What are vanishing companies?
The present laws are inadequate to deal with vanishing companies, say experts
New Delhi: Do you know what a vanishing company is?
In a recent response to a parliamentary question, the ministry of corporate affairs (MCA) said that no foreign company between the 31 March 2011 and 31 March 2016 had been categorized as a vanishing company.
According to the definition available on the MCA website, a company is categorized as a vanishing firm in the following scenarios:
• a company fails to file returns with the Registrar of Companies (RoC) for two years.
• a listed company fails to file returns with the stock exchange for two years.
• the company doesn’t maintain its registered office at the address mentioned in the RoC.
. the company’s directors cannot be traced.
Minister of state for finance and corporate affairs Arjun Ram Meghwal said that the 2013 Companies Act provides sufficient safeguards against vanishing companies.
For instance, the Act provides for only individuals with a director identification number (DIN) to become directors, and entails physical verification of the registered office address of the company.
Experts, however, disagreed.
Ramesh Vaidyanathan, managing partner at law firm Advaya Legal, said that the present legal framework was insufficient to address the problem of vanishing companies.
“The present laws are inadequate to deal with vanishing companies. You have companies collecting money from people and then going bust.There are only a few listing requirements. There’s no immediate automatic alert to find out the defaulting companies. If you look at RoC records, there are companies who haven’t complied with compliance requirements for years. We need stronger enforcement and checks on RoC filings,” he said.
Amit Vyas, founding partner at law firm Vertices Partner, clarified that vanishing companies does not find a definition in the Companies Act, and that has to be addressed.
“There’s a need to address this aspect and broaden the concept of vanishing companies. Instead of linking this concept to failure in filing returns etc, it ought to be linked with filing of repeated serious criminal complaints against promoters of companies alleging series of fraudulent acts where prima facie case is found to exist by Court coupled with Admission of multiple winding up companies by competent high court against such companies.”
As of November 2014, 78 first information reports had been filed against such companies and their directors, finance minister Arun Jaitley had informed the Lok Sabha in the winter session of Parliament in 2014.
The MCA website details a list of 81 companies across India which have been categorised as vanishing companies.