New Delhi: The ministry of corporate affairs (MCA) has begun cracking down on companies that haven’t been electronically filing balance sheets, statutory returns and profit and loss statements through its MCA 21 website, aimed at allowing easier public access to information on firms.
Such companies have been given a month’s time to do so, failing which the system will automatically stop them from filing other vital documents such as those needed to help raise capital and get regulatory approval.
Besides this, directors of such firms will not be able to file information on behalf of other companies they represent, according to a circular issued by MCA on Wednesday.
“The idea is to make companies more transparent so that investors and public get a correct picture about them,” said a senior MCA official, who did not want to be identified. “It has been found a lot of companies, including some big groups which have presence through unlisted companies, are hiding vital information relating to assets, profits, shareholding patterns, etc., by not filing such statutory returns.”
The percentage of such companies is about 15-20% of the total, he said.
“These companies will not be able to file several other documents such as charge documents which help them raise loans, approval-based forms which allow them to get various kinds of regulatory approvals,” he said. “They will also not be able to change names and addresses.”
These are strong measures that will force companies to comply, said Ashok Haldia, director of PTC India Financial Services Ltd.
“Or else the liabilities of the companies as also their directors will become onerous,” he said. “Besides, they will not be able to take loans from banks and financial institutions, and will not be able to get into contractual arrangements with various parties.”
These steps will be more effective than the ones applied earlier, which included late fees, penalties and even criminal proceedings, “which eventually would never happen”, Haldia said. “These (latest measures) will affect their businesses directly.”
There are around 800,000 active companies all over the country. MCA 21 is supposed to provide public access to detailed information on all companies, listed and unlisted.
Action will be taken against defaulting companies and their directors or officials in coordination with the Reserve Bank of India and the Securities and Exchange Board of India, the MCA circular said. Accordingly, company secretaries and auditors of these companies will also not be allowed to sign and certify documents.
MCA has become far more stricter with filing, said Prithvi Haldea, chairman and managing director of Prime Database, a Delhi-based research firm.
“These kinds of regulations will help the ministry in not just keeping a check on companies, but also in data mining for its own use like using it as an early warning system, trailing frauds, etc.,” he said. “Through an early warning system, MCA tracks imminent frauds that can occur.”
Additionally, MCA has linked the director identification number (DIN) with the income-tax permanent account number (PAN) to make board members more accountable and transparent.
DIN is a unique number given by the ministry without which no one can become a director in any company. This number remains the same across all companies represented by the person.
“This is to check that directors do not have duplicate DINs and it is easy to trail them in cases of fraud,” said the official cited earlier.
According to a circular dated 31 May, all directors who have not furnished PAN while obtaining DIN, as it was not mandatory earlier, can do so by 30 September.
Those who don’t will have their DIN disabled and be liable for heavy penalties, said the circular.
Further, beginning 12 June, all DIN applications have to be made online, verified and digitally signed by a chartered accountant, company secretary or cost accountant.
“This is indeed a progressive step as the country moves towards integration of data and a single identity of an individual,” said N.K. Jain, secretary of the Institute of Company Secretaries of India. “With UID (unique identification number) coming into play, maybe these also would not be required in future.”
The measures will check duplicate DINs and cut down on paperwork, he added.