The Hindu Business Line : Changes in Act for action against `vanishing cos'

DESPITE best efforts to protect the interests of investors, the corporate regulatory framework seems to be far from "perfect" if one were to go by the number of companies that have vanished, having taken the gullible investors for a ride.

Learning from past experiences and with a view to safeguarding the interests of the investor as well as ensuring better corporate governance, the Department of Company Affairs (DCA) has proposed further amendments to the Companies Act.

In an exclusive interview with Business Line, Secretary, DCA, Mr Vinod Dhall, shared his views on the steps initiated by the Department in coordination with the other regulatory bodies such as Securities and Exchange Board of India (SEBI) to tackle the issue of `vanished companies' and protecting investor interests.

What is the status of the proposed introduction of a concept of `disgorgement of illegally derived benefits' by way of amending Companies Act? The Companies (Amendment) Bill, 2003 recently introduced in the Rajya Sabha largely deals with aspects to strengthen investor protection and corporate governance. A specific amendment has been proposed in Section 68 of the Companies Act to deal with `disgorgement of illegally derived benefits'.

It is proposed that a person who makes a false or misleading statement, on an order made by the National Company Law Tribunal (NCLT), he shall be liable to a penalty which shall not be less than the amount raised from the public and this penalty may be recovered from such person and the liability shall be unlimited. It is also proposed that the NCLT shall refund the money to the persons who invested in the company out of the amount of penalty so recovered from the promoters and directors.

This stiff provision in the Bill is required to act as a deterrent for people who plan to raise money from the public by making false or misleading statements, as seems to have happened in some cases in the past.

Can you outline the steps DCA has initiated to prevent disappearance of companies (vanishing companies)?

So far, the Department has launched 149 prosecutions under Sections 62, 63, 68 and 628 of the Companies Act against vanishing companies and their directors. Prosecutions have also been launched against 117 vanishing companies for non-filing of statutory returns. Besides, DCA in consultation with SEBI has also prepared a model FIR for filing complaints with the police authorities against the vanishing companies and their promoters, directors, etc. for the offences punishable under the provisions of Indian Penal Code.

The model FIR was given to the RDs of DCA on May 9. They have circulated the model FIR to RoCs for initiating necessary action.

It is also proposed to amend Sections 13 and 30 of the Companies Act to provide that the Memorandum and Articles of Association of every company formed after the enactment of the Bill shall contain two copies of recent photographs of all subscribers to the memorandum and the witnesses along with proof of the identity of the subscribers.

How far has the central monitoring committee (CMC) succeeded in its work?

The CMC has set up task forces comprising officials of DCA, SEBI and the concerned stock exchanges.

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