The Hindu Business Line : Call for clarity

For instance, Rule 3 (a) states that whenever a company fails to file the annual accounts and annual returns, as described in sub-clause (A) of Section 274 (1)(g), persons who are directors on the last due date for filing the said documents for any continuous three financial years, commencing on and after the April 1, 1999 shall be disqualified.

Now, what happens where a person is appointed as a director after the said last due date and the default on part of the company continues for an indefinite period thereafter?

In such a case the director will escape the disqualification simply due to the technical requirement of holding office on the last due date, though the spirit of the provision is to prevent such directors of defaulting companies from holding office in other companies. Therefore, there exists a dire need to make a specific provision to deal with continuing offences.

(ii) There is no exemption from disqualification even if a director has genuinely relied upon a compliance certificate from the defaulting company that there has not been any violation of the prescribed provisions.

This means that original acknowledgements/receipts issued by the Registrar of Companies Office evidencing filing of the annual accounts and annual returns will need to be placed before board meetings to satisfy the directors that they are not disqualified. A person being appointed or re-appointed as a director will also need to examine such original acknowledgements.

Likewise, there is a rule Rule (b) about failure to repay deposits. Where again the aspect of continuing offences remains unresolved.

Rule 4 (a) that is about the statutory auditor furnishing a certificate each year seems to defy logic. It is impossible for the statutory auditors of a company `A' to verify the books and records of all other public companies where the directors of company `A' are also directors and to report whether those companies have defaulted or complied with the provisions relating to filing of annual accounts or annual returns or payment of dues to depositors, debenture holders and/or shareholders?

(The author is a senior company secretary.)