[op-ed snap] Overdue correction: on revisiting the Companies Act

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Mains Paper 3: Economy | Effects of liberalization on the economy, changes in industrial policy & their effects on industrial growth

From UPSC perspective, the following things are important:

Prelims level: Companies Act, 2013

Mains level: Changes required in Companies Act, 2013 in order to improve ease of doing business


Context

Panel to review Companies Act

  1. The Centre has announced the constitution of a committee to revisit several provisions of the Companies Act, 2013
  2. This 10-member committee appointed by the Corporate Affairs Ministry has been tasked with checking if certain offences can be ‘de-criminalised’
  3. This is being done as some of the provisions in the law are so tough that even a spelling mistake or typographical error could be construed as a fraud and lead to harsh strictures

Committee’s mandate

  1. The Uday Kotak panel has been tasked to assess whether some of the violations that can attract imprisonment (such as a clerical failure by directors to make adequate disclosures about their interests) may instead be punished with monetary fines
  2. It will also examine if offences punishable with a fine or imprisonment may be re-categorised as ‘acts’ that attract civil liabilities
  3. The committee has also been asked to suggest the broad contours for an adjudicatory mechanism that allows penalties to be levied for minor violations, perhaps in an automated manner, with minimal discretion available to officials

Mindset behind the changes

  1. The government hopes such changes in the regulatory regime would allow trial courts to devote greater attention to serious offences rather than get overloaded with cases as zealous officials blindly pursue prosecutions for even minor violations
  2. Industry captains had red-flagged the impact of such provisions on the ease of doing business, and investor sentiment in general
  3. The rethink is perhaps triggered by the fact that private sector investment is yet to pick up steam and capital still seeks foreign shores to avoid regulatory risks

Way forward

  1. The 2013 law entailed the first massive overhaul of India’s legal regime to govern businesses that had been in place since 1956 and was borne of a long-drawn consultative process
  2. The decision to build in harsh penalties and prison terms for corporate misdemeanours in the 2013 law was influenced by the high-pitched anti-corruption discourse that prevailed in the country at that moment in time
  3. But a trust deficit between industry and government owing to stray incidents of corporate malfeasance should not inhibit normal business operations
Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
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