A strident campaign against black money, wilful defaulters, and erring directors notwithstanding, the toing and froing between SEBI and Ministry for Corporate Affairs (MCA) on regulating India Inc still continues. A classic point is who should wield the stick on shell companies (listed or otherwise) that came to the notice of the government. It appears now that the ball is back in SEBI's court for further action. The problem is the fact that shell companies have not been defined in the company law.
Minister of State for Law, Justice and Corporate Affairs, PP Chaudhary is clear how he wants to navigate the massive drive undertaken by his Ministry against companies which have been found wanting in meeting the company law mandates, and the role SEBI has to play.
Around 2.24 lakh companies have been struck-off till date for remaining inactive for two years or more. Action has also been taken to disqualify directors of companies that have failed to file financial statements and/or annual returns for a continuous period of three financial years during 2013-14 to 2015-16. Around 3.09 lakh directors have been affected by this action. Preliminary enquiry has shown that over 3,000 disqualified directors are on boards of more than 20 companies each, in violation of the limit prescribed under the law.
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Of the 2.1-lakh de-registered firms, how many are government companies? The MCA had given a list of over 300 shell companies to SEBI, but not all were listed. SEBI has now written to the MCA that it could take appropriate remedies under various laws of these companies. What is the status?
Government companies cannot be struck off by the Registrar of Companies, while listed companies are regulated by SEBI. Therefore, the list of 331 companies where there were alerts in the knowledge of the Serious Fraud Investigation Office was shared with SEBI. It is for SEBI to look into those companies.
Why has the MCA taken action on disqualification of directors on a retrospective basis when the law is silent on this?
You are presuming that the MCA has taken action on a retrospective basis. The disqualification is by operation of law. Yes, certain persons have filed petitions before courts wherein this is one of the arguments. Let the law take its course.
What happens to the action taken by the companies when the disquailfied director was on the board? What happens to the actions of the committees in which such a director was a member? Will his/her decisions become null and void? Can the corporate sue the director for giving false declaration?
Section 167 (2) of the Companies Act, 2013 has to be read along with Section 176 of the Act for this. (Section 167 (2) states: If a person functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ₹1 lakh but which may extend to ₹5 lakh, or both. Section 176 deals with defects in appointment of directors not to invalidate actions taken by them.)
Let me reiterate that the law shall take its course and no one can be allowed to circumvent the law for his convenience.
What is the object of going in for disqualification of directors? Do you think they should have been sensitised or alerted that they run the risk of losing their positions?
The only objective of identifying the disqualified directors is to ensure that law is respected. The directors were failing in their primary duty of intimating their particulars of disqualification to the Registrar of Companies despite the legal requirements. They had the opportunity to follow the law. They also failed to avail themselves of the Company Law Settlement Scheme in 2014. The situation raised serious doubts at the corporate governance levels and credentials of a person who has a track-record of non-performance of his statutory duties as a director for a continuous period of three years.
The MCA is handling the National Company Law Tribunal and the new cadre of Insolvency Professionals has become an issue. How is the MCA handling it? Where are the professionals coming from? Are the existing professional institutes involved?
The Insolvency and Bankruptcy Code creates a new cadre of professionals and the Insolvency and Bankruptcy Board of India has issued regulations for governing them. The regulation provides for eligibility criteria, qualifications and experience for an individual to be registered as an insolvency professional. Generally, advocates, chartered accountants, company secretaries and cost accountants having the requisite experience apply for registration as insolvency professionals. Further, there are Insolvency Professional Agencies (IPAs). At present, there are three registered IPAs formed by three professional institutes — ICSI, ICAI and ICAI.
Has MCA taken a view on SEBI’s Uday Kotak Panel report on Corporate Governance?
Not yet. A detailed examination of all the recommendations made by the committee is still under progress.