The Rise of Preventive Law and the Fear of Future Harm

Preventive law has emerged as the legislature's response to the complexity, scale, and pace of modern business activity and in jurisdictions like India, as a scaffolding for laws that lack organic social consensus. This essay examines where that response has overreached: in compliance frameworks divorced from the actual causes of contraventions, in the systematic reversal of the burden of proof, and most acutely, in the routine deployment of provisional attachment as a pre-adjudicatory punishment. The law designed to address the fear of harm has itself become an object of fear. The essay concludes not with prescriptions, but with the questions a serious legal system must confront.

I. The Double Edge of 'Fear'

There is a certain artfulness in the choice of the word ‘fear’ in the title of this essay, and it is entirely deliberate. Fear, as this article intends to explore, does double duty. On one hand, it is the fear of future harm, or the calculation of what might go wrong, that has driven legislatures across the world to embrace preventive law with absolute conviction. On the other hand, the very apparatus of preventive law has itself become an object of fear – a dense, overlapping canopy of obligations, presumptions, and penalties under which the ordinary conduct of business has become an exercise in perpetual anxiety. The word, in other words, is a pun with a jurisprudential sting.

Franz Kafka, writing a century ago, gave us the most accurate and impressive prophecy of this condition. In ‘The Trial’, Josef K. is arrested, prosecuted, and ultimately destroyed by a legal system whose charges he never comes to understand. Kafka was not describing an aberration. He was anticipating a trajectory. There will come a time, his work implies, when the laws are so numerous, so layered, and so intrusive that it becomes structurally impossible for any individual to conduct ordinary life, let alone business, without inadvertently transgressing some provision. That time, in several domains of commercial and business activity, has arrived.

This essay is not a tirade against regulation. It is something more precise – a philosophical examination of why preventive law has risen, where it has most conspicuously failed, and what that failure reveals about the deeper infirmities of our legal system.

II. Why Preventive Law Arose: A Necessary Evolution

It would be intellectually dishonest to deny that the conditions of contemporary life have created pressures on the legal system that its classical design was never built to handle or withstand. The sheer scale of human population and economic activity, the rise of technology and the anonymity it brings, the multiplication of commercial forms and instruments, including derivatives, algorithms, digital assets, and data markets, have all today created a landscape in which legal deviation is not always the product of moral failure. Often enough, it is the product of systemic pressure, competitive intensity that narrows ethical margins, economic stress that distorts rational calculus, and a pace of innovation that routinely outruns both comprehension and conscience.

In such an environment, the argument for preventive law has genuine force. If harm is probable (think of a systemic financial collapse, or the weaponization of personal data at scale, for instance), the law’s classical posture of waiting for harm to occur before it responds appears not just inadequate but reckless. There is a legitimate case, therefore, for a law that intervenes upstream: that establishes obligations before the event rather than remedies after it.

The case is further complicated, especially in jurisdictions like India, by the character of the legislative process itself. A large proportion of Indian law has been exogenous in origin, i.e., designed and imposed from the legislature rather than emerging organically from a felt social need. Laws thus enacted and imposed lack the natural compliance instinct that attends legislation born of genuine social consensus. When a statute does not reflect a widely shared moral intuition, when it is not discovered by the society it governs but delivered to it, enforcement suffers and lacks. In such conditions, the legislative response has typically been to superimpose preventive mechanisms with licensing regimes, mandatory disclosures, compliance frameworks, periodic audits, becoming a part of the norm than exception. The Foreign Contribution (Regulation) Act, 2010 offers a relevant illustration here. Its prior registration and permission requirements impose structural compliance obligations on entities before the receipt of a single foreign rupee, visited with severe consequences for procedural lapses entirely unrelated to any demonstrable harm. Prevention, in other words, is made to compensate for the absence of conviction.

And then there is the textbook case of a preventive mechanism operating in a domain of genuine complexity: the Competition Act, 2002, which mandates pre-merger notification and approval for combinations above prescribed thresholds. No anti-competitive harm needs to have occurred (in fact, none may ever occur) for the obligation to notify and obtain clearance to crystallise. The regulatory intervention precedes the transaction, and the transaction cannot proceed without it. Now, the problem is not this provision in isolation. It is the logic it exemplifies when applied, far less discriminately, across the rest of the statute book.

III. Where It Goes Wrong: The Business Domain

If preventive law has a defensible origin, it has a deeply problematic expression, and nowhere more so than, in the regulation of complex business activity. Financial services, technology, economic crimes – these are domains where the pace and sophistication of activity have consistently outstripped the legislator's understanding. And herein lies the first and most consequential failure.

The draftsman of preventive business regulation is, far too often, working in the dark. He does not fully understand why contraventions occur, and what pressures, incentives, information asymmetries, or structural features of a market drive a particular conduct. The public consultation process, which ought to illuminate this, rarely is conducted comprehensively and democratically. It has become a largely performative exercise where consultations are issued, comments are received, and the final legislation proceeds substantially as originally conceived. The regulated community participates in the ritual without meaningfully shaping the outcome. The result is regulation that addresses visible symptoms while leaving the underlying cause untouched.

