AI-led regulatory action to have human decision-making at core

The new compliance module armed with AI/ML will be rolled out in the ministry’s MCA21 business registration and compliance portal once its ongoing upgrade and migration of forms to high-security ones get completed in a couple of months.

AI will help boost efficiency, said a person informed about the portal’s upgrade. It will help generate and send automated reminders about compliance due dates to companies on a large scale. It would be similar to how the income tax department sends automated reminders to taxpayers about filing returns by the due date. However, when it comes to issuing a notice to a business for a default that has taken place, there will be human decision-making before using the system’s capabilities to communicate it to all defaulting companies, the person said on condition of anonymity.

“First, a decision has to be taken on a file. There will be an authorized officer competent to issue a notice who will take that decision to issue the notice. The system will be asked to list all the companies lacking in compliance. The draft of the notice has to be approved by a human, but the names of the companies may not have to be. The format has to be approved by application of mind. Then, the official can order that the notice can be issued in a particular format to all the (defaulting) companies,” the person said. Notices for defaults will not be sent by the software itself, the person said.

It may be possible that by the time notices are sent, some more companies may have complied with the requirement, a phenomenon which happens even on a physical file. The people said the system and the procedures are still being worked out.

The idea is to ensure that the tech-heavy compliance regime being rolled out has a human-centric approach while utilizing its automation capabilities for efficiency.

Ranjeet Pandey, a former president of the Institute of Company Secretaries of India, said that assigning decision-making responsibility to designated officials for sending notices will ensure accountability. “The notices have to bear the signature of the official sending the communication, even if it is the system that delivers it,” Pandey said. However, communication regarding technical and procedural breaches could go directly from the system to businesses, he said.

“Some of the defaults are technical in nature, even if they may be related to governance. The government has decriminalized several offences that are procedural so that defaulters can pay the penalty and put an end to the matter,” Pandey said. Legislative and administrative steps to improve ease of doing business are done in a gradual and systematic way, he said.

Experts also said that reliance on technology beyond a point in the quest to improve objectivity in decision-making could lead to notices getting issued on a mass scale to companies. “Where defaults are flagged by the system, it is desirable that the authorities first reach out to businesses seeking clarification and consider issuing a notice only after that. Also, in the case of large established corporations with credibility, there is little reason to issue notices for minor delays for certain compliances,” said Ved Jain, a former president of the Institute of Chartered Accountants of India. Jain said application of mind by officials on information flagged by the system should not become a mere formality.

The person cited earlier said that the ease of doing business and the ease of compliance are at the heart of regulatory oversight, not only in the use of AI/ML, but in other areas as well.

With this idea, the ministry and financial sector regulators now carry out public consultations before making rules so that regulation remains at the optimum level, as announced in this year’s budget, the person said.

Besides stepping up efficiency in governance, technology and AI will be used by the ministry to get a “heads-up on any compliance deficits that may be creeping up,” said the person.

An email sent to the ministry on Saturday seeking comments for the story remained unanswered.

The new forms launched by the ministry for companies and limited liability partnerships to file their statutory documents allow real-time verification of the information being keyed in by professionals in forms, in addition to making it easier for the authorities to weed out bogus companies.

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Updated: 02 Oct 2023, 10:47 PM IST