Decriminalisation Of Company Law And Other U-Turns

Critics might say that in India, the problems of weak enforcement and a clogged judicial infrastructure render most punishment pointless. That dismal point aside, recent recommendations to lighten the punishment provided in many sections of the company law — for violations ranging from late filing to audit fraud — have been met with mixed responses. The proposal to replace punishment by imprisonment with punishment by penalty is welcome due to how long the criminal trial process takes. But there are concerns whether monetary penalties serve as deterrent enough or over time become the ‘cost of doing business’. Also, a more general and important concern is the numerous changes to company law in the five years since it was enacted.The CommitteeTo go back to the beginning — a second such committee in as many years has recommended the further decriminalisation of the Companies Act, 2013.In August 2018, the first committee proposed recategorisation of 16 compoundable offences into civil defaults. These were accepted and effected via an amendment to the Companies Act.This new committee, constituted in September 2019 and like the old one a mix of bureaucrats and private sector experts, has recommended to rationalise penalties in 46 more criminal compoundable offences to civil liabilities.This will undoubtedly help ease of doing business, said noted senior advocate Amit Desai in a discussion on BloombergQuint. He cited several such efforts in the past. In 1992, the Imports And Exports (Control) Act, 1947 was repealed and in its place came the Foreign Trade (Development and Regulation) Act. “It was actually the first attempt in the realm of business law to decriminalise the process. It took away all criminal offences and left it with only civil law implications,” Desai said. He also pointed to the repeal of the Foreign Exchange Regulation Act, 1973 (FERA) and its replacement by the Foreign Exchange Management Act, 1999 (FEMA).Like most experts, Desai noted, that while decriminalisation in itself is not objectionable, the question is one of balance. Especially in the main law that governs companies.. There is a lot of public money that goes into all these listed companies. We have to find the right balance in the context of decriminalisation of company law provisions.Amit Desai, Senior Advocate.Veteran corporate lawyer Bharat Vasani agreed. He recounted why the Companies Act, 2013 incorporated criminal punishment in several provisions. Many more than the earlier 1956 law.“One of the principle criticisms of the earlier act, the 1956 Act, was that it was a toothless legislation,” Vasani said.There was no fear and grave offences such as not filing annual accounts were met with meager penalties of Rs 5,000 to Rs 10,000, he added. Then came a string of corporate scams, ranging from the accounting fraud at leading IT services company Satyam Computers to the unauthorised raising of public deposits by Sahara Group.Hence the new company law, being drafted then, incorporated parliamentary and public reactions to these frauds by enhancing the criminal provisions..So, undoubtedly, it (2013 Act) was a bit of a knee-jerk reaction to some of those corporate scandals and in certain areas, perhaps the needle moved a bit too much and we need to bring it back. But I don’t agree that most of the provisions should have only been civil penalties. Because if people treated it only as a cost of doing business in India, then some of the deterrents will go away.Bharat Vasani, Partner, Cyril Amarchand Mangaldas.The Recommendations.As noted in its report, the Company Law Committee graded offences depending on whether they were non-compliance of orders of authorities, record maintenance and corporate governance norms, or substantial violations that may affect the company’s viability or public interest. These were also examined on principles categorising offences as minor and involving objective determinations, to offences more appropriately dealt with under other laws.In summary, the committee proposed that punishment for 23 offences be moved to the Internal Adjudication Mechanism, seven offences be omitted, five be handled by alternative sanction methods and in the case of 11 only a fine be imposed. It decided to leave the penalty provisions for 20 offences unchanged.23 Offences: Minor, objective determinations: Move to IAM framework7 Offences: Dealt with under other laws: Omit5 Offences: Neither of the above: Move to alternative sanction methods11 offences: Subjective determinations but minor: Impose fine only20 Offences: Serious and non-compoundable: No legal change.Deterrent Enough?.The broad approach is in the “right direction”, Vasani said even though he disagreed with the suggestion to rationalise penalties in a few cases. For instance, earlier this year the law was amended to recategorise penal provisions relating to non-filing of a company’s annual return and financial statement as civil wrongs carrying monetary penalty. The