial decisions. Their concerns were valid.
In the aftermath of the Gelli judgement, bank employees developed a fear of sanctioning loans, because if the borrower’s account turned into a non-performing asset (NPA), a criminal inquiry could be initiated against the officer responsible for sanctioning or restructuring the loan, even if done in good faith. India cannot afford such anxiety and inefficiency at a time when it is looking to ramp up its economy.
The 2018 PoCA amendment has been a refreshing change on multiple counts. Firstly, it restricted the scope of the definition of ‘criminal misconduct’ to necessarily have an element of criminal intent. Secondly, it introduced an added protective layer of permission needed from a senior official authorized to dismiss the employee against whom charges are sought to be brought, before any enquiry is initiated. Further, the pre-amendment legislation did not require prior sanction before the prosecution of retired employees. That has been altered now.
While these changes were welcome and have temporarily addressed concerns of the law’s misuse, further work is needed in the light of the SC judgement of 2016. There is no reason for private-sector bank employees to be covered under the Act. The Act, which exhaustively defines ‘public servant’, does not cover private-bank employees by any stretch. Through the Gelli judgement, however, the SC has enlarged the scope of the legislation and this is undesirable because this is a purely legislative exercise.
Further, a suggestion made by Dr. Y.V. Reddy, former governor of the Reserve Bank of India, way back in 2002 deserves to be implemented now. He suggested that public-sector employees working in industries substantially and directly competing with the private sector be removed from the purview of the Act, since it has created an anti-competitive environment and given the private sector a significant edge. The Companies Act should be the governing law for corporate commercial activity. Also, the Indian Penal Code in any case has several provisions for specific offences such as bribery.
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3 min read . 18 Apr 2021Besides, despite its protective measures, the Act’s provisions have indeed been misused. The requirement of prior permission before initiating an enquiry has been a double-edged sword. While it has resulted in the protection of some, it has also resulted in instances of harassment of junior officers in cases where senior officials have scapegoated them to deflect blame for loans that came under investigation for potential fraud.
The Supreme Court has time and again recognized the need to provide layers of protection to judges, so that they can discharge their duty in a free and fair atmosphere without the sword of blackmail dangling above them. It is time for the country’s apex court to implement the same principle for our private sector and select parts of the public sector.
These are the authors’ personal views.
(V. Anantha Nageswaran & Aankhi Ghosh are, respectively, a member of the Economic Advisory Council to the Prime Minister and an advocate at the Supreme Court of India.)
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