The Department of Financial Services have put forth a recommendation to decriminalise financial offences for reducing clogging of courts and the burden of carrying out business. This was introduced as a resolution towards the current slowdown of the country’s economy. The recommendation refers to reclassify the offence committed under the scope of civil offences which means the punishment will be limited to monetary penalties instead of jail time. This also ensures the congestion caused in the prison system which would be helpful in times like these. The legislation that are suggested to amend in terms of jail time which are under the governance of the Department of Financial Services related to banking, insurance and pension reforms including the RBI Act, the Insurance Act, the Banking Regulation Act and the Negotiable Instruments Act. This Article articulates about the concept of financial offense and the implications for this decision.
What are financial offences?
Financial offences range from basic fraud by greedy individuals to large-scale operations devised by criminals with an influence in every continent. These offences are a threat to the economic development and stability. The offences include money laundering, tax evasion, misrepresentation or fraud, insider trading, submitting dishonoured cheques, illegal trading of derivatives, misappropriation of property, counterfeiting and falsification of accounts.
Legislation in India governing these offences
IPC consists of provisions governing these offences such as insurance fraud, credit card fraud, manipulation of stock market, bank fraud and real estate fraud.
These also include Sections 415-424 governing cheating, Section 489A governing counterfeiting of currency notes and Sections 405-409 governing criminal breach of trust.
Section 138 of this Act prosecutes a person who had presented the cheque which bounced up to two years of imprisonment and a monetary penalty up to twice the cheque amount. The criteria to prosecute a person under this Act is on the event where a cheque has been returned due to insufficiency of funds or if the amount exceeds the amount in the bank of the payer.
The Act lays down the objectives and the organisational structure of the Reserve Bank of India. The objectives of the Reserve Bank under this Act are to oversee the flow of currency and maintenance of monetary stability in the country. The Act also grants the RBI the jurisdiction to amend the monetary policy framework in the country. Section 58B of the Act governs the offences related to dales advertisement, unregistered NBFCs and soliciting deposits imposing imprisonment and monetary penalty.
The Act is originally enforced under the governance of British administration with an objective to regulate the insurance sector. The Insurance Act, 2015 amended the Act,1938 and the General Insurance Business (Nationalisation) Act, 1972 including the amendment of the Insurance Regulatory and Development Act,1999. Sections 12 and 103 govern offences namely, default in audit and unregistered insurance with imprisonment and monetary penalty.
This Act was passed to lay down a system under which taxes are assessed and collected including the procedure on addressing disputes with tax authorities. Section 270 of the Income Tax Act, 2000 governs tax evasion which falls under the scope of financial offence. Tax evasion consists of wilful violation or circumvention of applicable tax laws to minimise tax liability.
This was passed by the Government of India in December 2003 which is applicable to whole of India including Jammu and Kashmir. The objectives of the Act are to prevent money laundering in India by controlling the activity, and confiscating or seizing the property obtained from this. The minimum penalty for committing an offence under the Act is a monetary penalty of Rs. 5 lakhs along with rigorous imprisonment for three to seven years. Section 65 also lays down the guidelines on how the provisions of the Code of Criminal Procedure, 1973 are to be followed during enforcement of proceedings under the Act.
The SARFAESI Act,2002 was enforced to permit banks and other financial institutions to recover loans by auctioning residential or commercial properties without intervention of the court. Section 29 of the Act imposes imprisonment of one year or a monetary penalty or both when violating the objective of the Act.
The Act was introduced by the current Finance Minister of India which provides a comprehensive machinery to ban unregulated deposit schemes and protect the depositors’ interests. Section 21 of this Act imposes ten years of imprisonment and monetary penalty up to twice the amount of total deposits which is in contravention to the banning of unregulated deposit under Section 3.
Implications for the Recommendation
The Ministry of Corporate Affairs have recently done a similar recommendation related to reviewing and reclassifying punishments for compoundable and non-compoundable offences under the Companies Act, 2013 with an aim to fill critical gaps in the framework of corporate governance. The reason for decriminalising these offences are to raise compliance levels along with the promotion of easy living of businesses. The issue of burdened courts has been present since a long time and the introduction of new courts have not eased it to the full force thus, the offences recommended to be decriminalised does not affect the public interest so it can be added under the scope of civil offence. Decriminalisation of compoundable offences that are procedural or technical in nature means there is no need for the establishment of mens rea which makes the process of imposition of penalties quicker than a criminal prosecution.  In light of corona virus, the aspect of imposing jail term under these offences have been hindered due to lockdown and the need for freeing the prisons to contain the spread of the virus. According to the department, the enforcement of the recommendation would attract potential investors local and foreign due to the ease of doing fair business in our country.
According to the Corporate Professionals, the law must differentiate between recovering dues from the management and causing an interference to the operations of their businesses. India is one of the highest region with financial crimes so the act of decriminalisation must be done with caution and without any ambiguity in the laws making it stringent to ensure there are no loopholes that could be opted by corporates or individuals to escape justice. Enforcement of these laws, however, will ensure there is no delay in justice and reduce the burden of courts. The focus should also be on increasing monetary penalties to prevent such offences and avoid dilution of grave offences such as money laundering, Ponzi schemes and many more faced in the past committed by large scale corporations and high profile individuals shaking the stock market and the economic growth. Stakeholders have been asked by the Finance Ministry of India to submit their opinions by June 23 related to the recommendation.
The Economic Times, ‘Some Financial Offences Like Bouncing Of Cheques May Be Decriminalised’ (2020) <https://economictimes.indiatimes.com/news/economy/policy/some-financial-offences-may-be-decriminalised/articleshow/76289826.cms>
 Bhat A, ‘Financial Crime In India: Overview’ <https://uk.practicallaw.thomsonreuters.com/w-009-8768?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1>
 Dashrath Rupsingh Rathod v State of Maharashtra  Supreme Court of India (Supreme Court of India)
 ‘What Is Tax Evasion In India & Penalties On Tax Evasion’ (Aegon Life Blog – Read all about Insurance & Investing, 2018) <https://www.aegonlife.com/insurance-investment-knowledge/penalty-for-tax-evasion-in-india-a-read/>
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 The Economic Times, ‘Decriminalise 46 More Offences Under Cos Law, Says Panel Report’ (2019) <https://economictimes.indiatimes.com/news/company/corporate-trends/recategorise-23-more-offences-under-companies-law-panel-report/articleshow/72110750.cms>
 Landmark examples are Satyam scandal, Enron Scandal, Watergate, Harshad Mehta Scam and Ketan Parekh Scam.
 The Economic Times, ‘Some Financial Offences Like Bouncing Of Cheques May Be Decriminalised’ (2020) <https://economictimes.indiatimes.com/news/economy/policy/some-financial-offences-may-be-decriminalised/articleshow/76289826.cms>
(Author is BBA LLB (Hons.) from Alliance University, Karnataka and currently based at Chennai, Tamilnadu)