The Ministry of Corporate Affairs (MCA) will next month refer the crucial issue of framing stricter governance framework for larger unlisted companies to the Company Law Committee (CLC). This panel, whose tenure was extended by a year in September last year, will be required to submit its report in 2-3 months, sources in the MCA said. 

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“The CLC has already met once. It will meet again next month and will be given the task of looking at recommending a right regulatory framework for large unlisted companies,” sources added. 

The CLC may explore requirements like quarterly financial reporting for these companies, similar to listed entities, and potentially define the criteria for “larger” unlisted companies.

Stricter framework

MCA might not even wait for the submission of the CLC report to put in place a stricter regulatory framework around larger unlisted companies. Already MCA had invited public and stakeholder comments as part of regulations review exercise mandated by the Finance and Corporate Affairs Minister Nirmala Sitharaman in her 2022-23 Budget speech. “If as part of the regulations review, we get suggestions on improving governance framework around larger unlisted companies, we will go ahead with it and not wait for CLC report,” sources added.  

MCA’s latest thinking on larger unlisted companies is significant as former SEBI Chairman Ajay Tyagi had in June last year suggested that the Ministry should step into the scene to put in place an institutionalised review mechanism on corporate governance compliances of certain mature start-ups.

The MCA should come up with a policy to analyse and review the corporate governance practices of mature start-ups in which the valuation has grown high, or the turnover has increased beyond a level or there are plans to launch an IPO, Tyagi had then said.

MCA does not look at ‘start-ups’ as a separate category for regulation purposes, official sources on Monday explained. Regulations are framed for smaller or larger unlisted companies as a category, sources explained. 

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MCA wants to position itself as a “light touch” regulator and does not want to be seen as one that interferes with the day-to-day functioning of companies, sources added.

Byju’s case

MCA has now directed its field formation (concerned Registrar of Companies) to expedite the submission of report on edtech major Byju’s (ant one time India’s most valued start-up). The inspection has been done and now they will have to expedite report submission, sources added. Meanwhile, MCA sources said that no SFIO probe has been launched against Byju’s as on date although it may have been contemplated last year. 

Byju’s have been faced with series of controversies in recent years after it came to light that Byju had failed meet certain compliance requirements and its statutory auditor having resigned in June last year.

This had prompted Byju’s to set up an Advisory Council to the Board in July 2023 and named former State Bank of India chairman Rajnish Kumar and former Infosys chief financial officer T.V. Mohandas Pai to the newly-formed council to advise its board.

Deloitte Haskins and Sells had last year resigned as Byju’s auditor citing a delay on part of the company in submitting financial statements and the audit firm’s inability to commence audit for FY22. 

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Byju’s valuation has in recent months seen a huge hit on account of the governance controversies around the EdTech major.