A colonial mindset viewed native enterprise with suspicion and created a rule of law that was distinctly antithetical to its success. Post-liberalisation, the Indian economy opened up, current account controls were lifted, foreign investment was permitted and license raj was dismantled.
However, the approach towards dealing with business did not change. Business continued to be viewed as a profiteering enterprise, deceitful and worthy of being imprisoned if suspected to be guilty. This lack of Vishwas has hurt the entrepreneurial sentiment in India and affected overall economic growth, employment and quality of life.
Antiquated laws like the Factories Act and the Boilers Act and the rules made thereunder carry hundreds of clauses for imprisonment — bringing upon industrial governance the ignominy of the ‘Inspector Raj’ tag. Surprisingly, provisions for arrest were added generously even in business laws that were framed post-1991.
For instance, the Companies Act, of 2013 and the rules made thereunder have hundreds of imprisonment clauses. The bare Act itself has 78 mentions of the word ‘imprisonment,’ — even a casual reading can make the most stoic businessman quiver with fear.
The Legal Metrology Act of 2009 and the rules made thereunder have over 300 imprisonment clauses with the bare Act copiously warning of arrest for as much as a year for a violation of using a wrongly calibrated weight/ measure or not submitting of a return in time.
The Electricity Act of 2003 has several hundred imprisonment clauses with the bare Act itself sprinkled liberally with the word ‘imprisonment’. The amended Motor Vehicles Act, enacted as recently as 2019 continues with imprisonment provisions. As a consequence, the most troubling aspect for anybody doing business in India is the fear of being hauled up for some minor infraction of the law because of a lurking penal clause.
Penal provisions with a monetary fine are a cost to the company, but if they come in the form of a criminal proceeding, they are cost also to Directors and key management personnel of the company in their personal capacity. The implications are severe, even devastating – in a flash a corporate honcho can be summoned and made to look like a criminal — interrogated, arrested and sent to jail.
The very possibility of such a threat is enough to dissuade people from accepting board positions in companies, thereby hindering corporate governance.
Directors under pressure
The Directors of a listed company have to reveal the pendency of criminal proceedings against them — especially if the company is seeking to raise funds from the market or attract foreign investment. This ‘criminalisation’ potential latent in business laws is the legal “rabies”, that frightens investment sentiment.
This is also the cause for a surfeit of litigation initiated by and against corporates and the monstrously huge judicial pendency in India.
The latest initiative of the government to enact a master law for Ease of Doing Business and Ease of Living should be a significant milestone in India’s corporate and legal history. It will rationalise about 150 provisions across 35 Acts administered by 18 ministries/departments and to decriminalise those minor offences which entail an imprisonment.
Some of the Ministries whose laws are expected to be covered are Finance, Food Production and Distribution, Financial Services, Agriculture, Commerce, Environment, Road Transport and Highways, Defence, Posts, Electronics and IT.
The laws being covered are such as the Legal Metrology Act, the Drugs and Cosmetics Act, the Boilers Act, the Geographical Indicators Act, the Cinematography Act, the Railways Act, the Patents Act, the Trademarks Act, and even the Prevention of Money Laundering Act.
Progress on the ground
There has been a lot of progress on the ease of doing business front, even in the World Bank’s Doing Business rankings. Concerted endeavour, across all Ministries and detailed business process reengineering has yielded good results. For the first time, the States too have been roped in and assessed on a wide range of parameters under a Business Reform Action Plan.
They are assessed on user feedback and on-ground implementation of reforms in the States, covering an entire business life-cycle — from starting a business to exiting a business.
That makes States responsible stakeholders. Thanks to these efforts, today India ranks 63rd in the latest Doing Business Report 2020 and has risen by 79 ranks from an abysmal 142 in 2014.
It is commendable that the Industry Ministry is now taking the reform agenda deeper by focusing on reducing the overall compliance burden for businesses and citizens to improve the ease of doing business and ease of living through simplification, digitisation and decriminalisation of provisions for minor offences.
The last is the most potent reform, more than the elimination of redundant laws and rules, especially because there are thousands of provisions that are open for misuse by an enforcing agency; enforcing officials are prone to quote the ‘imprisonment’ clause in routine notices for the sake of ‘impact’.
The abrogation of redundant provisions and the decriminalisation initiative are bound to ensure people’s belief in the government – a prerequisite for attracting investments, arresting the flight of capital – and for developing Vishwas between business and government.
As a nation inching towards a $5-trillion economy, it is high time that laws are continually examined, amended and fine-tuned. That’s not to say that government should be lax when it comes to protecting the environment or human rights or corporate malfeasance, but to recognise that people doing business and paying taxes create wealth for the nation and should be treated with dignity and respect. The values of justice and equity which are the cornerstones of our Constitution should determine the rule of law as it applies to business. That will ensure an environment of Vishwas and invoke the animal spirits needed for a high-octane growth.