committee has recommended further dilution - that the penalty be lowered as an additional filing fee is already levied on a per day basis..So, there perhaps the needle has moved to the other side extremely (too lax in this case). That is a serious offence in my view that if you don’t file your financial statements within the six months of closure of the financial year, then there is a problem.Bharat Vasani, Partner, Cyril Amarchand Mangaldas.Desai listed at least three other proposals of diluted punishment that he disagreed with.For instance section 184(4) pertaining to related party transactions requires a director to disclose such interest at the earliest. The committee has recommended the punishment — of up to one year imprisonment or an up to Rs 1 lakh fine, or both — be reduced to a fine of up to Rs 50,000..I think in this environment in which we are living today one, of the very fundamental issues is about related party transactions. I think it is absolutely essential to ensure that all related party transactions are properly documented and disclosed. In the context of what’s happening in companies today, it is important and essential that you should maintain the fear of the criminal law in relation to these kinds of disclosures. Amit Desai, Senior Advocate.Desai also pointed to the provision on formation of charitable companies. Violations under that section are currently punishable by fines for the company and defaulting officers, and imprisonment of up to three years. The committee has proposed the offence only draw a fine.To be sure, the law does provide for serious offences such as fraud to be criminally prosecuted under a separate provision — but that’s not good enough, Desai said. Courts may hesitate to use an omnibus provision when a specifically provided jail term has been eliminated.The same problem arises in another proposal made by the committee — where the imprisonment punishment for default in complying with public offer requirements is recommended to be replaced by just a fine as the same default is also punishable under SEBI regulations.Is there a need to have overlapping punishments? Yes, said Desai, when you deal with special situations and special legislations..That is legislative policy. Otherwise you will say that all that you need is one criminal law which covers all kinds of things from customs, FEMA etc. It can just go into one penal law of the country. Because they deal with special situations, there are special offences which are created to deal with those.Amit Desai, Senior Advocate.These instances aside, the broad move to decriminalise would be more acceptable if the monetary penalty values had been enhanced, said Vasani. For instance, when it comes to auditors’ duties, responsibilities etc... in Chapter 10, the maximum fine for the company is Rs 5 lakh.“The ideal thing to is to have steep monetary penalties which act as deterrents and FEMA has done it by imposing five times the amount. FERA in every section had imprisonment provision, FEMA has virtually taken out every case of imprisonment provision. So, the classic example of success of decriminalisation is FERA and FEMA. So, why not try it here but with stiff penalties, five and 10 times the amount.”And repeat offences should lead to criminal punishment, Desai added. “When you keep repeating them it becomes part of the cost of doing business. There must be a provision where at some stage what has been taken out into the adjudicatory mechanism must come back into the criminal law.”.Constant Review, Complete Confusion.The committee also recommended 16 other changes to the Companies Act, 2013 towards the purpose of ease of doing business. These frequent amendments are hurting that very cause, Vasani said, as companies cope to stay abreast of new legal and compliance requirements. Some mark a return to the pre-2014 position.For instance, the committee expressed disagreement with the provisions to ban auditors and firms. And suggested taking such power away from the recently constituted NFRA, an audit super regulator created under the Companies Act. 2013, who has yet to use it even once. The professional body ICAI should decide on bans, the committee opined without offering a final recommendation.Were this to happen, the clock would be turned back on an important reform in company law. As critiqued by atleast one expert here.Besides, a law that keeps changing can hardly facilitate ease of doing business. Vasani’s team of lawyers listed the many changes in the last five years.The principal act has been amended three times — almost 100 sections of the total 470 have been amended.There are 44 rules framed under this Act and they have been amended 173 times since 2014.There are 114 notifications issued, 115 departmental circulars issued, and 17 orders passed..There hasn’t been a week in the past five years when the Ministry of Corporate Affairs has not notified an amendment to the Companies Act or its rules, Vasani said. At SEBI, the changes are as frequent