Skip to content

CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Business Ethics, Code of Conduct and Anti-Bribery

Tarang Textiles Pvt Ltd's subsidiary, Tarang Exports, pays a bribe to a customs officer to speed up clearance of the group's consignments. The parent's board argues that a subsidiary is a separate legal entity and so cannot be a person associated with the parent. Under section 9 of the Prevention of Corruption Act, 1988, how should this argument be assessed?

The argument fails. Section 9 defines an associated person as one performing services for or on behalf of the organisation, and Explanation 1 says the capacity does not matter, whether employee, agent or subsidiary. The test is based on all relevant circumstances, not on separate legal personality or a shareholding threshold.

  1. AIt succeeds, because only employees can be associated persons
  2. BIt succeeds, because separate incorporation breaks the association
  3. CIt fails, because the capacity of the person, including as a subsidiary, does not matter if it performs services for or on behalf of the organisationCorrect
  4. DIt fails only if the parent owns 100 per cent of the subsidiary

Explanation

Section 9(3)(c) treats a person as associated if it performs services for or on behalf of the organisation. Explanation 1 states that the capacity, whether employee, agent or subsidiary, does not matter. Whether services are performed on behalf is judged by all relevant circumstances, not shareholding percentage alone.

Did you get it right without looking?

One question tells you little. A timed set on Business Ethics, Code of Conduct and Anti-Bribery shows your real accuracy, how long you take and where you lose marks.

Practise Business Ethics, Code of Conduct and Anti-BriberyFree diagnostic mock

More Business Ethics, Code of Conduct and Anti-Bribery questions