But opposition members pressed Premier Alison Redford to broaden the investigation, saying during question period that the allegations go beyond the legislature and may violate the Criminal Code.
Sandhu, in a letter to the caucus whip, announced he was stepping aside from the Progressive Conservative caucus immediately but would continue to serve his constituents in the riding of Edmonton-Manning.
"I am confident that I will be exonerated," Sandhu said in the letter.
"I want to ensure my colleagues can continue on with government business free of distractions."
Sandhu could not be reached for an interview.
Redford, in a written release, praised Sandhu's actions.
"I want to thank him for making a decision that puts the interests of his caucus colleagues and Albertans first," said Redford."I am pleased that the ethics commissioner has agreed to look into this issue and I look forward to learning the results of this investigation.
"Albertans can have every confidence that the government they elected will always uphold their trust."
Sandhu, in his second term in the legislature, owns a house-building firm called NewView Homes.
The CBC reported that Sandhu's firm racked up debts and court judgments related to those debts. Those things are required by law to be divulged to the ethics commissioner, but could not be found in the records, said the report.
The CBC report also revealed a court affidavit signed by Sandhu in a civil case related to payment dispute.
The affidavit said Sandhu was in India earlier this year taking care of family affairs, while government documentation suggests he was in Alberta working for the government.
Opposition NDP Leader Brian Mason told the house during question period that the second allegation goes beyond legislature ethics rules.
"Signing a false affidavit is perjury — a criminal act," Mason told the house. "It is not an ethics matter for the ethics commissioner. It's a matter for the police."
Wildrose Leader Danielle Smith said the affidavit issue needs to be resolved by an independent investigator.
"The matter goes beyond the Conflict of Interest Act," Smith told the house. "The maximum penalty for swearing a false affidavit is 14 years (in prison)."
House Leader Dave Hancock said the affidavit issue will be handled as part of the civil proceeding.
"If there's an issue with (the affidavit), that will be referred to (police) by the courts," said Hancock, adding Sandhu did the "honourable thing" by resigning.
"I think we should respect that," said Hancock as his caucus members thumped their desks in approval.
Mason wasn't satisfied: "Albertans have a right to expect the highest ethical standards from their elected officials. Instead we're getting counsel for the defence here."
Liberal Leader Raj Sherman said the matter is simple.
"If it's under the Conflict of Interest Act it needs to be investigated by the ethics commissioner, and illegal issues need to be investigated by the judicial system," he said.
Sandhu has asked the results of the ethics investigation by commissioner Neil Wilkinson be made public.
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