as one a day for the past year. RBI, too, is in the process of amending many FEMA regulations, he added..Even for practicing lawyers and professional corporate lawyers, it’s so difficult to keep a track of how the laws are changing. Now, what the foreign investor wants is stability in the system and predictability and that predictability is missing. I think in the government, there seems to be some disconnect between what the Prime Minister is thinking in terms of bringing ease of doing business and between the regulators who are in the process of changing law.Bharat Vasani, Partner, Cyril Amarchand Mangaldas.Watch | Bharat Vasani and Amit Desai discuss proposals to decriminalise company law..Read edited excerpts here:.In criminal offences, the standard of proof is much higher. One has to prove ‘guilty intent’ or mens rea. It’s a tougher prosecution challenge as the standard of proof is higher, but it’s a bigger deterrent. For monetary policies, the balance of probability standard applies. While this is easier to impose, it is a less effective deterrent. Do you believe commercial laws like company laws should have very few criminal provisions?Amit: I think the decriminalisation of commercial legislation in this country is helpful for the ease of doing business. And let me take you back to the liberalisation of 1991, the process in many ways began at that point in time. If you remember we had the Import and Export Control Act, which entailed a lot of criminal offences and virtually every import and export was the subject matter of some criminal proceeding or the other in the ‘60s and ‘70s. In other cases, Acts such as the Customs Act, 1962, were linked to import licenses and export obligations, etc. Post liberalisation, the Import-Export Act was repealed, and we had the Foreign Trade (Development and Regulation) Act, 1992. It was actually the first attempt in the realm of business law to decriminalise the process. It took away all criminal offences and left it with only civil law implications. The second, which is far more important, is the repeal of the Foreign Exchange Regulation Act, 1973. It was a dreaded legislation. We brought in the Foreign Exchange Management Act, 1999. It was an attempt to decriminalise again another business law. So, the Companies Act is also a business law which needed some limitations on the evocation of criminal proceedings and criminal laws, because otherwise, there is a sense of fear in doing business..For every action of an employee or a director, there is someone always looking over his shoulder to ascertain whether the action is a criminal offence or not. So, you need to bring in some balance. I am not really against the process of decriminalisation, but the question is where do you draw that balance? .The Companies Act has very different objectives. There is a lot of public money that goes into in all these listed companies. We have to find the right balance in the context of decriminalisation of the company law provisions. So, in principle, I am not really against it. I think it is the question of looking at the minutiae and finding out which of the offences need to be retained and which may be decriminalised..About businessmen constantly looking over their shoulders in fear? The point is that the Companies Act, 2013, was crafted to actually bring in a little bit of fear as it was the post-Satyam Act. It was enacted in 2014, we are in 2019. Five years down the line, we seem to be going through this reversal, thinking that maybe this brings in too much fear. Bharat: Well, I entirely agree with Amit with the fact that directionally this should be the right approach and FERA, FEMA are the classic examples where now there are no more than three penalties. I have one larger philosophical issue with regard to the Companies Act. One of the principal criticisms of the earlier Act, ‘56 Act, was that it was a toothless legislation. There was no fear and people could get away with not filing balance sheets and annual accounts. Monetary penalties were only Rs 5,000 and Rs 10,000, which companies thought were part of the cost of doing business and paid for it. So, this new Act was drafted on the basis of recommendations of the Irani Committee. Two parliamentary standing committees had minutely examined it. It was also the result of a couple of corporate scandals which happened at that time, including 2G scam, Satyam, and Sahara and many others. So, undoubtedly, it was a knee-jerk reaction to some of the corporate scandals and in certain areas, perhaps the needle moved a bit too much and we need to bring it back. But I don’t agree that most of the provisions should have only been civil penalties. This is because if people treated it as a part of doing business in India, then some of the deterrents will go away undermined. So, I think it is very critical to maintain a healthy balance between civil penalties and criminal prosecution and there are certain offences where I don’t think any leniency could be shown. I must