Home / Economy / ‘Jailing clauses in biz laws deter entrepreneurship’

While the Centre is working on promoting ease-of-doing business, over 26,000 imprisonment clauses in Indian commercial laws are likely to throw a spanner in the works, regulatory technology firm Teamlease RegTech and Observer Research Foundation (ORF) said in a joint report.

According to the Jailed for doing business report, reforms to these clauses embedded in central and state laws are necessary to restore the dignity of entrepreneurship, encourage flow of ideas and funds, and create a vibrant jobs market.

India suffers from ‘regulatory cholesterol’ that is getting in way of doing business, it added. “The legislation, rules and regulations enacted by the union and state governments have, over time, created barriers to the smooth flow of ideas, organisation, money, entrepreneurship and, creation of jobs, wealth and GDP."

Hostile clauses have grown since Independence, and survived over three decades of economic reforms since 1991. The challenge comes from the continuation of imprisonment as a tool to have pre-Independence style administrative control over businesses to protect labour will prove to be counterproductive in 21st-century as automation rises in the coming years, it added.

The report said policymakers should maintain extreme restraint while designing laws dealing with criminal penalties in business. It said a regulatory impact assessment committee could be set up within the Law Commission of India to end the criminalisation of all compliance procedures.

An email query sent to the finance ministry did not elicit any response till press time.

In 2020, the government had decriminalised the Companies Act and made amendments to allow in-house handling of procedural lapses to ensure the cases do not end up before tribunals. While only 18 offences used to be under the ministry’s internal mechanism earlier, now it deals with about 60 company law violations. Last year, the Parliament had also cleared an amendment to the Limited Liability Partnership Act to decriminalize some provisions. Besides, federal think tank NITI Aayog is working with the states to further improve ease of doing business and ease of living, Mint reported in March 2021. The report said frequent revisions in compliance requirements have also been a challenge.

ABOUT THE AUTHOR

Gireesh Chandra Prasad

Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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