Home / Companies / News /  Disclosure defaults to be auto-flagged to regulator

NEW DELHI : Defaults by companies in meeting statutory filings and disclosures under the Companies Act will soon be automatically communicated to the Registrar of Companies (RoC) for action under the new compliance management system being rolled out by the government.

The defaulting company will also get an alert from the new system, which will be fully rolled out after October, said a person informed about the new version of the ministry’s compliance portal, MCA21. The government has initiated the implementation of the new ‘company module’ of the MCA21 portal but decided to pause it till the peak annual return filing season is over this year so that filings do not get interrupted. The new system is expected to be fully in place by the end of the year.

The move signals a significant shift in the regulatory oversight of close to 1.5 million active companies in the country as it puts compliance management, regulatory action, and adjudication on autopilot. Every year, nearly 180,000 new companies are incorporated. The ministry will also offer e-adjudication to deal with defaults, and this will be fully automated. This is also expected to eliminate subjectivity in regulatory action.

At present, defaults by companies in statutory filings do not evoke an immediate response from the system, and the new module’s alert system will nudge businesses to meet all due dates of statutory filings, experts said. Having data on whether companies and directors have made their statutory disclosures in time is expected to give a boost to corporate governance, especially on issues such as timely reporting of the lien on corporate assets.

An email sent on Tuesday to the spokesperson for the ministry remained unanswered at the time of publishing.

Any teething issues that professionals may find in the new system would get ironed out once the transition is complete, a company secretary said on the condition of anonymity. One key feature of the new company module is web-based forms, which search all the information already filed by an entity while making a fresh submission. This is a departure from the earlier forms, which do not make such correlation.

The new regulatory infrastructure would make statutory filings more secure and enable RoC to quickly detect entities that are slipping on corporate governance. The areas of governance RoCs are particularly concerned about are whether companies utilise funds raised from the public for their stated purpose, identity, and genuineness of the directors on the board, maintenance of books of account in the registered office, and whether funds are diverted from a company to any privately held entity of the major shareholders.

The government’s investigations into black money had shown that inter-corporate transactions such as loans and entries of transactions without substance were major ways of generating and laundering funds that are not accounted for. The new reporting infrastructure is expected to make regulatory oversight more efficient.

The ministry intends to deploy artificial intelligence and machine learning in the system. That would enable identification of companies entering into dubious transactions as well as entities which enter into transactions without any economic substance. Also, the new company module is expected offer inputs to policymaking as the authorities will be able to closely monitor trends in corporate behaviour. Simultaneously, the ministry has been streamlining the legal framework with multiple rounds of de-criminalisation of offences of procedural nature and relying more on self declarations by businesses.

ABOUT THE AUTHOR

Gireesh Chandra Prasad

Gireesh has over 22 years of experience in business journalism covering diverse aspects of the economy, including finance, taxation, energy, aviation, corporate and bankruptcy laws, accounting and auditing.
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