New company law compliance: Pvt firms let off from ‘supervisory hook’

Being private it seems has its own added advantages. Private companies’ have unexpectedly landed themselves with a bounty from the Corporate Affairs Ministry.

The Ministry has now given private companies a ‘free run’ with little to worry about any professional supervision as regards compliance with the new company law.

New framework

There won’t now be any need for private companies to appoint a company secretary, subject themselves to mandatory secretarial audit or go through any pre-certification of e-forms.

The new legislative framework has sought to reduce substantially the professional presence or supervision in such companies.

This may only exacerbate the problem, given that most of the active companies in India are private ones and do not possess sound governance systems and structures.

New company law

This approach may also run counter to the central theme of the new company law — good governance by self-regulation or minimum regulation.

Some professional supervision may be necessary given that many private companies undertake large borrowings from banks and financial institutions.

There is now empirical evidence to show that compliance levels had improved substantially with professional presence and supervision.

Between some professional supervision and no oversight, the Ministry seems to have now opted for the latter as regards private companies’ compliance with the new company law.

This could have several unintended consequences, say corporate observers.

For instance, due to absence of pre-certification of e-forms, the chances of documents filed with the Registrar of Companies or other companies being incorrect or incomplete are higher in the absence of prior scrutiny by a company secretary.

Expert take

It is a known fact that many big companies both in terms of turnover and capital are registered as private limited companies, said Lalit Kumar, Partner, J Sagar Associates, a law firm.

So now with the Company Secretary not being compulsorily required in these big private companies it will become critical to see who will ensure the compliance of all these provisions, he said.

There must be some threshold level for trigger of mandatory company secretary appointment in case of large private companies and not totally exempt such exemption.

This would have ensured services and supervision of a professional person to comply with the new company law framework, he added.

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