Fair treatment of offences

Govt's move on decriminalisation is welcome

While presenting the Union Budget for 2020-21 earlier this year, Finance Minister Nirmala Sitharaman made the commitment that various offences under the Companies Act and other laws would be decriminalised. The Department of Financial Services has now sought public comment on its plans to change the treatment of offences under 39 sections of 19 different laws. The idea is to bring them into the domain of administrative adjudication. The threat of jail time will also be replaced by fines. This follows up on actions of the Ministry of Corporate Affairs over the last three years that made similar recommendations for many provisions of the Companies Act. The intent throughout was to move to civil punishments for offences that are essentially of a civil nature but at the moment attract criminal proceedings and the chance of jail time. The move is welcome, and it indicates that the government is serious about easing the burden on business and also the workload of the courts. 

One of the changes that is proposed is among the longest-pending reforms in India: The decriminalisation of cheque-bouncing, which is covered by Section 138 of the Negotiable Instruments Act. In the past, the Supreme Court of India has estimated that a fifth of the cases that currently overwhelm India’s subordinate judiciary are related to this section alone. The fear of criminal proceedings and jail time is often cited by investors in India as a disincentive for investment, as once criminal proceedings are launched for some essentially civil violation, it is hard for them to come to a natural end and they can sometimes ensnare senior management for years at a time. The broad emphasis on criminal punishment for civil offences in India was born of two related impulses: First, the lack of trust in the private sector, which causes legislators to believe that they need the tightest possible control and threats. And second, the general understanding that enforcement is often poor and so not all offenders are identified. But arbitrary delivery of draconian punishments is not a good replacement for firm enforcement of a commensurate punishment. The risk in the system caused by decades of this attitude means that nothing other than wholesale decriminalisation will help. 

That said, it is important to ensure that disincentives for such behaviour continue to exist. After all, widespread law-breaking is also a deterrent for investment and growth, as well as an offence against justice. Fines must be in keeping with the severity of the offence. Regulators in India have not always lived up to this principle, which tends to undermine the argument for decriminalisation. Greater capacity is needed among regulatory and adjudication agencies so that they are able to more quickly identify offences and settle them fairly. If this system is created over the next few years, the government can rightly claim that it has tackled an impediment to doing business in India that has been allowed to fester for decades under all its predecessors. It will deserve full credit for creating a more modern structure for corporate justice and financial crimes in this country.