Discriminalise, But What?


There is thus a considerable erosion of ease of doing business and an embattled government now recognizes that corporate/tax laws need to be decriminalized

Mumbai: The increasing criminalization of our business and corporate laws has particularly taken place during the Modi government’s tenure. Its attitude of governance/administration has been founded on suspicion as N. Chandrasekaran says, and the overriding mantra has been complying, or else face harsh penalty and prosecution, which is often neither justified nor warranted. The laws have been formulated or changed in such a manner, that for the slightest of delays and defaults, which can be condoned if for bonafide reasons, there is a criminal punishment of heavy penalty and prosecution. An ordinary entrepreneur, who is already harassed by unwanted notices from the tax departments, (which the PM himself laments are harshly-worded in threatening terms), now faces prosecution by criminal courts for pardonable bonafide defaults. Will he focus on his business or be tormented by courts and should be earn profits or lose his capital in paying penalties and fees to lawyers and consultants, is the predicament that he faces. These malicious contingencies of the law, which are frivolously foisted on the hapless entrepreneurs by an insensitive bureaucracy, have meant that it is better to not do business and conserve your capital than lose it all in such draconian contingencies of penalty and prosecution.

The growth rate of investments in new projects in India has come to a virtual NIL as entrepreneurs have become massively risk-averse and courts are clogged with lakhs of such prosecution cases filed under corporate and tax laws. There is thus a considerable erosion of ease of doing business and an embattled government now recognizes that corporate/tax laws need to be decriminalized. A high powered committee appointed by the MCA had suggested numerous amendments to the Companies Act, in its report a few months ago. But it is certainly not enough. While delivering the Nani Palkhiwala Centenary Celebrations lecture at Chennai the FM said that her first and earnest attempt which continues till today is to decriminalize everything to do with the Companies Act or related laws. She admitted that in the laws, there are a number of sections leading to a criminal approach and therefore penalties also jail terms. The government’s effects are to decriminalize the Companies Act and ensure that no other Act of the government, whether it is on income tax or on money laundering will have such an impact. She said that they do not want a law that treats every business house with suspicion, which she said is not the intention of the government.

This proposed decriminalization of the corporate and tax laws would be much-needed justice to the bonafide defaulters, but to those who are fraudsters, who cheat the system, they certainly need to be criminally punished. As a rule, any unintentional violation of the law, particularly by a private entity, with no public money at stake, must be dealt softly and be not subject to any criminal penalty and prosecution. But for those enterprises who intentionally violate and cheat the system, for illegal gains, they must be not be spared and be subject to the harshest punishment. And which are those instances:-

  • Violations to cheat banks and the public, including their accomplices in it.
  • Bogus claims for tax credits under IT and GST.
  • Bogus export refunds.
  • Corruption to gain illegal gains.
  • Transacting in proceeds of crime.
  • Deliberately not paying taxes.
  • Indulging in forgery and fraud to cheat the system.

The unfortunate part is that such persons have often been hand in glove with the system, such that they get away with murder.

There should not be such heavy penalties/prosecution for bonafide delays in depositing taxes and TDS, in repayment of bank dues, in filling ROC and other returns and where there are disputed and untenable tax dues.

The government is certainly on the backfoot at present and has no choice, but it needs to maintain balance in as much as that professional deliberate violator is not spared.

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