New Delhi: In recent months, the government has taken several steps to raise the bar on good governance in the corporate sector. Minister of state for corporate affairs P.P. Chaudhary, 65, an expert on constitutional matters, said in an interview that the government was working on a host of measures that will improve transparency in companies’ affairs and improve ease of doing business in the country. Edited excerpts:
For long, the corporate structure has been abused by some for tax evasion and money laundering. Do you think the steps taken so far effectively address this problem?
We are gradually tightening the procedures. Our action to strike off 226,000 companies and the disqualification of approximately 300,000 directors in the first round and striking off 55,000 companies last month, is a step in this direction. This will go a long way in ensuring that the corporate sector complies with rules. If their balance sheet is clean, it will automatically arrest tax evasion and money-laundering. In the four years from 2015-16, the Serious Fraud Investigation Office (SFIO), a multi-disciplinary agency, has been assigned 86 cases and the agency has completed probe in 32 of them.
Corporate offenders are always one step ahead of regulators. How will you deal with this problem?
We are going to use artificial intelligence (AI). Among the large number of registered companies, it is now very difficult to find out which one is doing mischief. As on today, we are reactive, that is, when we receive a complaint, we investigate it, rather than the system triggering warning signals. Use of AI in the MCA21 database (of companies and partnerships) will make us pro-active in compliance monitoring. We are also converting all the statutory forms to be submitted by businesses into e-forms. Once we have e-forms, the system can trigger alerts based on certain filters. We are committed to improving transparency in the system, which will make our economy more attractive to investors. We do not want the corporate structure to be abused for money laundering and terror financing.
How will dematerialising unlisted public limited companies help?
Dematerialization will address the risks associated with physical holding of shares, such as loss and theft, as well as instances of fraud, such as retrospective transfer of shares.
How do you make sure that economic offenders do not flee the country?
Through the Companies Act, we are trying to ensure that economic offences do not happen. But the Companies Act does not directly deal with fugitive offenders. That is why the government brought out a stand-alone legislation to deal with fugitive economic offenders. Bringing the National Financial Reporting Authority (NFRA) is another step for ensuring cleaner balance sheets. We are also examining proposals to strengthen the system of independent directors. This will help in checking economic irregularities.
By when will the penalty provisions in Companies Act be rationalized as suggested by the Injeti Srinivas Committee?
Our aim is to simplify the law and ensure clean and transparent corporate governance. I would like to share some vital statistics. There are 81 offences under the Companies Act, which are compoundable. As on 30 June 2018, around 39,000 cases relating to such offences were pending in trial courts. Our aim is to reduce this pendency of cases in the courts to accelerate growth in the corporate sector. This committee (of Injeti Srinivas) has recommended that 16 out of the 81 compoundable offences may be brought under an in-house adjudication framework, wherein the defaults will be subject to a penalty levied by the adjudicating officer. This recommendation is under examination and a final decision in the matter will be taken soon. This will help in improving our ranking in the ease of doing business index also.
What is the progress in modifying the bankruptcy code to cover cross-border bankruptcy rules?
The Indian economy is expanding and local companies are doing business in overseas markets. A lot of foreign companies are coming to India for business, too. In this scenario, some instances of insolvency are bound to take place. We are already seized of the matter. A committee appointed to recommend amendments to the bankruptcy code had gone into this issue also. It felt the need for a comprehensive cross-border insolvency framework and said that evolving one is a complex exercise that needs detailed examination of similar legal provisions in international jurisdictions and the approach to be adopted in India. The Insolvency and Bankruptcy Board of India (IBBI) is working on this.
Do you feel there is a need for any course correction in implementing the International Financial Reporting Standards (IFRS) ?
I feel it was done by the Institute of Chartered Accountants of India (ICAI) after a thorough analysis of stakeholders’ views. It is too early to think about a course correction. We will look into it, as it evolves.