Indian Govt. v/s defaulting companies

WARNING BELL:

2017 saw some stringent action by MCA against erring companies and as a result RoCs removed approximately 2,30,000 companies from the register of companies. Since then, the media has been reporting of an extensive crack down on non-compliant, dormant, shell companies.

The Times of India dated 16.6.2018 has a screaming headline”30% Indian cos face closure for doing zero business in past 2 yrs”. The report goes on to elaborate on the axing of almost 4 lac companies in near future. This has not come as a major surprise, instead it falls in line with the expectations of the industry, as they had read the writing on the wall. A task force, which has been specially constituted to mark such defaulters, has coordinated with all agencies, authorities and regulators and then drawn an extensive list. A similar news was published in the Financial Times, dated 13.5.2018, stated “Modi government, regulators now plan crackdown on shell companies”.

The Modi Govt., from its inception, has kept cleaning of financial sphere and regaining confidence of people in business, as a major priority. Scuttling the shadow economy has been a priority of the current govt. but the challenges are plenty. In 2017, first major strike off was initiated by RoCs as a result of which many companies suffered pan India. To give a rough idea, 22,145 companies in Bangalore, 53,312 in Delhi, 12,205 in Ahmedabad, 71,530 in Mumbai were deregistered.

The sheer numbers were a suggestion that in the time to come more stern action will be seen. The analysts and market gurus had seen this coming.

Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd)

GOAL/INTENT OF THE GOVT:

Goal #1: To cleanse the financial sphere
Goal #2: To regain the public faith in the system
Goal #3: To counter the shadow economy
Goal #4: To cap money laundering
Goal #5: To restrict black money usage
Goal #6: To identify and shut down shell companies
Goal #7: To ensure compliance by companies and directors
Goal #8: To promote ease of doing business
Goal #9: To improve India’s global image
Goal #10: To give opportunity to genuine businesses

HURDLES/ROADBLOCKS IN IMPLEMENTATION:

Hurdle #1: Coordinating between different regulators, authorities like MCA, ED, IT, SEBI, FIU, DRI, etc.
Hurdle #2: As the number of such defaulting companies is great, it takes time to collate the data.
Hurdle #3: Time taking legal process.
Hurdle #4: Help from artificial intelligence is limited, as we are not as developed as western countries.

WAY AHEAD FOR THE GOVT:

• To continue with the ongoing process
• To create awareness about fair business through various channels
• To educate the small businesses about the need of compliance
• To keep a grievance redressal system open for all
• To encourage the regulators to cap all irregularities

PREEMPTIVE MEASURES TO BE TAKEN:

Those companies, which are not affected by govts. action of strike off, shall be careful and cautious. 

Measure #1: The company shall have genuine intentions to do business.
Measure #2: The company shall have a policy of self-regulation.
Measure #3: The full-time directors shall act as a guardian of law and regulations.
Measure #4: Accounts, funds, returns, all shall be done with due diligence and complete transparency.
Measure #5: Strong checks and balances shall be in place for timely finding of any irregularities.

If a company follows the basic principles of doing business, it will never land in trouble. It’s only when they ignore the ethical rules, they invite the wrath of regulators on them.

Isha Malik (Company Secretary, MUDS Management Pvt Ltd)

IMPACTED BY REMOVAL?

For the revival of struck off companies & restoration of DIN, they need to know the options they can avail to get reprieve.  

Option #1: Can appeal to The Tribunal u/s 252(3) of the Companies Act 2013 within 3 years of the notification. 

Option #2: The revival of struck off companies can also be done by applying to the National Company Law Tribunal, under rule 27(A), 2017, within 20 years of notification.

Option #3: Applied under the CODS (condonation of Delay Scheme) which may have resulted in an immediate restoration of DIN, although temporarily.

Option #4: They can take legal help & file a writ petition in the concerned court.

CONCLUSION:

The intent of the govt. is crystal clear that the righteous companies and directors shall rest assured that they will not be harassed.

The govt. is trying sincerely towards creating a healthy atmosphere for doing business at ease. This will undoubtedly improve India’s global image.

The author can also be reached at mudsmanagement@gmail.com