At the same time, it is tightening legislation to safeguard the common man against developers who fail to provide them with homes on time
At the helm of Prime Minister Modi’s drive against black money, the Ministry of Corporate Affairs has cracked down on over 2.24 lakh companies, 3.09 lakh directors and is scrutinising actions of institutes such as the ICAI and ICSI to ensure that a transparent economic system becomes a reality. At the same time, it is tightening legislation to safeguard the common man against developers who fail to provide them with homes on time. DNA takes a look.
Ever since the Modi government came to power, the main challenge facing the Ministry of Corporate Affairs has been to weed out inactive and non-compliant companies off the list of Registrar of Companies (ROC). Post demonetization, this drive has speeded up with the ministry looking to implement the Companies Act all the more strictly to weed out such companies.
Scrutinising firms
According to Minister of State for Corporate Affairs PP Chaudhary, his ministry is succeeding in this task (see interview). In September this year, action against over 2.24 lakh firms was taken as the companies were found not to have been carrying out any business for a long time, and were also not filing annual financial returns for the past three years. This decision was taken under Section 248 of the Companies Act and the names of the firms have been struck off the ROC list.
It iss not just the firms that are being scrutinised. About 3.09 lakh directors have been disqualified for a period of five years. Government officials say that these directors won’t be able to serve in the same capacity in any other firm as well.
These tough measures are being taken with the larger objective of curbing the flow of black money, money laundering and terror funding. As a result, government officials say that profiles of directors, including their background and role in operations and functioning in blacklisted companies, are being compiled in collaboration with enforcement agencies.
Other professionals such as chartered accountants, company secretaries, and even actions taken by professional institutes such as ICAI, ICSI and ICAI are being monitored. Government officials say all these measures will help in finding out the true owners of the blacklisted firms. It will help root out benami properties and help create a transparent and robust system.
Big challenges
One of the biggest challenges facing the ministry is the scrutiny of all registered firms. A total of 16.87 lakh firms have been registered with the ROC and it is a herculean task to physically scrutinise accounts of them all. For this purpose, the ministry plans to implement new technologies in its system for scrutinising the accounts of these active companies, which includes artificial intelligence. For instance, ministry officials say that an early warning system is being developed which will send signals if there is any heightened activity or any fraudulent financial activity in the registered firms.
“We have to be proactive rather than reactive. By use of technology, we can be proactive. This will strengthen the corporate structure which will enable the proper administration of companies. It will also increase confidence of domestic as well as foreign investors,” said Chaudhary.
On the state level, the ministry has asked chief secretaries of all states to identify the movable assets and immovable properties of struck off companies and restrict the transfer of such assets till these companies are restored, and share this information with the ministry in a time-bound manner.
Implementing the Insolvency and Bankruptcy Code
The other big initiative taken by the ministry is implementation of the Insolvency and Bankruptcy Code (IBC). Receiving presidential assent in May 2016 with the first set of cases filed at the NCLT (National Company Law Tribunal) in December 2016 the IBC has strengthened the hands of those looking to recover money from big corporations, a move especially welcome in the housing sector, where homebuyers are often are the mercy of builders.
Regulation and implementation of the IBC comes via the Insolvency and Bankruptcy Board of India (IBBI). It has provided amendments that has sped up the insolvency process by introducing amendments in two key legislations — the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017.
Resolution Plan for home buyers
What has been particularly welcome in these amended legislations is the introduction of a Resolution Plan which is now required to be put forward by bankrupt or near-bankrupt businesses. This plan has to include a statement by the company as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. This is a godsend for the common man as it not only forces the company to address concerns of all concerned, but it also ensures their money returns in a time-bound manner.
The IBBI has looked to define the common man’s status in a legal dispute between lenders such as banks and developers who are the borrowers. Earlier, in disputes between the two parties, the homebuyers’ legal status and thus their concerns often got ignored. Experts believe the IBC could help such buyers in need but add that further amendments need to be brought forward as well.
BIG NUMBERS
- 16.87 lakh companies are registered with the ROC
- 2.24 lakh firms struck off the ROC list
- 3.09 lakh directors have been disqualified
- 28,000 of the 2.24 lakh firms have been data-mined
- Rs 17,000 crore have been deposited & withdrawn post demonetization
ACTION PLAN
- The ministry plans to implement new technology in its system, including artificial intelligence, to scrutinise the accounts of active companies registered with the ROC
- On the state level, the ministry has asked chief secretaries of all states to identify movable assets and immovable properties of struck-off companies and restrict transfer of such assets till these companies are restored
- The ministry and IBBI are believed to be considering further amendments to the IBC to help homebuyers who have been fighting against debt-laden developers
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