Consider the compliance architecture constructed under the Prevention of Money Laundering Act, 2002, especially the Know Your Customer (KYC) obligations, Customer Due Diligence (CDD) requirements, and Suspicious Transaction Reporting (STR) mandates imposed on every reporting entity across the financial system. These obligations are calibrated not to any assessed risk profile of the entity or its customers, but to the theoretical possibility of misuse. The entire framework is built on anticipation rather than evidence. Similarly, the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 impose continuous disclosure obligations on listed entities on the preventive premise that concealment of material information will occur unless mandated otherwise. These are presumptions applied uniformly regardless of the compliance history, size, or sectoral context.

This generates a vicious cycle that is worth naming explicitly. The complexity of business activity outpaces the enforcement capacity of classical laws. Courts are slow, prosecutions are technical, and convictions are rare. The legislature, unwilling to confront the institutional failure this represents, responds by superimposing even further preventive obligations. These obligations increase compliance burdens, distort commercial behaviour, and create new categories of inadvertent transgression, which in turn generates further enforcement challenges, further legislative anxiety, and further preventive burden. The law grows not by design but by accumulation. Not by wisdom but by apprehension and fear.

IV. When Prevention Becomes Punishment: The Attachment Paradox

Of all the instruments that preventive law has placed in the hands of the executive, none more vividly demonstrates the distance between legislative intent and ground reality than the power of provisional attachment. And it is here that we must pause and reflect, because what has occurred in this domain is not merely a policy failure. It is a transformation of profound consequence – the conversion of a protective mechanism into an instrument of pre-adjudicatory punishment.

The logic governing provisional attachment is justified. Where there is reason to believe that a person in possession of proceeds of crime (taking the money laundering law as reference) may alienate or conceal assets to frustrate eventual recovery / confiscation, the law must act swiftly to preserve those assets pending adjudication. This is the stated rationale of Section 5 of the Prevention of Money Laundering Act, 2002, which permits provisional attachment of property believed to constitute proceeds of crime before any conviction (in fact, mostly even before any judicial finding of any kind). Similar powers exist under Section 281B of the Income-tax Act, 1961 (provisional attachment during assessment proceedings), Section 83 of the Central Goods and Services Tax Act, 2017 (attachment during pendency of proceedings), and Section 24 of the Prohibition of Benami Property Transactions Act, 2016 (attachment of benami property). Together, these provisions constitute a formidable arsenal, used across the business landscape with relatively limited judicial oversight.

The legislative premise that attachment is a conservatory measure and not a punitive one, has, in practice, been comprehensively inverted. Provisional attachment is no longer invoked primarily in circumstances where there is a genuine, assessed risk of asset dissipation/alienation even though there is a statutory requirement that this be the pre-requisite. It is deployed routinely, as a matter of investigative protocol, in virtually every significant economic offence investigation, regardless of whether the facts disclose any real likelihood of alienation, regardless of the liquidity position of the noticee, and regardless of whether less intrusive protective measures might adequately serve the stated purpose. It is surprising to see press releases from executive agencies merely stating that in a particular investigation there are allegations of laundering of proceeds of crime and therefore attachment has been made. In rare cases only would one find a mention of the attachment provisions being necessitated by a possibility of alienation.

The consequences for a business subjected to provisional attachment are immediate and often irreversible. Bank accounts are frozen, receivables cannot be collected, payroll obligations cannot be met, working capital is disrupted, suppliers and customers withdraw, and credit ratings collapse. The business, in many cases, does not survive the attachment, and this is not because it was found guilty but because the process of investigation itself delivered the sentence. The attachment, conceived as a shield for the state’s eventual recovery, has become a sword wielded at the inception of proceedings. The distinction between a conservatory measure and a punitive one has, in operational reality and sadly, ceased to exist.

What makes this particularly troubling from a constitutional and philosophical standpoint is the near-impossibility of meaningful interim relief. The burden of demonstrating that attachment is unwarranted falls, in most frameworks, on the noticee, owed to presumptions cast in stone in statutes. Courts have, in recent years, begun to interrogate the proportionality of attachment orders with greater rigour, but arguments regarding the attachment’s necessity or the lack of demonstration by the executive agency of the possibility of alienation, remain far from being successfully accepted.

The attachment paradox, thus, is this: a provision enacted to prevent the frustration of justice has itself become a mechanism for its frustration, visited not upon the guilty but upon the investigated.

V. The Reversal of Burden of Proof: A Legislative Overreach

The attachment paradox does not stand alone. It sits within a broader legislative scheme which completely erodes the presumption of innocence in economic and commercial statutes.

Across several economic statutes, the burden of proof has been shifted onto the accused entity, requiring it to establish its innocence rather than the state being required to establish its guilt. Section 24 of the Prevention of Money Laundering Act, 2002 is perhaps the most cited instance: once the prosecution establishes that the property in question is connected to a scheduled offence, the burden shifts to the accused to prove it is untainted. The Customs Act, 1962, similarly casts the burden of proving that imported goods are not smuggled, if the customs authorities merely have a reasonable belief that such goods have been smuggled into the country. The Foreign Exchange Management Act, 1999, through its civil liability framework, proceeds on a comparable presumptive basis. The existence of a transaction is often treated as prima facie evidence of a contravention, with the noticee required to demonstrate compliance, and in cases where there is a lack of documentation or trail history of the transaction with the noticee, the presumption would get activated resulting in penal consequence.

