A Trigger-happy Government which Legislates before It Thinks
This government is in a tearing hurry to show results. Over the past four years, it has introduced, axed or amended innumerable statutes, with minimal discussion or explanation. If a proposed legislation were unlikely to find support in both houses of parliament, it was rammed through as a money bill. Predictably, all this has led to innumerable mistakes, interpretation issues, embarrassment, clarifications and amendments.
 
Since government departments tend to be slow, this government depends on chosen non-governmental organisations (NGOs), law firms or consultants to hasten the process of policy-making and drafting statutes. Many ministries have representatives of top consulting firms and international NGOs are permanently stationed as a part of their ‘support team’. They sit in at meetings, make presentations and write up the minutes. 
 
This is in complete contradiction with the government’s public stance of distrusting NGOs and subjecting thousands of them to regulatory scrutiny or cancelling their permission to get foreign donations. Often, bad policy or controversial legislation is because of the government’s dependence of advisers who have no truck with grassroots and borrow all their thoughts and ideas from their international experience. 
 
Writing in The Mint, Pradeep Mehta, secretary general of CUTS International, notes that this government has amended close to 65 existing legislations and introduced 33 new legislations and 39 ordinances. Effectively, for every two of 69 relevant Acts repealed (only 69 of the hundreds of laws scrapped were still operative; the others were dead laws), three new Acts (including amendment Acts) have been introduced (total around 98). “This not a record to be proud of, especially when deregulation is claimed to be one of the key success stories of the government,” writes Mr Mehta. 
 
The confusion is further confounded by frequent clarifications, changes and amendments. The ever-changing rules of the Goods & Services Tax (GST) are a perfect example of this mess. A whole year after it was enacted with high drama at midnight in parliament, the Act remains a work-in-progress. A FICCI survey has shown that 59% of the people are dissatisfied with the GSTN (Goods and Services Tax Network) portal and 96% felt it needed improvement. 
 
A GST-related comment by finance secretary Hasmukh Adhia points to the root of the problem. Acknowledging the problems with the GST rollout, Mr Adhia said, “If I asked for a small change in software, the technology team would ask for at least eight weeks. That was because making a single change in the software required many other incidental changes. It gave us a bit of a problem.”
 
A tax network of this magnitude cannot have software that can be constantly tweaked—it’s not like writing something on a piece of paper with a pencil and erasing it off, without other unintended consequences. It has to be thoroughly tested and de-bugged before unleashing it on hapless taxpayers. While Digital India is a big slogan with this government, whether it understands it is a different matter.
 
The same attitude saw the Unique Identity Development Authority of India (UIDAI) Bill being rammed through the Lok Sabha as a money bill, as the government attempted to bludgeon people into submission by making Aadhaar mandatory for all almost every activity—from owning a phone, to operating bank accounts, investments, owning property or even access to healthcare or admission to educational institutions. 
 
Key issues, such as the quality of Aadhaar data, robustness of technology, security, identity theft, privacy and grievance redress, were ignored while touting so-called benefits in advertising blitzkrieg. There is a small lull in the relentless pressure to obtain Aadhaar until the Supreme Court of India decides scores of cases filed against the Unique Identity project; so we have no idea how it will play out before the general elections. 
 
Meanwhile, the Union Cabinet is understood to have decided to drop the Financial Resolution and Deposit Insurance (FRDI) Bill on 18th July. This Bill, drafted by an NGO, was based on a commitment by India in 2014, as part of the G20 nations, to create a legal structure which includes a ‘bail-in provision’ to recapitalise banks. While making this commitment, the government forgot that such a Bill is not relevant to India’s nationalised banking system or the more restrictive regulatory structure that prevails in India. 
 
What is worse, it failed to anticipate the panic it would trigger among ordinary depositors in the face of scary data about the mountain of bad loans and the brazen bank frauds involving well-known industrialists. It also failed to gauge the impact of the controversial ‘bail-in’ provision (where deposits above a certain threshold that were insured could be converted into equity to re-capitalise and bail out a failed bank). Or, consider the possibility of a run on nationalised banks and how it could affect India’s finances. 
 
Another perplexing and unexplained move is the sudden decision to decriminalise parts of the Companies Act 2013 by allowing certain offences to be settled or compounded by paying a monetary penalty. Ostensibly, this is being done to ‘unclog’ courts and free them up for trying major offences. However, while setting up a high-profile committee to recommend which offences can be settled with money, the government did not bother to put out any statistics to tell us how many cases have been filed in court under the draconian 2013 Act by the NDA (National Democratic Alliance) itself. 
 
Remember, it is the NDA that hastily struck off over 225 thousand companies in September 2017 for not filing tax returns and debarred over 300 thousand directors on these companies. Some of these companies were active and, yet, had their bank accounts frozen and directors harassed and embarrassed. Many persons, who had sold off their companies over a decade ago, have received summons in criminal proceedings without even a show-cause notice. 
 
