Overcriminalised, Overburdened: Why States Must Lead India’s Push to Decriminalise Minor Compliances

In the last decade, the Central Government has made relentless efforts to reduce the complications of business regulation, bringing in notable changes. This transformation of the framework has yielded tangible results, as evidenced by the dramatic improvement in ease of doing business rankings.

The Centre has adopted a multipronged strategy to streamline the dense regulatory landscape and ease the compliance burden at every stage of the business operation cycle. The implementation of the SPICe+ form and the National Single Window System (NSWS) has effectively brought down the time needed for setting up a new business to “a matter of days” instead of months.

SPICe+ is an integrated web-based dashboard that combines applications for multiple critical registrations, such as Director Identification Number (DIN), PAN, TAN, GSTIN, and even bank account opening, into a single, seamless process.

The NSWS acts as a unified digital interface for entrepreneurs to apply for the various licences and approvals required after incorporation. The rationalisation of compliance under the Companies Act, 2013, and implementation of reforms such as GST have made business operations much smoother, while the enactment of the IBC has given entrepreneurs confidence in the ‘ease of exit’ when ventures do not succeed as planned.

However, one set of reforms that has truly become the hallmark of ‘Trust-Based Governance’ is the Jan Vishwas (Amendment of Provisions) Act, 2023, and the Jan Vishwas (Amendment of Provisions) Bill, 2025, aimed at decriminalising criminal offences triggered by minor technical lapses.

This legislative shift represented a conscious effort to undo the legacy of punitive regulation that long stifled enterprise. The post-independence political priorities had turned India’s regulatory environment hostile towards businesses.

As such, crucial pieces of labour legislation, such as the Industrial Disputes Act, 1947, and the Factories Act, 1948, amongst others, carried imprisonment provisions even for minor procedural oversights. A report in 2022 titled Jailed For Doing Business revealed that there are around 26,134 clauses embedded in India’s business laws that can lead to imprisonment.

The sheer number of punitive clauses poses a significant risk to the entrepreneurial spirit in the country. In view of this, the Central Jan Vishwas laws, by reducing compliance risks, have become a quintessential tool for fostering a healthy business environment in the country.

Role Of States

While the Central Jan Vishwas laws are a critical and necessary first step, the real task of shedding the compliance ballast rests with the States. The Constitution, through the Seventh Schedule, provides the framework of the division of powers between the Centre and the States, including on subject matters which impact various aspects of business operations.

Both the Centre and States have the competency to formulate laws on crucial factors of production, such as labour, while certain operational licensing and permits fall under the exclusive domain of States.

Of the 26,134 imprisonment clauses mentioned earlier, 20,895 clauses have been enacted by the State legislatures under various legislations, with 91% carrying imprisonment for a term of less than three years. While certain criminal provisions pertaining to business operations are essential to prevent wider public harm, the majority of these provisions are mere bureaucratic baggage of a bygone era.

One of the most common criminal clauses across multiple legislations enacted by State governments is the prescription of imprisonment for failure to furnish documents or information sought by the relevant authorities under the Act.

These provisions give bureaucrats blanket powers to enter premises of business establishments and demand documents and information which they deem necessary. Failure to comply with the demand may result in criminal proceedings against the establishment.

The very notion of a jail sentence for failing to supply a document is absurd. The deeper danger lies in the scope for misuse, turning such clauses into tools of harassment against businesses.

For instance, an inspector might demand an obscure document from decades ago, knowing it is difficult to produce instantly. The looming threat of imprisonment can coerce an entrepreneur into paying a bribe to 'resolve' the issue.

Similarly, during a routine licence renewal, an official could flag a minor technical error in paperwork, a criminal offence under the Act, and suggest that a 'facilitation fee' could make the problem disappear. Similar provisions pertaining to the submission of audit reports, renewal of licences or notifying the relevant authorities have been criminalised under the Revenue Codes, Shops and Establishments Acts, and Labour Welfare Acts of almost all States.

The presence of such provisions under various State enactments not only diminishes the reform efforts made by the Centre but is also counterintuitive to their own industrial development and investment policies, which are solely geared towards providing a friendly business environment. States therefore need to be proactive in coming up with legislative reforms that alleviate the fear of criminal consequences for even minor lapses.

Encouragingly, some States are already leading the way. Legislative efforts in States like Gujarat, Assam, and Chhattisgarh to review and amend their business laws are positive steps in this direction. These initiatives can serve as a template for other States to follow.

Approach Towards Decriminalisation

The purpose of any decriminalisation exercise should not be to condone dangerous or negligent behaviour, but to foster a positive business environment. Therefore, any provision that criminalises an act which can cause harm to human life or health or undermines public safety should be retained in its present form.

However, any provision criminalising minor technical non-compliance should be decriminalised by adopting a graded approach which, while replacing imprisonment terms with civil penalties, takes into consideration the severity of non-compliance and the duration of imprisonment term provided under the law.

States can also adopt a hybrid approach for consequential non-compliances, wherein civil penalties can be imposed on the first contravention, followed by imprisonment terms for second and subsequent contraventions.

Question On The Capacity Of Courts

Another notable issue with the needless criminalisation of minor technical lapses is that it brings unnecessary burden on the lower courts. As of July 2025, more than 4.7 crore cases are pending with the lower courts in India, resulting in inordinate delays in concluding trials even for offences that carry only a few days of imprisonment.

The amendments to the Companies Act, 2013, and the enactment of the Jan Vishwas Act, 2023, by the Central Government provide not only for the decriminalisation of offences but also introduce In-house Adjudication Mechanisms (IAM) where handling of contraventions and subsequent imposition of penalties is done by competent executive authorities under the Act. The results of this approach have been encouraging.

As per a PIB report, following the incorporation of IAM into the Companies Act, nearly 1,400 cases that would earlier have gone to court were summarily disposed of by the Registrar of Companies (ROC).

A number of State laws, like those relating to municipalities or land development authorities, empower the Judicial Magistrate First Class (JMFC) to take cognisance of offences under the Acts. However, this puts an additional burden on the already strained judicial system. Such trials also drain State resources by dragging them into avoidable litigation.

Any decriminalisation exercise carried out by the State Governments must therefore also include IAMs that not only reduce the burden of the courts but also allow for easy disposal of cases, thereby providing the necessary policy predictability.

Perils Of Overcriminalisation

Douglas N. Husak in Overcriminalization: The Limits of the Criminal Law argues that an excess of criminal law that erodes public respect for the legal system is profoundly applicable to India's business environment. When entrepreneurs face imprisonment for petty and obscure compliance lapses, the law is no longer a guide but an ambush, fostering cynicism instead of order.

This corrosion of trust in governance is perhaps the highest cost of overcriminalisation.

The solution, therefore, cannot be a slow, top-down approach. It requires a proactive, bottom-up movement led by the States themselves. State legislatures can act with far greater agility than Parliament, accelerating the decriminalisation process. When States take the first step in amending Central laws under the Concurrent List, they can also generate the necessary push for the Centre to act.