Corporate Criminal Investigations

Criminal investigation of corporate crimes and misconduct are an active focus area for Indian law enforcement agencies. Recent criminal prosecutions of individuals and corporates indicate that the interpretation of these laws is continuing to develop and evolve. As corporations expand their businesses in India, the implication of navigating police investigations assumes greater significance.

Pallav ShuklaPartner

Aayush ChandraSenior Associate

Police or regulatory investigations have become one of the most disruptive events corporations can face. While at the extreme, they carry a threat to the liberty of those accused of committing a crime, at the very least, they consume significant management time and company resources in defensive litigation and can also be a public relations nightmare.

Business executives often feel a sense of helplessness when faced with a criminal complaint in India. This is partly because Indian law does not really provide options otherwise generally available in the UK or the USA – such as entering deferred or non-prosecution agreements with the prosecutor; credit for cooperation, at the time of sentencing; or even the right to counsel during interrogation.

The situation is aggravated by the vast list of Indian statutes that prescribe criminal penalties for non-compliance with the law. Recognising the serious adverse consequences of the imposition of criminal penalties, the executive and legislature have recently begun to identify and remove criminal penalties for certain types of non-compliance, example, the ongoing efforts towards decriminalising some non-compliance under the Companies Act, 2013.

In this article, we take a look at various aspects of a criminal investigation, the key inflection points in the process and discuss frequently asked questions when a client is either contemplating the initiation of criminal action or facing one themselves.

  • When does a criminal investigation commence in India?

    As a starting point, it is important to note that investigations are of two kinds – private, and by the police.

    A private investigation is typically undertaken by a victim of a crime that is ‘non-cognizable’, i.e., a crime which the police is not empowered to investigate unless directed by a court. These are typically crimes of a personal nature, such as cheating (in its non-aggravated form) or dishonest misappropriation of property, etc. In such cases, the victim has the option to investigate and report the full facts directly to a court to begin trial. This is very simplistically put and touches only the tip of the procedural iceberg in such cases. Also, this method is often unfamiliar to clients who are not familiar with Indian law.

    A private investigation can be quite effective in certain cases, particularly for a victim. It provides control over the investigation and its timelines and limited ability to prosecute through private counsel. A key drawback though is the limited ability to investigate third parties or facts outside the ecosystem of the victim, which can be quite an impediment, given that the standard of proof – ‘beyond reasonable doubt’ – does not change.

    The second type of criminal investigation is when a crime is reported to the police and the preliminary facts point to the commission of a ‘cognizable’ offence. These crimes pertain to more serious injury, such as to the human body or corruption by a public official. The Code of Criminal Procedure (CrPC) provides an exhaustive list of crimes which are cognizable and non-cognizable; and crimes which are bailable and which are not.

  • How does the police decide whether and who to investigate?

    The police may initiate an investigation, either on receiving a complaint (which must demonstrate commission of a cognizable offence) or on their own, for instance when the police find a person being mugged on the street. Here, the officer need not wait for the victim to report the crime.

    For a crime pertaining to a commercial transaction, the police will commence its investigation upon receiving complete details of the transaction and the crime. While the typical practice of the police had been to make all senior business executives parties to the complaint, the law has evolved over the years to become more nuanced, providing protection to non-executive and independent directors.

    In most cases, the police conduct a ‘preliminary investigation’ before registering a First Information Report (FIR), which is the formal initiation of an investigation. Often, the reporting of a crime is confused with the registration of an FIR, which is not the case. In our experience, the police often significantly delay the registration of an FIR to allow parties in a commercial dispute to settle their disagreement.

    This is, in essence a threat that if a dispute is not settled, it will result in opening a formal investigation. This places the complainant in a position of power to obtain the settlement of a civil claim, under the shadow of a criminal investigation. A point to underscore here is that the police are unlikely to register an FIR upfront, giving full control to the complainant and victim to have the investigation dropped if the civil claim is settled. This of course refers to a situation among private parties – a complaint by the government is different altogether and warrants a separate discussion.

    A preliminary investigation cannot drag on endlessly and an officer is required to decide as soon as possible whether an FIR should be registered.

