In its efforts to move towards a $5 trillion economy, the NDA government is moving to decriminalize the Income Tax Act and the Prevention of Money Laundering Act (PMLA), said Finance Minister Nirmala Sitharaman at the Nani Palkhivala centenary celebrations in Chennai on Sunday, January 19, 2020.

According to the Finance Minister, the other steps being taken to reach the target of a $5 trillion economy are decriminalizing corporate laws, settling tax dispute and rapid privatisation of state-run firms.

As part of the changes to be made to the Companies Act, 46 penal provisions will be amended to remove criminality or reduce the punitive measures to only charging a fine. This is in addition to the 16 compoundable offences already decriminalized by the Companies (Amendment) Act, 2019. These changes will later also be extended to laws dealing with income tax and money laundering.

“I have gone through this (Companies Act) with a comb. We are working to decriminalise companies and ensure that no other Acts including Income Tax Act and PMLA, have such provisions,” Sitharaman said.

She also said that the government had no wish for laws that treat businesses with suspicion as that was not the intent of the government, adding that the government had already identified the statutory changes to be made to improve the ease of doing business.

She also emphasized the need for a quick resolution of pending tax-related disputes, mentioning that for income tax cases, the government would replicate the successful dispute resolution scheme launched last year for indirect taxes.

One of the arguments for the decriminalization of some of the offences in the Companies Act and others thereafter, is that doing so will free up the courts to address more important offences. However, the cases registered for such offences aren’t the only ones that plague the courts in India. Lack of effective deterrents, unnecessary litigations and the misuse of the law are some of the main reasons for the overburdening of the justice system.

The decriminalization of certain offences under the Companies Act is riddled with problems, reads an editorial by The Telegraph. Because of the set of companies in India being diverse, monetary fines can have different implications on different firms depending on their net worth. The formula for calculating penalties for different companies is unclear and the transference of imposing penalties from the legal system to quasi-judicial bodies that include civil servants, can increase the potential of companies indulging in opportunistic behaviour.

Deliberate violations could be triggered with the understanding that the penalty imposed would be much less than the advantage obtained from the violation.

Bharat Vasani, a partner at Cyril Amarchand Mangaldas emphasizes that the ‘special courts’ assigned by the government to deal with economic offences must be strengthened to improve the disposal of cases.

Keeping in mind the above uncertainties surrounding the government’s decision, the Companies Act which is like the Constitution for the corporate world, should be ensured to not be made meek by the wholesale decriminalization that the government is looking to implement. There are also concerns that decriminalisation could be a method to shield perpetrators of corporate malpractices many of which often fall in gray areas. Decriminalisation should not be allowed to enable corporates to engage in exploitative practices that adversely affect consumers and employees.

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