ADIF advocates ‘Ease of Doing Business’ reforms to reduce frivolous criminal cases against company’s Senior executives

Share your feedback and comments with us at office@adif.in

• An increase in frivolous complaints against the Company founders/CEOs/Senior Executives is a cause of concern

• This not only causes unnecessary harassment and interference in the operations of their business, but also impact India’s reputation as a Startup and Technology companies’ destination across the globe.

• ADIF, a think-tank for India’s digital startups ecosystem, advocates ease of doing business practices by revisiting certain provisions of IPC and IT Act, in line with the evolving digital markets and newer technology platforms

• ADIF also recommends:

• Introducing provision of mandatory preliminary inquiry by local magistrate before summoning senior executives, as suggested by Hon’ble Supreme Court in certain cases;

• Appointing company’s nodal officer as first point of contact for such cases and

• Necessary training of the field-staff & law enforcement agencies to tackle such cases.

In recent years, cases of frivolous criminal complaints or First Information Reports (FIRs) against the Senior Executives have seen an unintended increase. The worrisome concern is, in most of these cases, there is no direct relationship between the offense and the executive’s duties, causing unnecessary harassmcent and interference in the operations of their business. As per a study conducted by ADIF, most of these cases against Key Managerial Personnel (KMPs) of the companies are generally related to fraud & cheating and content-related offenses, which are covered under the sections 65-67 of the IT Act and sections 292, 294, 411, 419, 420, 425 under the IPC.

Also, it is worth noting that despite the safe-harbor provided under Section 79 of the IT Act for intermediaries and various court cases upholding the safe harbor protection, criminal complaints are increasingly being filed against technology companies and their KMPs in cases, there these executives have no active role to play.

The study also found that most frivolous cases against their KMPs under the IT Act were instituted in tier 2, 3 and 4 towns as compared to metropolitan cities. The plausible explanation may be that the officers posted in metropolitan areas understand the nature of the companies and the concept of intermediary liabilities. However, this definitely points the need of comprehensive training of police officers posted in smaller cities in intermediary companies and cybercrimes investigation.

ADIF advocates improving the ‘Ease of Doing Business’ in India, by revisiting certain provisions of IPC and IT Act, so as to minimize the abuse the criminal justice system, through frivolous complaints.

The government and judiciary have been cognizant of these issues and have made efforts to address it. For instance, courts have held in various rulings that the element of mens rea to be considered while maintaining the criminal liability against the Senior executives and also, criminal proceedings should be discouraged in cases where a complaint is malafide or abusing the court process. Similarly, various offences under the Companies Act, 2013 have been decriminalized recently in order to improve the ease of doing business in India. Despite these efforts, KMPs are routinely charged, and even arrested on account of frivolous FIRs.

The Alliance of Digital India Foundation (ADIF), a think-tank for India’s digital startups ecosystem, suggests that the relevant provisions of IPC and IT Act dealing in the offences of cheating, fraud, criminal conspiracy, etc. may be revisited from digital markets perspective. evolved, and the substantive provisions under the IPC have failed to address these changes.

ADIF spokesperson shared that, the enforceability of penal provisions also need reconsideration from the investigation perspective. Involvement of KMPs in the investigation process for matters concerning day-to-day operations may be avoided through the designation of specific nodal officers with appropriate visibility and control over the subject matter. Similarly, preliminary enquiry powers before registration of FIR may be expanded to allow determination of who may be responsible for an alleged offence, specifically in relation to cases filed against companies; and there must be provision training and upgradation of law enforcement officials, especially at the ground level. Also, the data collection on cybercrimes and particularly those against KMPs must be strengthened through the National Crime Record Bureau.