emphasise that even today this committee has recommended the decriminalisation of only compoundable offences because section 441 of the Companies Act and all the non-compoundable offences will be dealt with as per the current law of imprisonment..What kind of offences has the committee earmarked for monetary penalties and what kind of offences are they planning to not touch right now but will visit later?Bharat: They have used a principle-based approach. The offences involving a substantial violation of the law and concerning deep public interest will remain untouched. They have said they would rather have criminal prosecution continuing with regards to this. With regards to procedural, incorporation, or governance-related violations or things such as a delay in filing of forms, they felt that there is no need to have any criminal prosecution. If you see the burdening of our criminal justice system, in most of the cases, these cases were languishing in the courts for years and years. So, it wasn’t that any advantage was achieved by keeping them in criminal offence. But we need to maintain a balance, that is what I would like to say..In some cases is the criminal punishment disproportionately high? For instance, the buyback provision in the law says if the company defaults on the provisions of that section or even SEBI regulations it will be fined Rs 1-3 lakh and the officer who is found to be in default will be punishable by up to Rs 3 lakh fine or three-year imprisonment. Now, how is Rs 3 lakh equal to three years in jail? So, while I agree with you nobody wants a law to become toothless. Is there a proper process to be able to weigh that if a crime or an offence is worth Rs 3 lakh in fine can it also be worth three years in imprisonment? Three years of life in jail is definitely not equivalent to Rs 3 lakh fine. So, who determines what the balance is here?Bharat: I would like to answer only one part. I think the 2013 Act, which came in April 2014 was a result of a reaction to some of the corporate scandals. So perhaps in some cases the needle has moved too far and we need to bring it back. Yes, I completely agree that three years of imprisonment has no correlation with Rs 3 lakh fine and that is precisely the reason that this committee was appointed. But you know my concern is, was the committee given adequate time to decide on a proper basis? Because the committee was constituted in late September and somewhere within two months they wrote a report where those earlier acts were examined from over four-five years ago? So, the issue one needs to debate is whether the committee has enough time to look at each and every offence very carefully and arrive at a balance which is right.Amit: Broadly, we are all on the same theme. What I would like to highlight here is an interesting sort of change between the 1956 Act and the 2013 Act. What they have done in the 2013 Act is they used an old time-tested method of introducing the adjudicatory function. So, if you look at the legislation of 1960s or 1970s, most revenue legislation - be it the Customs Act, Excise Act, Income Tax Act, Foreign Exchange Act - all these kind of legislations typically had a process by which we had a prosecution and you had an adjudicatory process where you can impose penalties or you can recover your duties or taxes. This was not there in the Companies Act. FERA, for example, had a prosecution and an adjudicatory mechanism. So, for the same contravention, you had two remedies: the prosecution (criminal punishment) and the adjudicatory (civil punishment) function. So, the principle for both at that point of time was that depending upon the gravity of the act, there is always a prosecutorial discretion as to whether the same act will launch a prosecution or you will only leave it at the level of the adjudicatory process. Now, you have the officers in the department making that call depending upon the nature of the action that was taking place. Interestingly, in the 2013 Act, they brought in the principle of adjudication, which was not there in the ‘56 Act. They brought in a time-tested process here. What they now seem to have done is that they said that some of the offences will be taken out entirely from the criminal court and left in the adjudicatory function. Then, I have another set of offences, which we are going to make punishable by fine and the others will be left as it is with punishment or imprisonment. But when they did that that’s where I have some reservations about the minutiae of which offences should fall in which category. I think there are areas where there needs to be a relook. There are some kinds of offences which can go into fine or adjudicatory that should have certainly remained as criminal prosecution. So, while this Act is in the backdrop of the Satyam case and it’s important to bear that in mind. I think it’s important to also realise that the Companies Act is one of the most important legislation which drives businesses. Sometimes, I feel like the