Fixing The Plumbing: Two Moves Of Modi Government Will Unclog Income Tax And Corporate Cases In Courts

Often, it is the changes in plumbing, rather than big reform moves, that can make all the difference. Two moves by the Narendra Modi government – one to reduce appeals by the tax department by raising the monetary threshold limits, and another to make many of the offences under the Companies Act 2013 compoundable – are steps in the right direction.

No judicial system can deliver justice if government remains the largest litigant, and its officials routinely challenge adverse verdicts by appealing to avoid being hounded by vigilance sleuths for alleged corruption.

Under a decision taken last week, the threshold limits for tax appeals have been doubled to Rs 20 lakh for appeals at the appellate tribunal, to Rs 50 lakh (from Rs 20 lakh) for appeals in high courts, and to Rs 1 crore (from Rs 25 lakh) for final appeals to the Supreme Court. Barring cases that involve substantial issues of law, this increase in threshold limits will reduce litigation by more than 41 per cent when the appellant is the government itself.

It is a travesty that amounts as low as Rs 20-25 lakh are enough to clog the inbox of the higher judiciary. The increase in threshold limits will sharply reduce the pendency of cases in courts.

An even better idea would have been to not only raise threshold limits, but to automatically raise limits by indexing the thresholds to inflation every two years. This would reduce the need for making such changes every now and them, based on executive discretion.

The second change is to review penal provisions under the Companies Act and make more of the transgressions compoundable. This means instead of prosecuting people for offences, thus clogging up the courts once more, those parties who are willing to settle the matter by paying a fine will be let off.

The review committee, which has 10 members, including representatives from business (Uday Kotak and Sidharth Birla), law firms (Shardul Amarchand Mangaldas and AZB Partners), etc, will have to submit its report in 30 days. This indicates an urgency to get corrective action implemented quickly, rather than over the long-term.

The main benefit of this review will be that offences that were earlier criminalised will be decriminalised, and settled with either a fine, or a mix of fine and jail in rare cases.

In fact, the same approach needs to be taken to non-serious financial crimes in general, except where the offences are too grave to be ignored. The US approach, which allows alleged offenders to enter into a plea bargain and settle their cases without prosecution, is ideal for India where the courts take years to deliver verdicts.

Minor cases of financial irregularities should be settled by making the violator pay a fine that is three or four times the amount deemed irregular, and the same could be done with insider trading and other such “victimless” crimes. Those benefiting from insider trading should be asked to disgorge multiple times their alleged gains rather than having to spend years trying to dodge a Securities and Exchange Board of India finding against them.

India needs to get its financial criminals to pay for their crimes in cash instead of making the entire process a tax on the system which ends up delaying justice in multiple spheres.