The present government has pushed hard to improve India’s ranking in the ease of doing business index, including decriminalising various companies’ related offences, offering fresh start schemes, etc. On 20 March 2021, the Union finance ministry announced that 20 states had successfully implemented the ease of doing business reforms. However, the good work being done by the government is being undone by the misplaced corporate criminal jurisprudence in India. Business owners and professionals have a sword of criminal liability constantly hanging over their he ads, irrespective of culpability. This constant threat and insecurity are informal adverse indicators that may not be quantifiably expressed in surveys assessing the ease of doing business.
This insecurity amongst businesses and professionals is attributable to disproportionate measures taken by the legislature to curb corporate fraud. In 2013, Parliament enacted the Companies Act, 2013 (2013 Act), which replaced the Companies Act, 1956, as the statute governing firms in India. The two notable wrongs in the 2013 Act are (a) while it imputes criminal liability in case of fraud, the definition of ‘fraud’ itself is vague and ambiguous, and (b) there is a complete overturn of presumption of innocence in cases relating to fraud.
The vaguely worded, illustrative and broad definition of fraud under the 2013 Act can encompass almost any act or omission that is injurious to the interest of a company’s stakeholders. Of course, all such actions or omissions should not go unattended, but the threshold of an offence attracting imprisonment ought to be far above a mere injury to the stakeholders. Further, an illustrative definition of an offence is unknown in law and is contrary to the first principle of criminal jurisprudence, being that the act constituting an offence must be strictly defined and construed. Also, the definition of fraud doesn’t take into account the fact that most of the culpable beneficiaries of the businesses do not take any official post in the company. The vaguely broad definition of fraud has led to the creation of a new class of victims, the dummy directors who, in most of the cases, neither possess any criminal intent nor gain anything out of the criminal acts committed by the de facto beneficiaries. However, such dummy directors are implicated by virtue of them holding official posts in the company.
The above problem gets further compounded by the presumption of guilt in the 2013 Act. Under the present law, a person including the directors and the professionals accused of fraud, amongst other requirements, have to prima facie prove their innocence for securing bail. In other words, the incarceration begins with the initiation of investigation and continues till the accused proves that he is prima facie innocent. This requirement is not only against the principle of presumption of innocence but also exposes innocent people to imprisonment. Moreover, in cases where a person has been falsely framed, it would be almost impossible to prove innocence at the stage of bail. This absurd requirement is further catalysed by long-drawn and extremely slow trial proceedings. For instance, if we look at the orders passed in cases relating to fraud under the 2013 Act, we see that in most instances, even the first stage of providing the copy of the investigation report to accused persons has taken more than a year. Furthermore, a reading of the cases initiated under the 2013 Act also shows that almost all key managerial personnel (including directors) of the accused company are arrayed as accused. It wouldn’t be wrong to say that incarceration of all key managerial persons even before proof of guilt may lead to the corporate death of that particular company, since there will not be anyone left to run it. Loss of business adversely affects not only the company but also all the stakeholders whose interests are supposed to be protected under the law.
Thus, qualitatively, the government needs to factor in the resultant insecurities due to the above explained misplaced corporate criminal justice system while assessing its success for the ease of doing business. There is an urgent requirement for doing away with the onerous and misplaced requirement of proving innocence for securing bail. Further, there is a need to amend the definition of fraud under the 2013 Act, making it precise. Lastly, there is a need to ensure that the trial is completed in a time-bound manner. Of course, the otherwise improving indicators of ease of doing business are to be celebrated. However, till the time the legislature provides certainty and protection from unwarranted prosecution to business owners and professionals, the sword will continue to hang over their heads and the trepidation with which business is done in the country will not ease.
Anuj Tiwari
New Delhi-based advocate specialising in corporate criminal defence and insolvency
(Views expressed are personal)
(anuj@rkpandassociates.in)