presumption of dishonesty when you draft in legislation rather than presumption of honesty. So that is where we have to find the balance. Where you have to recognise the issues from the Satyam and provide for them but you don’t change the entire legislation to make it so imbalanced. .Let’s look at some of the recommendations of this Company Law Committee. Effectively 23 offences that were minor and could be objectively determined are to be moved to an in-house adjudicatory mechanism. Then, there are seven offences already dealt with under other laws, therefore, the criminal provisions of these sections have been proposed to be omitted. In another five offences, they have said that they don’t fit either of the categories above so alternate sanction methods. In 11 offences, of subjective determination but minor offences so they should be dealt with fine only and not criminal offences. In the case of 20 offences - these are serious and non-compoundable and hence no change proposed.There are efforts to weed out overlaps. In one case, where they said if the law provided a penalty, for say, non-compliance of an NCLT order, then it did not warrant a criminal punishment as there is already the contempt provision with the NCLT. In other cases, their reasoning was that a certain approach would not be effective. In one case, they brought up the instance of a company’s failure to rectify its name despite direction from the regional director. They have said instead of Rs 1,000 per day penalty, why not just auto generate a name and force the company to use.Do you agree with how the committee has categorised offences? Has it been too dilutive or yet too harsh for you?Bharat: By and large, it’s in the right direction. There are one or two areas where they felt the penalties were high and perhaps that should be rationalised. There, perhaps, I may not agree. In one of the cases, they said the delayed filing of annual accounts or financial statements with the registrar, they are wanting to bring in a provision similar to the CGST Act which states that if one files within 30 days of issue of a notice, then there will be no penalty. That would lead to people taking it for granted till we receive a show-cause notice, we don’t need to worry because there is no penalty. So, there perhaps the needle has moved to the other side extremely - too lax in this case. That is a serious offence in my view that if you don’t file your financial statements within the six months of closure of the financial year, then there is a problem. Apart from it if you look at it very dispassionately and very objectively, the committee’s recommendations are in the right direction. They needed to declog our criminal justice system and that is the best way that they could have done it under the current situation. Mr. Desai, I want to point out that even in the ‘56 Act, there was a section that was never imposed for adjudicatory penalty. But unfortunately, they never administered it and brought it under section 454 in the current Act..Where do you think the offences were too grievous to deserve just monetary penalty?Amit: I think in this environment in which we are living today one of the very fundamental issues is about related-party transactions. I think it is absolutely essential to ensure that all related-party transactions are properly documented and disclosed. What I find is in sections 184 and 188, which all deal with disclosure in related-party transactions, they are moving them away from offences to just penalties. In the context of what’s happening in the companies today, it is important and essential that you should maintain the fear of the criminal law in relation to these kinds of disclosures. It’s exceptional. The other thing I find strange and interesting is take for example a company which is a Section 8 company - for charitable objectives. They have proposed that if the conduct of the company is in a fraudulent manner, then it will deemed to be a fraud under section 447. They have dropped the specific offence. That is something very fundamental to charitable objectives. Why would you decriminalise it and take it out? You are dealing with public money which has to go to the public at large. Charity is the beneficiary and if you say that if the affairs of that company is not treated properly, then you will treat it as a civil offence..Is there no other provision under the law that would be deemed as suitable punishment enough?Amit: I mean you can bring it under fraud (447). Fraud is an omnibus provision. But then what is the message that you are sending? When you make an omission of an offence, then courts might say the intention was not to cover it under the general provision of 447 because when there was a special provision, they took it out. Then you are leaving it for matter of interpretation..It is interesting that you say this because there are several places where the committee has said, oh, there is a separate fraud provision, so do we need a specific provision under