Select class of unlisted firms need to file results with RoC

KR Srivats New Delhi | Updated on January 24, 2021

Move will enable early fraud detection, ensure statutory compliance

The Centre has moved a step closer towards making certain unlisted companies prepare financial results on a periodical basis, operationalising a provision in company amendment law enacted in September last year.

Besides requiring certain classes of unlisted companies — yet to be specified — to prepare financial results on a periodical basis, the government now wants this information to be filed with the Registrar of Companies (RoC) within 30 days of the completion of the specified period. The period for which results are to be prepared is yet to be announced although the buzz is that quarterly reporting could be introduced. The format of the financial results are also expected to be announced by the government.

The government has also stipulated that the financial results will need Board approval and need to undergo a completed audit or limited review as may be prescribed.

On Friday, through an executive order, the Corporate Affairs Ministry (MCA) brought into effect the provision in company law providing for these changes.

Government oversight

The latest move by MCA would improve governmental oversight of unlisted companies, especially the large private companies, observers say.

In India, there are technically 16 lakh registered companies of which about 11-12 lakh are active ones. There are about 6,500 listed companies with the rest being in the unlisted space.

Amarjit Chopra, Past President of Institute of Chartered Accountants of India (ICAI), said this is the best possible move in respect of unlisted companies as there is a need to improve corporate governance among these entities too. “This should have been implemented as of yesterday. If this has to be effective, RoCs will have to analyse the results filed with them. Otherwise, it will become just a filing exercise. Governance is not required only in the case of listed entities. It is equally required in big-size unlisted entities,” Chopra said.

Ashok Haldia, former Secretary of CA Institute, said that currently there are about 11 lakh unlisted companies. Some of these are very large or economically significant, making a case for reporting of financial results at a shorter interval, say quarterly or six monthly, to the government.

“Currently these are required to file financial statements annually and by eight months from the close of the financial year. This loses relevance for timely review and intervention from public interest perspective wherever needed or detecting frauds or financial irregularities. Once filed with the RoC, the financial results will be available for public access and scrutiny,” he said.

Madhu Sudan Kankani, partner, Deloitte India, said: “Many unlisted companies have attained larger size and have wider stakeholder engagement with employees, lenders, suppliers, investors, etc. Hence, to regulate such large unlisted companies, the government intends to make the reporting of financial results more frequent,” he said.

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Published on January 24, 2021
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