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When a large company collapses or defaults, the public response is often immediate and predictable. Questions are raised, outrage follows, and before long, criminal proceedings are initiated against promoters, directors, or senior executives. Arrests and FIRs are increasingly treated as markers of accountability. The underlying assumption seems simple: if a company has failed, someone must have committed a crime.
This instinct, however, reveals a deeper shift in how India understands corporate failure. Instead of treating it as a commercial or regulatory problem, one that requires course correction, institutional learning, and market discipline, the State is increasingly framing it as a moral and criminal one. This tendency to respond to economic distress with criminal law may satisfy public demand for visible action, but it carries long-term costs for governance, growth, and institutional credibility.
Corporate failure is not always the product of fraud or bad faith. Businesses operate in conditions of uncertainty, market volatility, regulatory flux, and imperfect information. Decisions that appear sound at one point may unravel due to macroeconomic shocks, policy changes, or unforeseen risks. Insolvency regimes across the world are built on this understanding. They aim to resolve failure, not punish it. The objective is recovery, value maximisation, and continuity, not retribution.
Yet in India, the boundary between commercial failure and criminal culpability has become increasingly blurred. Regulatory action is frequently followed by criminal complaints. Civil disputes morph into allegations of cheating or conspiracy. Directors are summoned not for specific acts, but because they were part of the board when things went wrong. The use of criminal law, in such cases, appears less about establishing guilt and more about signalling seriousness.
This shift is not accidental. Criminal law offers immediacy. It produces visible outcomes-arrests, searches, charges that regulatory or insolvency processes do not. In a system under pressure to demonstrate responsiveness, criminal prosecution becomes an attractive tool. It reassures the public that wrongdoing is being addressed, even before liability is clearly established.
But this approach comes at a price. Criminal law is a blunt instrument. It is designed to address intentional wrongdoing, not business misjudgment. When applied loosely, it risks collapsing the distinction between bad decisions and bad faith. Over time, this erodes the predictability that businesses rely on. Directors begin to view boardrooms not as spaces for informed risk-taking, but as zones of personal vulnerability.
The consequences of this mindset are already visible. Board members increasingly insist on defensive decision-making. Independent directors resign rather than risk exposure. Decisions are delayed, diluted, or avoided altogether. In sectors that require long-term investment and complex judgment-banking, infrastructure, technology-this risk aversion can be deeply damaging.
There is also an institutional cost. When criminal law is used as a substitute for regulatory capacity, it masks deeper failures. Weak supervision, delayed intervention, and inadequate enforcement are not solved by prosecuting individuals after the fact. They are merely obscured. Over-reliance on criminal proceedings may offer short-term political reassurance, but it undermines long-term reform.
None of this is to suggest that corporate actors should enjoy immunity. Fraud, deception, and wilful misconduct must attract serious consequences. But accountability must be proportionate and principled. Criminal liability should rest on clear evidence of intent and participation, not on hindsight or public pressure. Treating every failure as a crime risks weakening both corporate governance and criminal justice.
The challenge, therefore, is one of balance. India needs robust regulatory systems that can detect problems early, intervene decisively, and resolve distress efficiently. Insolvency frameworks must be allowed to function as designed, without being overshadowed by parallel criminal processes. Courts, too, play a crucial role in ensuring that criminal law is not invoked mechanically, especially against individuals whose involvement is purely institutional.
As India seeks to attract investment and build resilient markets, it must confront an uncomfortable question: are we using criminal law because it is appropriate, or because it is expedient? The answer will shape not only how companies fail, but how confidently they dare to succeed.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.