India’s Business Laws Need To Shed ‘Regulatory Cholesterol’: Observer Research Foundation

Currently, there are 843 economic legislations, rules and regulations that oversee and influence businesses in India and in total contain up to 26,134 imprisonment clauses. Effectively, 37.7% clauses pertaining to doing business in India carry imprisonment as penalties, according to Observer Research Foundation.

More than half the laws (or 54.9%) carry imprisonment clauses, the ORF said in its ‘Jailed for Doing Business’ report. Almost four out of every five (79.9%) compliances with imprisonment terms reside with state governments, the report notes, making a case for shedding the ‘regulatory cholesterol’ that governs businesses in India.

It’s not that penalty clauses including imprisonment should not be in business laws but 26,134 imprisonment clauses are surely a regulatory excess whose biggest contribution would only be to create a rent-seeking climate, the report authored by Gautam Chikermane and Rishi Agrawal says.

Labour Laws Stand Out For The Number Of Imprisonment Clauses

The report points out that the Companies Act, 2013 and its 14 accompanying rules themselves contain 176 imprisonment clauses and the jail terms range from three months to 10 years.

The other laws which the authors have pointed out for their distinct number of imprisonment clauses include:

• The Factories Act, 1948 along with its 58 rules contains 8,682 imprisonment clauses.

• The Legal Metrology Act, 2009 with its 29 rules has 391 imprisonment clauses.

• The Electricity Act, 2003 and its 35 rules contains 558 imprisonment clauses.

• The Motor Vehicles Act, 1988 with its nine rules has 134.

Dirty Washrooms = Death By Negligence

The report argues that in a lot of instances imprisonment is included for offences which are more in the nature of process violation and may not necessarily have any willful intention to harm or fraud.

For instance, the Factories Act, 1943 carries an imprisonment of up to two years for the manager for violation of any of the provisions of the act or the related rules drafted by the state governments.

The quantum of punishment is similar to the offence of death due to negligence under the Indian Penal Code, 1860.

Thus, the law effectively makes the non-provision of spittoons or some irregularity in the cleaning and painting of wall partitions a legal equivalent of a homicide, the report says.

The report also gives the example of the Maternity Benefits Act, 1961, which carries a jail term for failing to display the abstract of the legislation and its rules for workplaces employing female workers.

Imprisonment Clauses Must Pass Test Of Proportionality

The report argues that punishments under India’s business laws must be in proportion to the violation. There is a need for lawmakers to seriously examine punishment in context of the gravity of the act in question across several regulations, the report says.

The authors argue that there is a legislative bias in India’s lawmaking process which sees the entrepreneur worse than a hardened criminal and such an approach needs to be reformed.

Some of the measures suggested in the report include:

• Using criminal penalties in business laws with extreme restraint.

• Other than for a handful of willful crimes, all business punishments must be financial.

• State capacity to enforce the law, including penalties for officials misusing their office, must also increase.

• End the criminalisation of all compliance procedures.

• Every imprisonment clause should go through legislative scrutiny at least once every five years.