This reversal is not a procedural technicality. It is a philosophical rupture arising from the perceived legislative and executive need to be proactive and preventive. The presumption of innocence is not a concession to the guilty, rather, it is a structural safeguard against the overreach of state power. In the domain of complex business activity, where the alleged contraventions are technical, the evidence is voluminous, and the regulatory framework itself is often ambiguous, this preventive reversal is particularly problematic and scary. A business navigating a foreign exchange structure of even moderate complexity, or a person defending a family asset against a benami allegation, faces not merely the burden of litigation but the burden of proving a negative against a redoubtable state machinery that holds all the might.

VI. The Businessman’s Presumption, and What It Tells Us

There is a basic presumption that any analysis of commercial affairs must keep in mind: the overwhelming majority of businesspersons wish to conduct their affairs legally, sustainably, and without unnecessary confrontation with the state. This is not an idealistic claim. It is an economic one. Clean business conduct reduces legal risk, lowers transaction costs, enables access to capital, and preserves goodwill – all of these are critical enablers for commercial success. Thus, any rational businessman would always have strong incentives toward compliance – incentives that are entirely absent, for example, in crimes of passion, or in acts driven by personal grievance, or in conduct motivated by impulse rather than calculation.

This presumption has a consequential implication for how we should think about the need for preventive law in business. If the default orientation of businesses is toward lawful conduct and stray contraventions are the exception rather than the rule, then the primary institutional requirement is not a dense web of preventive laws and rules, but an effective system of enforcement. A court that responds swiftly and proportionately to an actual contravention sends a signal that the market absorbs and internalises. Self-correction follows and the need for preventive regulation diminishes.

The inverse is equally true. When courts are slow, outcomes are uncertain, enforcement is technically incapable of dealing with complex commercial transactions, and the prosecutorial machinery is underprepared. Thus, the law loses its deterrent function. Prevention steps into the vacuum. We regulate the future because we cannot adequately adjudicate the past.

The honest reality is that preventive law, in the business domain, is largely a workaround for institutional judicial failure. This admission is one that the legislature is incapable of making, but it is also one that the legal profession (including courts) must not hesitate from recognising.

VII. The Fear That the Law Has Become

Let us return, then, to the pun with which we began. The law that was designed to address the fear of harm has itself become an object of fear. Every compliance audit is an encounter with the anxiety that some obligation may have been missed. Every regulatory communication, whether a summons under the PMLA or a FEMA notice, is received with the dread that it marks the beginning of a process that may be irreversible, costly, and existentially threatening to a business, quite irrespective of the ultimate legal outcome. A whole industry of lawyers, compliance officers, risk consultants, and auditors, has grown up not to serve justice but to manage this anxiety.

The chilling effect on legitimate commercial activity is real and underappreciated. Innovation, involving rational, informed, and socially productive risk-taking, is the engine of economic growth. It is also the first casualty of an over-regulated environment. When the cost of being wrong is not merely the loss of a business decision but potential criminal liability under a preventive statute, the rational response is not innovation but paralysis and inaction. The law, in attempting to forestall harm, has begun to prevent the very activity it was designed to facilitate.

Kafka’s Josef K. is here again. The modern businessman who’s competent, well-advised, and broadly compliant, cannot always be certain that he has not violated some preventive provision that he may not even know exists. Regulations are layered across ministries. Instructions expand statues for the executive. Guidelines qualify statutes for the citizenry. Circulars interpret guidelines. The result is not the rule of law but the rule of uncertainty.

VIII. Questions without Answers

The questions this essay raises are too fundamental for easy prescription, and anyone who claims otherwise has perhaps spent insufficient time with the problem. But questions, properly posed, are a form of intellectual progress. So, here as some insightful queries to the reader:

• Is there a version of preventive law that is genuinely based on a realistic understanding of why contraventions actually occur? Or is preventive law merely an admission of systemic failure?

• When provisional attachment under Section 5 of the PMLA, or Section 83 of the CGST Act, or the Benami Act is invoked in circumstances where there is no real risk of asset alienation, has the state crossed the line between conserving justice and defeating it?

• If our courts were prompt, technically competent, and consistent in their outcomes in commercial matters, how much of the preventive regulatory architecture we have built over the last few decades would we actually need?

• And if we were to dismantle that architecture, what would be demanded of us in return? What institutional rebuilding or judicial reform would that require?

These are not rhetorical questions. They are the questions that any serious engagement with preventive law must eventually confront. A law that aspires to govern the future must, at minimum, be honest and accurate about what it knows of the present and be humble about the limits of its estimation of the future. Only then can preventive law really remain restricted to only preventing mischief, rather than being instrumental in its genesis.

Authored by Amar Gahlot, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.