Over 26,000 ways an entrepreneur can land in jail for non-compliance of business laws

Non compliance of two out of five provisions for doing business can send an entrepreneur to jail, said a research report prepared by TeamLease RegTech, in association with the Observer Research Foundation (ORF), a globally leading multidisciplinary think tank.

Teamlease Regtech, regulatory technology company, has highlighted issues related to compliances and given its recommendation to further improve doing business, in its report titledw “Jailed for Doing Business: the 26,134 imprisonment clauses in India’s business laws”

‘Burdensome on MSMEs’

According to the report, among the 69,233 unique compliances that regulate doing business in India, as many as 26,134 have imprisonment clauses as a penalty of non-compliance. Five States have more than 1,000 imprisonment clauses in their business laws — Gujarat (1,469), Punjab (1,273), Maharashtra (1,210), Karnataka (1,175) and Tamil Nadu (1,043).

“Excessive compliances are especially burdensome on MSMEs; a typical MSME, having more than 150 employees, faces 500-900 compliances that cost ₹12-18 lakh a year,” the report said. Further, it mentioned that such regulatory overreach impacts not just entrepreneurs running for-profits, but also not-for-profit institutions. There is a widening gap between the goods and services the country needs and how the State views the entrepreneurs creating them.

‘Ideas for actionable reforms’

According to Manish Sabharwal, Vice Chairman of TeamLease, the excessive criminalisation of India’s employer compliance universe breeds corruption, blunts formal employment and poisons justice. “This report is a wonderful contribution to ideas for actionable reforms; the government has made a good start in purging compliances but truly reducing regulatory cholesterol requires extending that project to purging the 26,134 jail provisions for employers at the Centre and State,” he said.

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The report has 10 recommendations to improve the doing business scenario.. Using criminal penalties with restraint and constituting a regulatory impact assessment committee could lay the foundation of policy reformation. It also recommends rationalising imprisonment clauses. For instance, removing criminality from procedural lapses and inadvertent omissions while retaining imprisonment for willful transgressions, including but not limited to loss of life, destruction of environment and evasion of taxes. In addition, defining standards for legal drafting, introducing sunset clauses, and ushering all reforms under single overarching legislation could be key to infusing dignity to the entrepreneurs, businesspersons and wealth-creators.

Samir Saran, President of the Observer Research Foundation, feels this publication lays the foundations for engaging with and delivering India’s third-generation economic reforms. “The recommendations in Jailed for Doing Business, and its thorough analysis, must compel us to change how we assess our businesses and treat those who run them. I see this report as a springboard for new research and efforts that are needed to do away with rules, laws and codes that hold back India’s entrepreneurial energy and its emergence as a global economic powerhouse,” he said.

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