this section?Amit: The scheme that was adopted here is in relation to several offences, thereby, it is fiction if they have said that this will be treated under 447. As a fraud they don’t do that for Section 8. If they have introduced that ( a specific reference to 447) then I could have understood that they have linked with Section 447.Bharat: Could they have not invoked it under the IPC?Amit: They can, but my point is you have created because it is special legislation, you have decided to create special offences here. For example fraud, fraud is a facet of the offence of cheating under the IPC. Under the IPC, an aggravated form of cheating is punishable for seven years. Here (company law), because it is a special legislation and it is largely dealing with public funds what the legislation has done is make fraud a special offence punishable up to 10 years. So, you are here attempting to bring in a higher regimentation decision in relation to companies, because here you are dealing with a lot of public funds and public interest. While in a simple case of cheating, it is only a bipartite arrangement, where the public at large may not be considered. Specific absence of a linkage to 447 might give rise to interpretation that this was not intended. Now, there were several like this one. I found this one regarding public offer prospectus - section 40. Now, it deals with public funds which are to be dealt in an escrow, subject to the conditionalities there. They have again taken it (criminal punishment) out..But doesn’t SEBI cover that? So, do we need to cover it again under the Companies Act?Amit: I think, some of this, this particular provision deals with the concept of entrustment of public funds. When you deal with entrustment, like you have in the penal court, you have a criminal breach of trust where you are holding monies of the public and entrust it for a particular purpose. There is a need for as many disincentives as possible for something like that because that is the misuse of public funds, which was otherwise to be kept in an escrow for particular purposes. Today, you find it every day, you read about people using funds which are not meant to be theirs for all kind of purposes and earlier it was an offence under the ‘56 Act..If an offence is punishable under SEBI regulations as well, do you need to have overlapping punishments?Amit: So, when you deal with special situations and special legislation, undoubtedly yes. Otherwise, as I have given you the example of fraud under 447 is covered under the penal code. But you brought it in a special situation, you created a special legislation. That is legislative policy. Otherwise you will say that all that you need is one criminal law which covers all kinds of things from customs, FEMA etc. It can just go into one penal law of the country. Because they deal with special situations, there are special offences which are created to deal with those..My other concern is some of these penalty amounts are very small. For instance, Rs 2-3 lakh for any business in violation is not a very large deterrent. So, you could be in perpetual violation and then there is a degree of impunity that comes in. The monetary penalties are not scary enough, if I can use that word.Bharat: And this is precisely the reason. This was the criticism of the ‘56 Act that Rs 5,000 and Rs 25,000 (are not high penalties), but they (2013 Act) have not gone much higher. So, while they are trying to decriminalise, and I am opposed to the concept of criminal offences except for some of the offences as mentioned by Mr. Desai. (The issue) is that in the criminal justice system, nothing happens in the trial court. I have seen the cases making progress for years, you put it in criminal justice system and for 10 years nothing happens. So better do something faster.The ideal thing to is to have steep monetary policy which act as deterrents and FEMA has done it by imposing five times the amount. FEMA had virtually taken out every case of imprisonment provision and FERA had every section in imprisonment provision. So, the classic example of a success of decriminalisation is FERA and FEMA. So, why not try it here but with stiff penalties, five and ten times the amount.Amit: One other area that bothers me is I think is what Bharat just touched upon. You have to decriminalise a lot of these offences which are in the nature of procedural or technical violations. When you keep repeating them, as he says, it becomes part of the cost of doing business. There must be a provision where at some stage what has been taken out into the adjudicatory mechanism must come back into the criminal law. You might say that after the second contravention or the third contravention, you may have resolved them at the level of the adjudication, but at some point, if you don’t bring it back within the realm of criminal law, there is no deterrence. Then it’s a cost to doing business - minimal cost as you’ve seen. So, somewhere you need to bring in a provision, which