Change in nature required in penalty provisions to Ease of Doing Business and Improve Investor Confidence
The Confederation of Indian Industry has urged the government to take urgent steps to decriminalise provisions in several business facing laws and Acts to help improve investor confidence and ensure ease of doing business in true spirit.
CII has come out with 12 alternative ways that can help achieve this goal in its compilation – Decriminalization of Business and Economic Legislation - that has been shared with Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman as part of its consultative deliberations on the subject.
“A change in the nature of penalty provisions in business and economic laws represents the next stage of reforms in ease of doing business. Divesting criminal penalties from business laws - unless well-defined criminal actions are found – will strengthen confidence among young entrepreneurs and investors in doing business,” Mr Vikram Kirloskar President CII said.
Echoing the principle of establishing trust, which has been a pillar of the recent government policy announcements, CII has sought intervention from different arms of the government to examine how the current criminal provisions in the laws can be treated as civil offenses with penalties.
CII’s recommendations in this regard which cover 37 laws and Acts ranging from the partnership Act of 1932 to the Insolvency and Bankruptcy Code of 2016 has said that offences which are of a technical nature or those that do not affect public interest prejudicially should be considered to be decriminalized.
Lately, there have been increasing incidents where commercial and civil disputes are being treated as criminal complaints, thereby creating a fear factor among Directors, young entrepreneurs and foreign investors. “For such business and economic legislations which fall within the domain of arbitration or civil courts, the Government should consider decriminalising the laws, unless there is an intent of fraud or misdoings,” the CII President said.
Directors today are fearful, and this impacts corporates negatively since they are resigning due to the fear of criminal implications of the laws. Changing the nature of the punishments to make them more rationale will also help reduce litigation and de-clog the judiciary. The proposed changes in the Companies Act where offences like not meeting obligations under CSR is now being decriminalised is a step in this direction.
CII has recommended 12 alternative ways to work towards decriminalization of laws and amend legislations to change criminal penalties to civil penalties
- Provide for many summons cases concerning relatively minor offences to be compoundable
- Revisit/prescribe limitation period for assuming jurisdiction
- Transparent mechanism for no-guilt admission & settlement of technical offences with penalties and not prosecution.
- Introduce dispute settlement mechanism deferred prosecution agreements – with exceptions.
- Introduce one-time settlement schemes
- Consider making summons cases compoundable by expanding the scope of Section 320 of the Criminal Procedure Code, 1973.
- Award costs where courts have observed that there is frivolous litigation or dilatory tactics.
- Expeditious filling up of vacancies so as to ensure that Benches act in full strength.
- Create a process for a without-admission of guilt settlement of tax and economic offences with exceptions to reduce the pipeline of future matters and take some pending matters out.
- Increase the role of technology in Courts with e-filings and the like.
- Plea bargaining / Settlement Mechanism
Globally countries have been following a similar trend to mitigate litigations and provide confidence to industry. For example, in USA even seriously reported alleged environmental offences can be compounded by being fined millions of dollars, and not necessarily by the accused having to accept the charges. The UK too has adopted the concept of “plea bargaining.” In other words, India may need to seek a change in kind and not in degree in the punishment regime prescribed in law
However, periodic or habitual offenders should be treated differently and punished with higher penalties as may be decided by the adjudicating authority. “This will not only increase confidence of both domestic and global players but also provide boost to ease of doing business in India,” Mr Kirloskar said.
Prescribing criminal proceedings for offences which are technical in nature is unfair – and may be dealt with as a civil offence prescribing Penalty. It is believed that the Indian Penal Code is quite comprehensive. This change is critical as deterrence often translates into avoidance through malfeasance, leading to compromise of rule of law
CII has carried out an extensive exercise by examining legal provisions and penalties across various legislations with a view to identifying the sections pertaining to criminal offences involving imprisonment. Some of the methods to achieve decriminalization may include amendment to the legislation, making the offenses compoundable and revisiting / prescribing a time frame for assuming jurisdiction.
It is also important to prescribe a time frame or filing a complaint for economic related offences and for completion of investigation and adjudication with a few agreed exceptions. This will also ensure that investigation into economic related offences is concluded by the investigating agency in timely manner.
During the Union Budget 2020-21 speech, Hon’ble Smt Nirmala Sitharaman, Minister of Finance and Corporate Affairs, had emphasized that criminal liabilities for Acts that are civil in nature will be amended in the Companies Act and other laws would also be examined. In this context, CII has identified many of these Acts where criminal provisions exist.
Appreciating the Government’s intent to improve the investment climate pertaining to legislation, CII noted that companies focused on compliance and ethical behaviour comprise the largest part of the corporate universe and all enterprises need not be subjected to tough regulation due to a few errant firms. Malafide actions, frauds and criminal activities by businesses deserve strong punitive measures. However, for technical or procedural lapses of non-serious nature, civil liability would be adequate as a deterrent, said CII.
India’s business environment has undergone substantial changes with the enactment of new legislation such as GST and Insolvency and Bankruptcy Code, weeding out of obsolete laws, and strengthening of regulatory institutions. The Government has endeavoured to limit criminal proceedings for non-compliances of minor, technical or procedural nature for the Companies Act, 2013 by setting up the Company Law Committee (CLC). The Committee submitted its interim report in November 2019 and recommended amendments in 46 penal provisions.
The CII list of statutes proposed for consideration of amendments includes 37 legislations related to the Companies Act, Insolvency and Bankruptcy Code, environmental protection, consumer protection and labour interests.