The shift to e-filing of statutory documents such as annual returns and balance sheets by companies with a minimum authorized capital of Rs1 crore is expected to see a fresh spurt in compliance in India, potentially bringing it on par with the standards prevalent in developed economies of Singapore and the UK.
E-filing was introduced by the ministry of corporate affairs (MCA) in May 2006.
“While we saw a compliance level of 50% among such companies for returns filed for year ended March 2005, this figure rose to around 70% for the year ended March 2006 and we are expecting this to rise to 90% for the year ended March 2007,” according to a senior MCA official who did not wish to be identified. He was speaking on the sidelines of a national conclave on corporate governance organized by the Confederation of Indian Industry. The average compliance rate, including all public firms, is much lower at 45%.
The real impact of high compliance will be seen towards the end of 2007 as companies take six months, after the fiscal year ends in March, to hold their annual general body meetings and then 30 days more to file balance sheet and 60 days to file annual returns.
The official also said the trend of high compliance is more pronounced for public and government-owned companies having an authorized capital of more than Rs1 crore. “This will bring Indian companies at the same level of high compliance as Singapore and the UK,” added the official.
MCA officials say higher co-mpliance is one way to benchmark rising corporate governance in the country besides having independent directors on boards of companies.
Earlier, Prem Chand Gupta, minister for corporate affairs, said the number of independent directors on a firm’s board is the commitment and mindset, and not so much the numbers.
While he did not spell out what proportion will comprise independent directors under the revised Companies Act, he said the government would do what the industry is expecting a minimum of one-third and a maximum of half the board strength.
Some experts also say true corporate governance is much more than both achieving higher compliance and having independent directors. According to Monish Chatrath of Grant Thornton India, a business advisory firm, partly as a result of regulatory pressures, and partly out of the desire to benchmark against the best in the field, corporate India appears to be making steady progress in the area of governance practices.
“While the overall trend relating to the structural aspects of the board appears to be positive, it seems that substantive progress still needs to be made in some key areas. Such areas include the composition and functioning of the board, the process for selection of independent directors, the financial literacy of audit committee members and linkage of pay with performance for directors,” said Chatrath.