Treating homebuyers as financial creditors a good recommendation: PP Chaudhary

The Ministry of Corporate Affairs (MCA) has ordered penal action against 221 companies for not spending 2% of their profits on social welfare activities. Those found guilty may face three years of imprisonment or a penalty of Rs 25 lakh for the violation. In an exclusive conversation, Minister of State for Corporate Affairs PP Chaudhary tells Anjul Tomar that more such companies are being identified for action, and also spoke about his ministry's latest crackdown on shell companies to tackle black money menace. He also talked about the relief which is underway for homebuyers as well as companies under the Insolvency and Bankruptcy Code (IBC). The IBC is expected to see certain amendments very soon.

The MCA has come across several cases of non-compliance under the corporate social responsibility (CSR) law. What action is being taken against such companies?

The prosecutions have been sanctioned against 221 companies for violating CSR guidelines under Section 134(8) of the Companies Act. These companies have not spent 2% of the average net profits on social welfare. Companies with a net worth of Rs 500 crore and above or a turnover of Rs 1,000 crore or net profit of Rs 5 crore are mandated to spend 2% of the average net profits on social welfare.

Has MCA identified more shell companies and their directors for action?

So far, we have struck off 2.26 lakh companies. The ministry has received bank details of close to 1.68 lakh companies which had deposited cash in the banks post-demonetisation. Of this, 73,000 companies accounted for Rs 24,000 crore worth of bank deposits after note ban. We are awaiting bank details of another 58,000 companies. Meanwhile, investigations have been launched against 68 companies. Serious Fraud Investigation Office (SFIO) is investigating 19 of them.

Failed bidders are trying to make a comeback by cutting deals outside the IBC. Many companies have opted for an out-of-court settlement. What are your thoughts on it?

In my opinion, there is a law and a procedure to deal with the cases of bankruptcy. So, once a case is admitted before National Company Law Tribunal (NCLT), it is the only appropriate platform to resolve it. As the case is before the NCLT, any effort to settle dispute outside of court should not be permitted under the current provisions of the law.

However, the government is examining a proposal to allow settlement of the disputes outside the court if 90% lenders on the Committee of Creditors (CoC) agree. Once it is clear, such matters wouldn't be left to the interpretation of the court. The suggestion is part of the Insolvency Law Panel report that has proposed several amendments to the Code.

When is the government bringing in amendments to the IBC as suggested by Insolvency Law Committee report?

The panel report is excellent and is likely to be implemented without much change very soon.

Homebuyers are looking forward to changes in the current resolution mechanism. What is in store for them?

Homebuyers should be treated as financial creditors, the panel has suggested. It is a good recommendation which takes into account the concerns of the homebuyers. For MSMEs, the panel has recommended that the promoters of the firms, if not wilful defaulters, should be allowed to bid during the resolution of their stressed assets.

There are resource gaps at NCLT with just 11 benches dealing with the rising number of insolvency cases. What is the government doing to strengthen the institution?

NCLTs are being strengthened to deal with the rising number of cases. More members are being appointed. As many as 16 appointments are underway. These include appointments for the post of four judicial members and 12 technical members.

What's the progress in Fortis case? When is the committee likely to submit its report?

We are yet to receive the report on Fortis. SFIO is examining the issue in entirety.

By when is National Financial Reporting Authority (NFRA) likely to be constituted?

NFRA will take about four months to start functioning. The selection process of the head and the members is going on.

The MCA has developed an early warning system to make it easier for the government to hunt down shell companies. How is it working?

The government is thinking of incorporating Artificial Intelligence (AI) into the MCA 21 software. This will make it easier to implement the Companies Act. The new system will automatically throw up all the relevant data on the companies so that timely action is taken against them. Currently, the trials are on.

After banks, the MCA has joined bankruptcy proceedings in the US bankruptcy court against Nirav Modi's Firestar Diamond and two other firms. How will it help in the current situation?

The government has intervened in the bankruptcy proceedings in the US court to safeguard its interests. Since the investigations against Nirav Modi firms are still going on in India for defrauding Punjab National Bank, the bankruptcy filing by these firms in the US would jeopardise the interest of the Indian bank. These companies have committed fraud and violated Indian laws. Therefore, the accused has to be booked here.