    However, a preliminary investigation cannot drag on endlessly and an officer is required to decide as soon as possible whether an FIR should be registered. Once an FIR is registered, a formal process under the CrPC commences, which is (to an extent) outside the control of the police officer in terms of closure at will, etc.

  • As a complainant, what can be done if the police either refuse to register an FIR or keep the complaint at the pre-FIR stage (preliminary investigation) indefinitely?

    If the police do not act despite oral and written follow-ups, the first step should be to escalate the matter to senior officials and seek an interview. Contrary to popular perception, most senior officials are required to earmark time to meet the public and generally have a better understanding of fact-heavy commercial crimes. If this too does not work, the law provides a mechanism to report the matter to a magistrate, who may direct the police to act.

  • Do you often see motivated complaints where a complainant is trying to use the threat of criminal investigation to settle a civil dispute?

    It would not be out of place to suggest that India’s legal system carries the legacy of settling purely civil and commercial disputes under the threat of criminal action. While it is certainly possible that a commercial transaction may be affected by the criminal actions of a party, the rampant use of the criminal justice process in civil disputes strongly suggests the misuse of an otherwise well-intended law.

    In his book titled ‘Crime in India’, Sir Cecil Walsh, who spent time as a judge in the provinces of India in the early 1900s, recorded that the locals habitually twisted criminal law to settle their civil disputes because it was speedier. The reason cited by Sir Walsh was the difficulty in obtaining decisions in civil disputes within a reasonable time. Unfortunately, not much has changed since, and the threat of a criminal investigation is often part of litigation strategy in a commercial dispute.

    In our experience, from a suspect’s perspective, a good window of opportunity to close a motivated criminal complaint (subject to the attendant circumstances and commercial considerations of a case) is when the investigation begins, i.e., before the registration of an FIR and at the stage of preliminary investigation. This is when the concerned parties (i.e., the police officers, the complainant and the suspected corporation and its employees) are less likely to drag their feet. There is also a more formal process under the CrPC, termed ‘compounding’ of offences, which permits settlement in certain cases.

    In fairness, it is not easy to work the police and the bureaucracy to suit one’s benefit or timeline – whether one is a complainant or a suspect. It is particularly tricky for responsible corporations to navigate the corruption risks arising in such interactions. Further, there will be genuine circumstances when the police must investigate and complete cooperation should be offered.

  • We hear regularly about the ‘quashing’ of an investigation. What does that mean?

    Under section 482 of the CrPC, the High Courts are vested with extraordinary powers to quash or end any process that is considered an abuse of law. The purpose of filing a quashing petition in such cases is to demonstrate to the High Court that the charges are baseless and sending the accused to trial will serve no purpose – essentially, that the entire process is an abuse of law. In most cases, the High Court will consider a request for quashing (under section 482 of the CrPC) only after the police investigation is complete and an indictment has been filed.

    There is another remedy – to seek ‘quashing’ of an investigation i.e. a writ remedy before the High Court. While practices vary across different High Courts, this is typically availed of upon the registration of an FIR – essentially complaining to the High Court that the police acted in an arbitrary manner and their action of registering an FIR merits judicial review. The idea behind such a petition is to obtain a judgment that the registration of the FIR was a mistake (at the very least) by the police and the process should be closed. In practice, such orders by the court are extremely rare. Courts typically do not interfere in an ongoing investigation, unless the allegations are implausible on the face of it or there are other such similar factors. This is because the mere fact that a corporation or individual is under investigation does not by itself imply any apparent prejudice. In fact, the police are required to comply with their legal duty to investigate a reported crime.

    What one can hope to achieve from such litigation strategy is, in suitable cases, the chance of interim protection from arrest or detention during investigation. This is significant, given the real threat of arrest, particularly if the crime under investigation is not bailable. Additionally, from a strategic perspective, an order preventing the police from coercive action could impact a connected commercial dispute as it does away with the imminent threat of prison looming on a party - allowing stakeholders to bargain as equals.

  • What powers do the police have to summon persons, evidence and search premises during an investigation?

