Decriminalizing corporate offences: fast but unfair
An expert committee set up by the Union ministry of corporate affairs has recommended that several offences defined under the Companies Act be decriminalized. Till recently, 81 corporate offences were punishable by jail sentences. This was brought down to 66. Now, 40 more offences are sought to be decriminalized. The rationale behind this decision is to ensure better corporate governance and also ease the pressure on the justice system. Decriminalization does not mean that offences will not carry penalties. These transgressions would not go to court and be punishable by jail sentences. The penalties would be monetary fines along with certain restrictions imposed on the offender. There are varieties of penalties, ranging from stiff monetary fines to denial of access to credit. There is no doubt about the fact that cases decided in court take an inordinate amount of time and that the courts are terribly overburdened. The pressure of pending cases is noticeable in specialized courts and tribunals too. Reducing such pressure and swiftly dealing with offences can actually lead to better governance. It might also improve the risk-taking ability of firms. The penalties could well be decided by the regulator. In that case, it could be the ministry of corporate affairs.
However, this reform could lead to some problems. The first thing to remember is that the set of companies in India is big and diverse, comprising a large number of small firms along with a few massive and powerful entities. Monetary fines can mean very different things to different firms depending on the size of their pockets. If fines are imposed in proportion to the size of the firm, then there could arise complications regarding the fairness of the formula devised for the purpose of calculating penalties. The second thing is that the power to punish or pardon now gets shifted in many cases from the legal system to the civil servants and members of the political class. In India, the possibility of opportunistic behaviour can be quite widespread. It could also trigger deliberate violations of law with the understanding that the penalty imposed would be much less than the advantage obtained from the violation. Justice dispensed, whether through courts or the regulator, must be swift, transparent and fair. But courts and the regulator may not always be perfect. The possibility of justice being dispensed would be higher if an independent referee is involved. Without a neutral element, the shifting of the assessment of offences and the reduction of penalties could lead to faster but undesirable outcomes.