A gift policy typically lays out to employees an organization’s overall guidelines as far as receiving or giving gifts is concerned and provides guidance on the nature and monetary limits of permissible gifts. In India, where giving and receiving gifts is part of the culture, it is almost imperative for a company to revisit its gift policy from time to time.
Legally, the framework for giving and receiving of gifts is defined by the Prevention of Corruption Act, 1988 (PCA). In addition, at several levels, there are conduct rules for public officials, which, depending on the official, would define the situations and limits within which they can accept a gift.
Since a gift can often be confused with a bribe, the gift policy of any organization operating in India should be in line with the PCA’s provisions to ensure that under the law, the gift will not be regarded as a bribe. The most important factor in separating a gift from a bribe as far as the PCA is concerned is whether the gift was made with an expectation of a quid pro quo.
It is therefore imperative that the level and nature of controls that are captured in an organization’s gift policy are designed to ensure that no quid pro quo in the gifts is permitted and that gifts made to public officials are reasonable, infrequent, of nominal value, appropriate and not given with the intent to improperly influence an official.
In general, under Indian law, the term “gift” is accorded a wide definition. Most conduct rules include free transport, meals, lodging or other service within the definition of gift. In certain conduct rules, foreign companies and other entities are specifically prohibited from giving gifts to public officials and this should be kept in mind when designing an appropriate gift policy.
Indian law clearly distinguishes situations where a gift is provided to a public official by a person involved or likely to be involved in a proceeding or in business transacted before the official from situations where a gift is provided on a social occasion by a public official’s relatives or friends having no official dealings with the official. In the former situation, the conduct of the public official is clearly prohibited under section 11 of the PCA, which provides for criminal punishment for violations and will involve the individual providing the gift in the criminal offence of abetment under section 12 of the PCA, which may lead to a fine and imprisonment for up to three years. The latter situation is specifically permitted under various conduct rules of government officials as long as the value of the gift is within the limit.
Commentators often misinterpret the pecuniary limits under the various conduct rules. The pecuniary limits provided under conduct rules are the limits which need to be observed when a public official reports gifts to the government. These limits are not meant to be and should not be regarded as amounts up to which gifts are permitted under the law. A gift within the limits under the conduct rules may still be in violation if it was made with a view to obtaining a quid pro quo.
Organizations need to consider the following when they revisit their gift policy:
- It is most prudent to capture the essence of the gift policy in senior-level communication and training for employees who may be more prone to the use of gifts. Regular messages from a company’s top leadership as well as training sessions go a long way in creating an appropriate atmosphere.
- Companies that are involved in manufacturing or in sales to public officials are most vulnerable to the issues related to gift policy. For manufacturers, it is important to define the nature of hospitality that can be extended when a public official visits the company’s manufacturing facility for a regular inspection or a renewal of a licence.
- Gift policy should regulate both the direct and indirect conduct of employees. In other words, employees should not be permitted to use agents or consultants to route a gift that may be prohibited under the gift policy.
- In cases of festivals such as Diwali or Christmas, it is preferable that gifts be centralized, consistent and branded with company’s logo.
- Religious or social donations should be clearly differentiated so as not to fall under the definition of gifts. For example, a donation by workers to a Ganesh pandal should be covered under donation policy and should not be encouraged to be regarded as a gift.
Cyril Amarchand Mangaldas is India’s largest full-service law firm. Kunal Gupta is a partner and the head of white collar investigations at the firm.
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