    The powers of the police are wide, and it is not uncommon to find the exercise of powers without regard for legal and procedural guardrails. A typical example is a mere phone call from the investigating officer demanding that the entire board of directors be present at the police station to cooperate in an investigation, along with a long list of documents. In our experience as practitioners of criminal law, we've noticed that officers are sometimes reluctant to serve summons either for appearance or for production of documents and prefer that parties cooperate in the process without being formally served. The idea is not to present a bleak picture of the police personnel – quite a few of which are thoroughly professional, but to be prepared for an eventuality in which an officer does not display the professionalism expected of them. The advised strategy in such cases is to maintain written correspondence with clear requests for proper summons for each demand from the police; but at the same time to avoid appearing obstructive or antagonising the officer.

    The search of a premises is typically performed under the authority of a warrant from a magistrate, unless of course such search is urgent, i.e., during an ongoing criminal activity or prevent the escape of a suspect, etc. A connected general point here is that there is very little that an individual or corporation might do when faced with evidence obtained ‘illegally’. As a general rule, courts in India focus on relevance of the evidence to the controversy and not to the manner in which it was obtained.

  • Is there right to counsel during an interview with the police? Can a statement to the police be used against the person making the statement?

    Strictly speaking, an investigation is exclusively between the police officer and the person being interviewed. Lawyers do not have a role to play in this process. Out of courtesy, the police often permit lawyers to sit for the purpose of guiding the interviewer and interviewee through the paperwork.

    On the second part of the question, i.e., whether a statement to the police can be used against that person, the short answer is no. While there are nuances and departures from the rule (particularly in the working of the Enforcement Directorate), the key point is that a statement given to the police need not be signed and cannot be used at trial. Apart from protection from self-incrimination, an interviewee’s statement must be re-iterated before a magistrate for it to be admissible in evidence. This is to remedy the ability of the police to extract a statement under duress. The magistrate is required to understand from the interviewee that her statement is made of free will and not under any coercion.

  • How does an investigation end?

    An investigation may go on for several years and be handled by different officers through the years. The exception is in high profile investigations where the government reports serious issues such as corruption in public procurement contract or fraud by a private contractor – essentially creating the political momentum to propel an investigation to proceed at a fast pace.

    An investigation might end in one of two ways, filing of chargesheet or filing of a ‘final report’ or ‘B Report’.

    An investigation might end in one of two ways – (a) filing of a ‘charge-sheet’ or indictment with court, which entails that the police claim to have the level of proof necessary to obtain a conviction; or (b) filing of a ‘final report’ or ‘B Report’, which means that the police do not believe a crime was committed or at least by the persons who were the original suspects.

    If a suspect is dissatisfied with the former outcome, the suspect can approach a High Court to quash the proceedings (as discussed above). If a complainant feels dissatisfied with the latter outcome, a judge may be requested to order a re-investigation – depending on the facts of the case.

  • Why does obtaining the correct legal advice in a criminal investigation assume importance?

    A typical investigation might involve issues of criminal law and procedure; employment law (how to deal with the suspected employee, when to bifurcate legal representation, etc.); internal investigation; commercial litigation; data protection; exercise of privilege; compliance with requests from foreign investigators (such as by the UK SFO or the DOJ in the USA), etc. It is therefore important to engage lawyers who are specialists and, preferably, full-time practitioners in these areas to obtain effective legal advice.

There are several procedural and substantive challenges that a complainant or a suspect is likely to face in a criminal investigation. The law leaves certain critical decisions to the discretion of a police officer, of which we sometimes find evidence of abuse. In most cases, in our experience, judicial officers at the district level act promptly to correct such abuse of police powers; and the High Courts at the state level have developed consistent precedent on such matters to provide certainty in guidance to litigants, police and the lower judiciary.

The lacuna often lies in the enforcement of procedural law and its interpretation by judicial precedent, which leads to protracted litigation to undo a wrong. In our experience, individual litigants are more scared of the police process but modern corporations led by the strong leadership of general counsels and compliance officers are able to withstand the pressures of the process with greater resilience. Such efforts should slowly but surely pave the way for a more professional handling of criminal investigations of corporate crimes.

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