will then say that if you are habitual, then sorry, you will now face prosecutions and fines or imprisonment or whatever it is.Bharat: Currently, it only says that within three years to repeat the same offense: twice the amount, but it’s only the in the adjudicatory mechanism.Amit: There is a conceptual issue because the adjudication is not a conviction. It is not a conviction. The other thing you need to bring in the company law is that, after a point you need to bring about certain disqualifications. Second time, third time, fourth time. All that you have is disqualifications—Sections 164 and 166—which make the second offense punishable only with fine. You should see what happens in the trial courts. They go there, the company will plead guilty. Pay Rs 5,000 fine and that’s the end of it. So, you need a further deterrent that needs to be brought in at some level..In some cases, I think the committee has also found the fines to be too onerous and want to reduce that. If you look at Chapter 10 - auditor’s duties and responsibilities. Any contravention by the company is punishable by both a fine for the company and a fine or imprisonment for defaulting officers. For the defaulting officer, you could potentially go to jail. The fine for the company is Rs up to 5,00,000. This is for an audit offense. Among the most grievous and serious offense that a company can make.Amit: Have you compared this with the SEBI provisions? Up to Rs 25 crore is the fine. There is a discretion there too, but here the maximum is up to Rs 3 lakh or up to Rs 1 lakh. So either you give the discretion to the authority, which could go up to Rs 25 crore from zero so that the authority judges the gravity of the action and decides whether it should be Rs 1,000 , Rs 1 lakh, or it could be in a given case, Rs 25 crore..I wonder if the committee missed a beat in not enhancing the monetary penalties.Bharat: I completely agree. In fact, I pointed out that for delayed filing of a financial statement. They felt that, well, Rs 1 lakh is too high a penalty and so we need to bring it down. That I think is completely unacceptable.Amit: One interesting thing, which I think worries me, is the Corporate Social Responsibility provision that was brought under criminal prosecution. Then of course, they pulled back on it and are taking it into the adjudicatory mechanism. In the adjudicatory mechanism, you should see the penalties that they recommended for CSR violations. They go up to crores..Conceptually, this law was supposed to be a comply or explain obligation and not even a permanent enforcement.Bharat: Again, there’s a consistency issue in that. Just about few months back it was criminalised. It was earlier not an offense at all under the Companies Act. It was criminalised by the 2019 amendment and now we are talking in terms of decriminalising that.Amit: Criminalising a CSR obligation I think in my own view, was inappropriate..The scope of the in-house adjudication mechanism has expanded from 18 provisions earlier to 35 and now if this committee’s recommendations are accepted, then maybe all the way up to 58. Do we have any understanding of how effective this IAM is? Amit: Amit: I would say in many of the other legislations which have been tried, tested for the last 50 years, it has been a very effective method. They have good officers sitting there. .The quality of justice?Bharat: They have said it’s been tried out and it’s working wonderfully well in SEBI..Mr. Vasani, if the law changes so frequently the is it really helping ease of doing business?Bharat: In my opinion, clearly no, and I want to give the context. Today the laws are not made so much by parliament as by the regulators. Today I want to talk about three regulators— MCA, SEBI and RBI. This Companies Act came into force on April 1, 2014 and I want to use some statistics. There are 44 rules framed under this act and they have been amended 173 times since 2014. There are 114 notifications issued, 115 departmental circulars issued, and 17 orders passed. The principle act itself has been amended three times by the parliament- 2015, 2017, which was almost a hundred sections out of 470 sections were amended and now 2019 proposals.Now we have a third company law committee which is recommending another slew of amendments. There is not a week passed when some rules, some odd notification, some circular is not issued by MCA. Now let’s go to SEBI. I will not call it one week, but there has not passed a day in this year where SEBI has not amended any of its regulations. The RBI is also now in the process of amending so many of the FEMA regulations.Even for practicing lawyers and professional corporate lawyers, it’s so difficult to keep a track of how the laws are changing. Now, what the foreign investor wants is the stability in the system and predictability and that predictability is missing. I think in the government, there seems to be some disconnect between what the Prime Minister is thinking in terms of bringing is of doing business