One of the least celebrated but most important legislative actions of the current Parliament is the amending of the Prevention of Corruption Act (PCA) in record time. As finance minister Arun Jaitley put it, this 1988 law was one of the most ill-thought out and badly drafted ones. The Act made commercial decisions taken by public sector officials culpable if someone could prove on hindsight that those actions resulted in a loss to the exchequer.So a loan given in good faith turning bad because of cyclones or technological changes or global business cycles or even the changed intent of the promoter can land the banker who signed off on the loan in jail many years after it was sanctioned. The amendments to the Act now give two important safeguards:
The decision that causes loss must benefit the official who took the decision. The investigating agency needs to prove not just an alleged “criminal intent” but that the official benefited from the bad decision and came into possession of assets disproportionate to his known sources of income. Secondly, the law now requires that the government’s or the institution’s permission be sought to investigate cases under the PCA.
Now that the legislature, the supreme law-making body of the country has declared its intent, the executive can do the banking system a lot of good by extending it to pending cases. The law by itself is not retrospective, but it is clear, from the passage of the amendments in both houses that it led to a miscarriage of justice before the amendment.
Now pending cases will fall into two categories: 1) Those already in the courts and 2) Those still with the investigative agencies at various stages of the investigation.
Legal eagles say that in cases already before a court, the amendments to the law will weigh heavily on the judges i.e, they will not hold guilty any public official where there is no evidence of assets disproportionate to their income.
Ideally, the executive should do the same with cases pending with the agencies. Where there is no evidence of bankers misappropriating money or benefiting from the loans in any way, such names should be dropped from the cases.
There is a precedent to this. In the year 2000, the Foreign Exchange Regulation Act was replaced by the Foreign Exchange Management Act. The change was necessitated because India had progressed from a situation of foreign exchange shortages to one where Indian IT was earning a lot of dollars and Indian businesses had grown large enough to acquire companies abroad and become globalised.
Under the FERA, which was replete with a long list of DON’Ts on spending foreign exchange, any breach of the rules was a criminal offence. The FEMA, recognising the changed times, made FX offences a civil offence that could be compounded. It also permitted free purchase of foreign exchange for any purpose by almost anyone within limits. But in the transition period agencies like the Enforcement Directorate realised that their powers to arrest would be clipped and passed a flurry of orders including one on India’s top hotel chain for acquiring a hotel abroad.
Post the passage of FEMA, prodded by RBI, finance minister Jaswant Singh took a decision to appoint a screening committee to look at all the orders and close all frivolous cases.
Something on those lines may be called for today. The big advantage of such a move will be that the bandwidth of investigative agencies will be freed from frivolous cases and they will be able to chase those bankers who are really guilty, and bring them to book speedily.
Finally, for the next parliament, there is one more unfinished agenda: the banking sector itself needs to be kept out of the Prevention of Corruption Act. The principle simply is that the Prevention of Corruption Act should be restricted to the government and not to government-owned companies which compete in the commercial space with private commercial entities.Corrupt public sector bankers can still be tried in courts like private sector bankers are, and brought to book. The point is when two entities – private banks and public banks – compete for the same business, it is unfair and illogical to disadvantage one set of banks with an Act like the Prevention of Corruption Act. Like the FEMA engendered a period of powerful global expansion by Indian companies, hopefully, this change too will prove a catalyst and help at least some public sector banks grow.