Global laws have adjusted to changing times. However, some draconian principles exist even today. These provisions have hampered economic growth and are a barrier to the ‘ease of doing business’ agenda. This is what Gautam Chikermane and Rishi Agrawal allude to in their 2022 Observer Research Foundation (ORF) report, ‘Jailed for Doing Business’ – and about which Chikermane wrote on last month on this page.
Chairman, Economic Advisory Council to Prime Minister, GoI
Assistant consultant, Economic Advisory Council to PM
The word ‘draconian’ comes from the Athenian lawgiver Draco who gave civilisation an important milestone – written laws. Before this, it was ad-hocracy. Even though an improvement, the laws were extremely harsh, with the death penalty being commonplace.
Global laws have adjusted to changing times. However, some draconian principles exist even today. These provisions have hampered economic growth and are a barrier to the ‘ease of doing business’ agenda. This is what Gautam Chikermane and Rishi Agrawal allude to in their 2022 Observer Research Foundation (ORF) report, ‘Jailed for Doing Business’ – and about which Chikermane wrote on last month on this page .
They claim that ‘of the 69,233 compliances that businesses have to follow, 37.8% carry imprisonment clauses’. For instance, not whitewashing latrines and urinals once every four months may lead to imprisonment up to two years under the Factories Act, 1948. To escape these provisions, businesses try to be under the threshold of being classified as factories. The laws on entrepreneurs in India have been designed to keep businesses small. The romanticisation of small industries may very well be an afterthought.
The report doesn’t argue for eliminating all imprisonment provisions, but argues for their rationalisation. In case of contravention to the laws governing businesses in India, one the burden of proof lies with the accused until stated otherwise. Consequently, this gives rise to rent-seeking among the lower bureaucracy.
Under some laws, imprisonment is immediate. The nature of contravention – procedural or deliberate – can only be established after a time-consuming trial. Until then, the entrepreneur can languish in jail. Thus, there should be imprisonment only if criminal intent has been established. This may, however, lead to a reduction in deterrence.
A deterrence-inducing mechanism should ensure compliance while not taking away the ability of businesses to function. In India, crime is primarily classified into two subheads – those under the Indian Penal Code (IPC), and others part of the special and local laws (SLL) like the Excise Act, Electricity Act and Motor Vehicle Act. Apart from labour laws, even SLLs have provisions on imprisonments. Imprisoning entrepreneurs under such laws serves no purpose. Instead of deterring repeat offenders, they discourage investors in states where local laws carry stringent imprisonment clauses.
There should be a transition from imprisonment to stringent monetary penalties in case of contraventions. To be an effective deterrent, they should be punitive like in the US. India’s Constitution does not bar courts from imposing punitive damages, but they are still uncommon.
The Supreme Court in the ‘Municipal Corporation of Delhi vs Victims of Uphaar Tragedy‘ case ruled that ‘punitive damages can be awarded when the wrongdoers’ conduct ‘shocks the conscience’ or is ‘outrageous’ or there is a wilful and ‘wanton disregard’ for safety requirements’. Most labour law-related ‘offences’ that warrant imprisonment pertain to safety requirements. Apart from the procedural mistakes, punitive damages may be imposed for actions that grievously threaten the safety of workers or employees.
In many laws, imprisonment is immediate, and the accused remains in prison through the trial. However, if monetary penalty is not imposed at the time of filing charges, it won’t be an effective deterrent. Thus, the accused should deposit, say, 75% of the penalty to the court while the trial continues, which should be credited back to the accused if he or she is found not guilty.
If the magnitude of monetary penalties is mentioned under the law, over time, inflation erodes their value. This again reduces their deterrence. Even for IPC, there are some ridiculous fines. The one for an act that endangers life or the personal safety of others can extend to only ₹250. Similarly, the fine for spitting outside a spittoon under the Factories Act, 1948, can extend to – wait for it – ₹5. Since amending a law is time-consuming and challenging, an administrative order should decide the range of penalties or damages.
Also, something similar to a plea bargain mechanism can be considered, by which businesses could choose between severe punitive damages or undergoing trial with imprisonment. Punitive damages coupled with plea bargains can pose an effective deterrent. Also, since undertrials comprise an estimated 75% of the total prison population, a plea-bargaining mechanism would help reduce this burden on the criminal justice system.
Hefty fines, penalties and damages collected can be also used to strengthen the justice delivery system. Finally, it would be an important step towards facilitating the ‘ease of doing business’ agenda. It’s time for the Law Commission to revisit all penalties, fines and provision of imprisonment. Unnecessary and redundant penalties should be taken out of the law books.