Hundreds of chartered accountants across the country are now under the CA Institute’s disciplinary lens for their alleged role in aiding several Chinese firms to violate the Companies Act 2013 through their India-incorporated subsidiaries and shell companies. 

“A list of chartered accountants has been sent to us for action, and we will start disciplinary proceedings. In some cases, RoCs have also complained. Some we will take action as information cases”, Debashis Mitra, President, Institute of Chartered Accountants of India (ICAI), told  BusinessLine when contacted.

Mitra also noted that several CAs were under lens as these professionals had helped incorporate Chinese-controlled entities that have now become non-compliant with the company law. 

It is learnt that many firms were incorporated with Indian directors, later replaced by Chinese nationals. The Registrar of Companies has recently been investigating complaints against many companies with Chinese directors.

Disciplinary proceedings

When asked for a comment on the status of disciplinary proceedings, the CA Institute said, “The Disciplinary Directorate of ICAI is in receipt of complaints from the office of various Registrar of Companies across the country against CA Professionals for their involvement in relation to Companies alleged to be linked with Chinese nationals. 

“The said complaints are being processed in terms of the Chartered Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. Hence, guilt, as alleged, as well as the number of Chartered Accountants alleged to be involved, is yet to be ascertained/determined after conducting detailed investigation/inquiry. So, it is premature to comment upon the same,” the institute added.

Company Secretaries are also learnt to be under the lens of the Corporate Affairs Ministry, which is understood to have passed on the details to the Institute of Company Secretaries of India (ICSI) as well, sources said.

Meanwhile, company law experts felt there must also be a mechanism to review the role played by the Registrar of Companies (RoCs), approved changes in directorships to Chinese nationals.

Government regulations on FDI

The government, in recent years, has been tightening its foreign direct investment (FDI) regime on investments coming from countries with which India shared its land border. The apparent effort was to curb Chinese investments in Indian companies.

In April 2020, under Press Note 3, the Foreign Direct Policy (FDI) policy was tweaked to mandate the government’s prior nod for investments from countries that share a land border. It was primarily aimed at preventing Chinese companies from undertaking an “opportunistic takeover” of Indian companies.

Continuing with its spate of restrictions on investments from neighbouring countries sharing land borders, the MCA had, on June 1 this year, stipulated that the nationals of such countries should obtain Home Ministry’s clearance if they are appointed as directors of Indian companies. 

MCA had also recently made rule changes requiring furnishing FEMA compliance declaration at the time of Companies’ incorporation involving investments from countries that share its land border with India. Also, this declaration has been mandated for inbound mergers when seeking approval for such transactions before the National Company Law Tribunal (NCLT).

Although trade between India and China continues to be booming and buoyant, the investment flows from China to India dwindled in the last two years because of increased government restrictions.

In April this year, the Centre had amended the laws governing the three professional institutes — Chartered Accountants, Company Secretaries and Cost Accountants — to bring more accountability and time-bound disciplinary action against erring CAs and CSs by the respective institutes.