and between the regulators who are in the process of changing law. Certainly, nobody would say that if you amend the rules 173 times, you are facilitating ease of doing business in India and that is a very fundamental issue. I think that needs for a national introspection on this issue. Amit: Fundamental to the very process of law making and the intent of law is predictability. Every citizen looks for predictability in every legislation. Therefore the numbers that Bharat has mentioned are obviously staggering and particularly for a business law like the Companies Act, where you could be as I would say- every time you change the regulation, the notification, you change the circular, you change the order, you would be probably committing a criminal act based upon the number offenses that have been put in here because every day, it’s changing, and you don’t know whether your act was under the old notification or your act was under the new notification. So, inadvertently you’re probably committing crimes all the time. Obviously, there’s a need to bring in some kind of balance to ensure that these kinds of actions then don’t keep coming back to bite the people who are taking these actions in the realm of criminal law because that’s the other part of the problem.You bring in all these changes, you then have this criminal law and then you have the authorities pushing the criminal law down and saying, now, we’re going to take action. That’s the reason why there’s a sense of fear in the business community. So, every time this change occurs, everybody is always looking around the shoulder. So maybe that’s the reason why decriminalisation is necessary because they’re not able to deal with the other part of the legislation. On a more serious note, I think that’s important to have conceptual ideas. Maybe people like Bharat Vasani should be spending more time in the ministry. I’m not joking about this, because it can’t be that these kinds of amendments keep happening in the law. Let me give you a small example even in the realm of criminal law. You have a special mechanism here- you can have a special investigating agency. You have a special power of arrest; you have a special procedure for bail, you have a special court; you have a special procedure. Now that is what we have is the criminal procedure code, which deals with all these aspects which covers all investigating agencies across the country. Why was there a need to confer such special powers and provisions for this particular authority? You could’ve just borrowed the CRPC, incorporated into this legislation and the time-tested principles which have come about for the last 70 years of interpretation of the CRPC would have applied to this. Now you’ll again have fresh interpretations. What is the extent of the power? What is the nature of the power?.In fact, what worries me a lot is the power of bail. I mentioned that to you earlier that the provision of bail in this particular legislation, (referring to the Companies Act, Section 212), which is applicable only in relation to an offence or fraud, but there are so many offences which are defined as fraud. The bail provision is similar to the provision under the narcotics act or the terrorism laws..So, if you’re arrested for an offence of fraud, then essentially the principle of bail has presumption of innocence. In the bail provision here (company law), the burden at the bail stage is on an accused to show that you have not committed the crime. That was a special provision only in narcotics, terrorism legislations - exceptional provisions. In the PMLA, that provision was struck down by the Supreme court and you have brought it into a company law legislation. I mean that is what really creates more fear..You’ve given committee enough thought for the next report.Amit: You don’t need some of these things in this kind of a legislation.Bharat: There’s a full degree of sincerity I think at the top of the government to bring about ease of doing business so that our index improves in the world map. The problem is, in reality there’s a serious disconnect because the laws are no longer made only by the parliament but by the various regulators under different legislation. SEBI volume of the Taxmann book used to come in one volume. Now four volumes are not enough to accommodate all the regulations framed by SEBI and they’re getting amended every single day. So, is it facilitating ease of doing business? That’s a simple question I think somebody needs to ask and introspect and that’s where the problem is. So, I think there is a need for a serious introspection on this issue.

Decriminalisation Of Company Law And Other U-Turns

Decriminalisation maybe necessary but can meager monetary penalties be deterrent enough?

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Decriminalisation Of Company Law And Other U-Turns

Decriminalisation maybe necessary but can meager monetary penalties be deterrent enough?

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