Jan Lokpal clause to force companies to cough up 5 times losses from graft

Written by Rishi Raj | Ronojoy Banerjee | Ronojoy Banerjee | Updated: Sep 5 2011, 09:09am hrs
Tucked away among the provisions of the Jan Lokpal Bill is a time bomb for India Inc. Companies which are proven to have caused losses to the exchequer will have to cough up five times such losses, even from the promoters personal assets.

For instance, if the Bill were to become law, the government would be able to recover a total of R1.50 lakh crore from companies found guilty in the spectrum scam, their promoters and managing directors. Of course, this is based on the assumption that the court validates the CBI claim the scam has cost R30,000 crore to the exchequer. Besides, these companies, as well as all other companies promoted by the guilty, will be permanently barred from bidding for government contracts.

The provision states that if the beneficiary of an offence is a business entity, in addition to the other punishments provided for under this Act and under the Prevention of Corruption Act, a fine of up to five times the loss caused to the public shall be recovered from the accused and the recovery may be made from assets of the business entity and from the personal assets of its managing directors, if the assets of the accused person are inadequate.

It further states, If any company or any of its officer or director is convicted for any offence under the Prevention of Corruption Act, that company and all companies promoted by any of that companys promoters shall be blacklisted and be ineligible for undertaking any government work or contract in future.

The original Lokpal Bill spares low-level officials from the Lokpals purview, while the Jan Lokpal Bill includes them. The focus on low-level graft has led to demands for a corporate version of Lokpal to keep vigil over cases of corruption stemming from a government-business nexus.

Let's take an example. The CBI has estimated losses from the spectrum scam around Rs 30,000 crore, much below the Comptroller & Auditor General's range of Rs 57,000-1.67 lakh crore. If the provision mentioned above is incorporated into the final Lokpal Bill, those found guilty must pay a whopping Rs 1.50 lakh crore. These telecom companies cannot bid for any government projects under the USO fund or e-governance or any other projects in the sector for life. Other group companies in businesses other than telecom too would be shut out from government projects for life. All this, on top of other punishments under the Prevention of Corruption Act.

FE contacted leading luminaries of India Inc to assess their comments on this provision whether they agreed with it or found it too draconian. All of them declined to comment. However, two members who supported it added certain caveats that in case the managing director was at fault without the knowledge of the promoter, the promoter should be exempted and that in case the fault was of any other official without the knowledge of the MD, then the MD should be spared.

This is what Surinder Kapur, chairman of Sona group, the countrys leading auto component maker had to say: Managing directors should be held directly accountable if his company has been caught in a major corruption case. They are directly involved in taking every day decisions hence why should they be excused However, I feel promoters of a company may not be aware in many cases what the company is up to; hence, dragging them also under this provision is not right.

Subodh Bhargava, chairman of Tata Communications and a former president of CII also shared a similar view. Any act of corruption needs to be dealt with strongly, even if that means the fine is five times the lost amount. But I don't think the story ends with the managing director. There could be certain acts of corruption that are beyond the knowledge of the senior management. So, just holding them accountable is not enough. Whoever is found engaging in an act of corruption needs to be dealt with directly, he said.