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Criminal Punishment for Corporates

A key irritant in the ease of doing business in India, has been frivolous and criminal punishment under the Companies Act. For a host of instances involving mere non filing/delayed filing of routine returns and forms, the law provides for criminal prosecution of company directors and its key officers. They are minor civil offences, often not deliberate and deserve a minor punishment by way of levy of fine. The Act however comes down heavy handed on such violations and for a minor civil violation, it seeks to impose a criminal punishment on the company directors. It is not fair, reasonable or commensurate and most of the times the trial courts tend to not hold the directors guilty. That is of little comfort, since company directors face the harassment of criminal courts for several years, undergoing years of litigation for a minor violation, often unintentional, before they are exonerated.

The trial courts are clogged with lakhs of such cases, since it takes decades at times, for such cases to be closed. The directors and key employees of companies undergo untold anxiety, which is a deterrent for doing business in India. It is a very common experience that whenever agencies like SFIO conduct an investigation, they file hundreds of such cases in trial courts, against companies and their directors, which are often futile and result in dismissal by trial courts. It is good to note that there has been rethinking on the part of the government in such cases. A high powered committee has been set up by the MCA, to review and suggest changes in the Act, such that minor civil offences by corporates and their directors, are not subject to unfair criminal punishment.

The Economic Survey 2018, had pointed out, particularly with reference to tax litigation, that the government is the biggest litigant, that indulges in frivolous litigation, despite having a track record of losing a majority of cases filed by it. It is heartening to note that the government has taken these findings very seriously. While on one hand it seeks to reduce corporate litigation, on the other, it has revised its guidelines for filing appeals under the Income Tax Act.  The government has revised the norms for filing appeals in courts, such that now, only those cases which involve a tax effect of over Rs.1 crore will now be filed with the Supreme Court. The limit has been similarly raised to Rs.50 lakhs in the case of appeals before the High Courts, and to Rs.20 lakhs in the case of appeals before the tax tribunals. While these limits do not apply to matters involving points of law, it is yet estimated that about 40% of income tax cases filed by the government, are likely to be withdrawn, in pursuance of these limits. It will be a huge relief to the tax payers and is testimony to the fact that the government is sensitive to the harassment caused due to frivolous litigation. The removal of such regulations will go a long way in easing the doing of business in India.

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