In the late 1940s, US Supreme Court Justice Felix Frankfurter counselled Benegal Narsing Rau, an important contributor to writing the Indian Constitution, that India would be best served without a clause for “due process”. The Constituent Assembly accepted his advice and India substituted due process with a phrase from the Japanese Constitution: “procedure established by law.” We make the case that this substitution created a wedge between Niti (policy) and Nyaya (justice) via a lazy administrative state that did not fully apply its mind to legislation. A direct consequence of this laziness can be seen in the 26,134 criminal provisions for employers across the 1,536 laws that apply to employers in India.
A unique paper titled Jailed for Doing Business by Gautam Chikermane of Observer Research Foundation and Rishi Agrawal of Teamlease Regtech documents the jail provisions faced by Indian entrepreneurs across 1,536 laws in seven categories: labour, secretarial, environment, health and safety, finance and taxation, industry-specific, commercial, and general. We have 843 laws that are particularly consequential; together, they have 26,134 criminal provisions; 55% prescribe more than one year of jail, 33% have five jail provisions, and one law has 700 ways in which a business person can end up in jail!
History matters. Mahatma Gandhi had pleaded guilty to sedition charges in 1922 while insisting that the existence of a procedurally legitimate law is not enough; it must have the moral authority to rule. Before 2017, our Supreme Court had only two qualifications for laws to pass the test of constitutionality: whether Parliament has the legislative competence to enact a law on the subject and whether the law violates fundamental rights or any other provision of the Constitution. But while the court did strike down executive actions for being arbitrary before 2017, the Supreme Court added a third qualification in that year to test a law’s constitutionality: whether the legislation passed by Parliament is not manifestly arbitrary.
As mentioned, our Constitution’s lack of a due process clause was largely influenced by the US experience. Beginning in 1897, the US Supreme Court broadly interpreted the “due process clause” in the Fourteenth Amendment to overturn legislation that purportedly interfered with property rights and the freedom of contract, and used it to invalidate several New Deal laws, to the frustration of President Roosevelt’s government at the time. By 1946, when we were drafting our Constitution, the US Supreme Court had largely abandoned its use of a substantive due process to undo progressive legislation.
Article 21 of the Indian Constitution states that “No person shall be deprived of his life or personal liberty except according to procedure established by law”. Our Supreme Court was asked to interpret that phrase shortly after the Constitution came into force in a habeas corpus petition filed by A.K. Gopalan, who was detained under the Preventive Detention Act (No. 4 of 1950).
Gopalan challenged his detention directly in the apex court, invoking the court’s writ jurisdiction under Article 32 in fundamental-rights cases. Gopalan contended that he had a fundamental right under Article 21 not to be deprived of his personal liberty except “according to procedure established by law.” The Preventive Detention Act interfered with that right because it did not provide adequate procedures, including natural justice, to lawfully deprive Gopalan of his liberty. A majority of the Supreme Court rejected Gopalan’s arguments. The court found that only the legislature could decide the adequacy of procedures that deprive a person’s liberty and courts would not sit in judgement over whether the procedure was fair or reasonable. They would have to trust the legislature’s wisdom.
The Supreme Court, however, overruled the Gopalan verdict in 1978; it held that although the Constitution talks about procedure established by law, the procedure could not be unfair, fanciful or arbitrary. We think 26,134 employer jail provisions are unfair, arbitrary and excessive.
Our population ensures that India will soon be third in the world’s gross domestic product (GDP) rankings, but low productivity has meant we are 138th in per capita GDP. Raising GDP-per-head needs raising the productivity of our states, firms and individuals; this requires changing how our abundant land, labour and capital combine to create well-paying jobs, livelihoods and businesses. There has been substantial progress in raising India’s fourth factor of production, entrepreneurship, over the past few years. However, regulatory cholesterol ensures most of our employers are still dwarfs, not infants.
The paper by Chikermane and Agrawal makes 10 major and 31 minor reform recommendations, but sustainable change would require rebooting the mindset of confrontation between the Indian state and the country’s entrepreneurs. These excessive jail provisions represent what economist Shamika Ravi imaginatively describes as tyranny without a tyrant.
A folk tale in the book Raya: Krishnadevaraya of Vijayanagara by Srinivas Reddy has minister Timmarasu taking the young prince by that name aside before his magnificent coronation ceremony. Instead of imparting secret advice, Timmarasu slaps Krishnadevaraya across the face and counsels him to remember the pain of punishment and the importance of judicious punishment once he becomes king. Krishnadevaraya also seems inspired by 13th century Telugu political theorist Badenna, who believed “Justice is the way to make the people prosper and the people’s prosperity is the way to wealth”.
India’s 26,134 jail provisions for employer- compliance violations are rarely used to put people in jail, but the cost of this Niti is poor economic Nyaya, as most visible in corruption, low wages and the low productivity of businesses. Many of them must go.
Manish Sabharwal & Ashok Reddy are co-founders of Teamlease Services
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