Reducing the legal burden

Source: The post is based on an article “Reducing the legal burden” published in Business Standard on 17^th October 2022.

Syllabus: GS 2 – Governance

News: The government is planning to come up with a bill that will be aimed at increasing the ease of doing business in India.  The bill is being drafted by the Ministry of Commerce and Industry in consultation with the states.

The bill will focus on reducing the punitive measures from imprisonment to fines for a range of minor offences.

What are the earlier changes made in punitive measures by the government?

There have been significant changes made in the Companies Act by the government since last year.

For example, provisions related to foreign companies and non-compliance by auditors to report fraud have reduced from a prison sentence to monetary fines.

In Corporate Social Responsibility (CSR), failure to spend the required amounts attracted a maximum sentence of three years in prison earlier but this has been replaced by a high fine.

Government has also created an “in-house adjudication” framework with adjudicating officers with the change in some provisions from criminal to civil.

What are the advantages of easing the punitive burden on companies?

First, it can create a positive impact on the business environment, especially foreign direct investors, as it reduces the compliance burden.

Second, as per the Ministry of Corporate Affairs, these measures will help to focus on major issues rather than focusing on every minor issue.

Third, it will also reduce the burden on the National Company Law Tribunal as it will no longer have to give judgements on minor offenses.

What are the concerns associated with the reduction in punitive burden?

First, the risk of corruption and political influence remain high as these measures do not reduce the encounter between corporations and the state. It is because adjudicating officers are government employees.

Second, companies may view penalties as an acceptable cost of doing business rather than a punishment of non-compliance.

Third, the decriminalization of provisions may be wrongly used if it is indiscriminately applied to the laws governing corporate activities.