Corporate laws across the world have witnessed a transformation in the past few decades. The impetus for such a change is globalization, which intricately brought attention to the concept of good corporate governance. Since India opened up its door to the world in 1991, the nation has been trying to keep pace with the advancing economic order. The Parliament in recent times has been amending and introducing new legislation to match up to the new system. Yet, the Indian legal system remains one of the most complex issues for businesses to run smoothly.
New Economic Policy 1991 and Reforms in Corporate Law
To fulfil its obligation under the WTO agreements, the government brought several new legislations and amended many of the existing laws throughout the 1990s and early 2000s. “The new crucial legislations that enacted were the SEBI Act, 1992, Arbitration and Conciliation Act, 1996, and Trade Market Act, 1999 amongst others. While existing laws such as the National Highways Act, Securities Act, Copyright Act, etc were amended accordingly,” says Gautam Khaitan.
An eminent corporate lawyer, Gautam Khaitan is the managing partner of OP Khaitan & Co. With over three decades of experience in the field, he has handled various corporate and litigation work for various leading multinational and national companies, banks, and financial institutions all over the world including but not limited to mergers, demergers, acquisitions, joint ventures, structuring transactions, collaborations, Facility Documentation, External Commercial Borrowings, and arbitrations.
“One of the major development was the constitution of a working group in 1996 to review the Companies Act. It submitted its report the very next year and became the base of several amendments that happened in 1999, 2001 and 2002,” he adds. Reforms in foreign exchange law were also an essential step towards legal modernization. The outdated Foreign Exchange Regulation Act, 1973 was repealed and the Foreign Exchange Management Act was introduced.
Most Over-Regulated Nation
Recently, a Hong Kong-based consultancy firm rated India as the most over-regulated country in the world. “The complexity of Indian laws imposes heavy burdens, with their costs often far exceeding the benefits. Thus the need of an hour is to deregulate the over-regulated sectors with overlapping rules,” says Gautam Khaitan. He suggested that a reform in the regulatory framework is the only way India could move forward towards achieving greater economic growth rates.
“In my view, Insolvency and Bankruptcy Code (IBC) needs to be amended to fill the lacunae in the provisions rather than having amendments to temporarily fix issues. Though the IBC is amended several times since December 2016, none of them seems to understand ground realities or how companies are seeking to defeat creditors and the extent they are willing to go to perpetuate this fraud.”
Gautam Khaitan also indicated towards the GST discordances, “There is also a need to streamline the GST. There are many slabs and there are still movements across the slabs, as to which product goes into which tax bracket. So, there remains uncertainty over it, and that needs to be streamlined and fixed. A recent issue of GST rates created a lot of confusion, in respect of what rate applies to hand sanitizer which is a very crucial item in times of COVID -19”.
The decade after the NEP was introduced, witnessed rapid modernization of the laws by bringing in new legislation and amending the existing ones where viable. With the low working efficiency of the Indian Parliament, several of those laws have either become redundant or are proving hindrances to the progress of the businesses. Amid Covid-19, when India is witnessing steep economic crises, Gautam Khaitan advocates for the creation of an entirely new regulatory environment to the development and economic growth of the country.