In just a few months, the government realised that many of these companies have tax dues that need to be recovered. So, on 29 December 2017, the Central Board of Direct Taxes (CBDT) instructed tax officers that they should, on a case-by-case basis, request the revival of companies to recover tax dues. It also realised that reviving the companies is far more difficult than striking them off with the stroke of a pen. 
 
In the past few months, the income-tax (I-T) department is filing appeals before the National Company Law Tribunal (NCLT) for revival of these shell companies. The finance ministry also asked registrars of companies not to oppose requests for revival by the I-T department. 
 
This is not the only hasty blunder. Remember, the 331 companies de-listed overnight from the national stock exchanges on the charge that they were shell companies on 7 August 2017? This was done through an order of the Securities and Exchange Board of India (SEBI), without even a cursory fact-finding exercise. It turns out that many of those companies were not even shells! They are now ‘clogging’ up the Securities Appellate Tribunal (SAT), after being forced to litigate and prove their existence. 
 
So who is responsible for this massive ‘clogging’ of courts and tribunals? Not the admittedly draconian provisions of the Companies Act, but the hasty actions of a trigger-happy government which acts before it thinks. Will the 10-member committee help clear this issue? Or is it really cleaning up the United Progressive Alliance’s (UPA’s) blunder of criminalising several ‘civil wrongs’ in the 2013 Bill piloted by Sachin Pilot?  Since this committee is to submit it recommendations in 30 days, we will know the answer soon enough. If the committee leaves this untouched, it will mean that the objective was never to unclog courts but to appease corporate India in an election year. 
 
The UPA’s foolishness in introducing draconian penal provisions in the Companies Act 2013 as well as the amendment to the SEBI Act, while also running the most corrupt government post-independence, had contributed to its downfall. In fact, Sachin Pilot is understood to have brushed aside as many as 700 thousand representations against some of the worst provisions in this statute. Some dilution of the statute has already happened in the Companies Act (Amendment) Bill 2014 and 2017. Will there be bigger dilution now?
 
Meanwhile, the government’s flip-flop on various issues continues, with different departments doing and saying different things. So, while, on the one hand, Reuters reported that SEBI is mulling “tighter rules for auditors and valuers”, we also read a report in The Mint, quoting US-based proxy adviser, Glass Lewis & Co Llc, that says that 84 out of the 161 companies that held annual general meetings in the past two and a half months, didn’t bother to seek auditor ratification from shareholders (including 20 State-run banks reporting large losses). 
 
This, it says, was possible because the amendment to the Companies Act in 2017, which “dispensed with the requirement for annual auditor ratification by companies” became effective from May 2018. Just in time for companies to take advantage of the change. Isn’t that nice? A government that talks so tough is actually quite obliging with dilutions and amendments which are done with such speed that neither the public nor the political opposition knows what is happening. 
 
In the run-up to the elections, it may be a good idea if the government slows down a bit and focuses on processes, cost of implementation, impact of its actions and redress of grievances, rather than constantly churning and changing things. That would calm the nerves of harried citizens and businesses affected by its actions. 
 
You may want to read Moneylife Cover story on 2013 Companies Bill
 
Comments
Ca Bhavesh
3 years ago
Good article but there are a few things to be clarified. First, the Government did not strike off companies for not filing tax returns but these companies were struck off for not filing RoC returns regularly including the annual financials. Many a times, Companies are just created by promoters but do not carry out any annual exercise like audit or filing of financials with RoC even though its their statutory responsbility. Please note that the Government ran 2 separate campaigns to ask Promoters to file the returns with penalities reduced by as much as 75% just to ensure compliance.Even after all this, if the returns are not filed, it just shows that the promoters indeed do not care about the law of the land , neither do they care about the company they created. So it doesnt matter if the Company is struck off.

Companies Bill was a rush piece of legislation which was a thoughtless exercise. The Government indeed had to carry out amendments in 2015 and 2017 as also bring about exemptions for private ltd companies and government companies in 2015 via notifications.

About the GST portal, the less said the better. I was actually apprehensive from the first day since it was given to Infosys which has a terrible record with major e-governance projects. I think Moneylife has covered the issues with both MCA and TRACES (TDS website of the income tax department) which were badly mismanaged by Infosys. Even GST portal was done so. Infosys says that because of frequent changes, site was not optimum but the fat remains that it was badly designed from the start with no help from the GST Team. I will give you small example. We used to spend full days in June 2017 just for registering the digital signature. This was something which was very basic and not even related to rules or laws. But we had a terrible time with the site.















Ranjan Sengupta
3 years ago
Potemkin village and the Tower of Babel
Suketu Shah
3 years ago
Superb article with even better headline.What else can you expect when the no 3 in the country cannot even manage his own health and stand 15 minutes in a day but given 2-3 major portfolios to handle including Minister of Finance.
Prasun Sengupta
3 years ago
Brilliant
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