The Contours of Conducting Internal Investigations in India
Contributed by Payel Chatterjee and Shweta Sahu of Nishith Desai and Associates
When there is a disruption in the normal course of events, there is always a requirement for a preliminary understanding of the situation detected or complained of – to assess if it amounts to any kind of violation of law or policy, and if a formal complaint is required. White-collar offences undoubtedly result in financial losses to a company.
On receipt of any information or complaint in this regard, the company is obliged to take notice of the same. Such complaints could be resulting from any kind of misconduct within the organization or external, criminal offences and including dishonest practices of directors, promoters, investors etc., breach of confidentiality, company rules, charter documents, codes and policies, misappropriation of accounts and funds, or misuse of assets of the company. There could also be circumstances of illegal payments to vendors/contractors, unethical business conduct, falsification of transactions/ documents and forgery, embezzlement of funds, money laundering, insider trading and market abuse, harassment or health and safety issues.
Internal investigations are the forerunners in nipping the evil at the bud before it is aggravated or there is an unanticipated reporting by whistleblowers with the authorities, and are effective vaccines against unwanted and embarrassing raids and searches by authorities. Such internal checks and balances give way to “lessons learnt” from the allegations made, and ensure compliance with the applicable laws.
Engaging External Counsel:
To minimize the possibility of any blotches or associated prejudice that may be present in case of investigations by the human resources team or in-house counsel, an independent external investigation team is preferred to conduct such investigations. Besides the credibility that flows from engagement of external lawyers who would be acquainted with similar exercises, such external lawyers are equipped to discuss and advise concerned officials of the company on the future course of action. The key take-away from the engagement of external counsel is the client-attorney privilege available to the company. However, this privilege is not absolute.
Client Attorney Privilege:
The concept of privilege differs across jurisdictions and plays a crucial role especially in cases where it involves the interplay of several laws. Generally, verbatim transcripts or summaries which do not provide any advice, would not be “privileged”. In India, documents prepared in anticipation of litigation for the purpose of seeking legal advice and for use in the anticipated litigation as defense or for the purpose of prosecuting, would be protected under the ambit of “privileged communication”.
Upjohn warnings have an intrinsic role in the interplay between such privileges and investigations. When the employees of a company are to be interviewed, such Upjohn warnings are given to these employees, with whom a lawyer would communicate in the course of the investigation. The employees are informed that the attorney-client privilege would be preserved between the company and its attorney while communicating with the company’s employees, despite the rule that communications with third parties constitute a waiver of the attorney-client privilege. An Upjohn warning would entail details that such privilege would not extend to the employees, as such, and the external counsel represents only the company and not the employee individually.
Issuance of Legal Hold Notice
Legal Hold Notice ensures preservation of relevant documents/information. Moreover, the company may, on its own accord, opt to waive such client-attorney privilege (for example, when it has to report the authorities of a fraud detected in the investigation, thereby disclosing the information received, including from the employee).
Owing to the highly subjective nature of such investigations, there is no set mechanism or strict procedure which needs to be adhered to, for conducting such investigations. Broadly, the investigation starts with collation of information followed by verification and review of the same, structuring the entire process, interviewing concerned persons, preparation of an investigation report and laying out the possible corrective measures and future course of action. The thrust is always on adhering to a complete and comprehensive procedure undertaken with a view to discover the requisite facts, keeping best practices in mind and giving comfort to any regulatory authority, should the need arise.
You can read detail information about this topic and steps to be followed by Nishith Desai Associates by clicking at the below link http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/The_Contours_Of_Conducting_Internal_Investigations_In_India-PRINT-1.pdf
To reach out to the authors, write to: Payel.Chatterjee@nishithdesai.com