The Hindu Business Line : Massive intentions

Project MCA 21 is big on intent, but its implementation has been rather messy. The Ministry of Company Affairs (MCA) aims to fulfil the aspirations of its stakeholders. There are plans to make the administration and regulatory aspects of the Indian corporate sector fully electronic, dispensing with manual forms.

However, the implementation thus far creates in the mind of professionals and corporates doubts about the core intention itself.

The MCA has rightly amended the Companies (Central Government's) General Rules and Forms (Amendment) Rules, 2006, which notified new e-forms. The radical changes in the various conventional forms to be filed under the Companies Act with the Registrar of Companies (RoC) are re-engineered to suit to the electronic format.

Forms and faults

E-forms, though convenient, are confusing. At present, there are about 61 e-forms, and there are substantial changes in many, both in form, content and requirements, in addition to being e-friendly. Some of these forms need duplication of particulars given elsewhere, some have been made lengthier and others require certification from professionals such as CAs.

Obviously, there could be justifiable reasons for this change. But corporates and professionals have to be taken into confidence before switching to a new technologically-friendly regime. This would enable professionals understand better their role as to certification and the implications in discharging professional duties.

DIN, CIN, digital puzzle

All directors of Indian companies and persons intending to become directors have to obtain the Director Identification Number (DIN). The required form seeks to standardise the database for easy mapping and control, and has rightly been made mandatory. DIN is essential for all directors, irrespective of the number of directorship held by an individual, and regardless of whether such individual is an Indian citizen or not, and applies to directors of foreign companies having branches in India.

To obtain DIN, the personal computer should have Windows 2000/XP, Internet Explorer 6.0 and Adobe Reader. The MCA portal offers these free of cost. But how can all companies, change over to the new system in such a short time? Small companies in the rural/semi-urban areas need time to educate and train their staff. The database of directors of all companies is processed only at Noida. Being logistically inconvenient to corporates, this process should be decentralised.

The Corporate Identification Number (CIN) is a prerequisite for e-filing. It is a 21-digit alpha-numeric unique number supposedly given by the MCA for all existing companies. To get the CIN, existing companies need to key in their registration number.

Surprisingly, some do not get CIN despite following the process. The reasons could be many. Most of the e-forms need the digital signature of the managing director, director, manager or company secretary for successful filing and submission. In the case of creation or modification of charges, digital signature is additionally required from the bank or financial institution, as these protect the rights of secured creditors.

It costs about Rs 2,000 every year for obtaining the digital signature, and this is available only with a few companies/agencies. In the new system, every authorised signatory and practising professional has to obtain digital signature certificates.

MCA 21 implementation

Of the more than 500,000 companies registered in India, less than 2 per cent are listed. It would be prudent to apply MCA 21 to the listed companies to start with.

As a second phase, unlisted public/private companies, which have borrowings from banks/financial institutions above a prescribed limit should be brought into the e-mode within a reasonable time frame.

In the third and final phase, all companies, including private ones, should be brought under MCA 21, with a deadline for compliance.

The MCA would also be aware of the genuine difficulties of the participants and this experience would enable them troubleshoot and solve the problems associated in the transition to the new mode.

In the meantime, the RoC, within its existing powers under the Act, should do well to remove from its register about 200,000 companies which are defunct or dormant. In the past some schemes were introduced with an eye on revenue.

(K. Ramesh is a practising advocate and a fellow of ICAI, and R. Balasubramaniam is a senior practising company secretary.)

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