Hero Honda motorcycle ad’s punch line — fill it, shut it and forget it — had a nice ring to it, though it could now be in the realm of nostalgia for the two promoter groups who have gone their separate ways. The punchline mutatis mutandis describes fairly accurately the lackadaisical approach of some of our administrators and authorities.

The Registrars of Companies (RoC) routinely accept returns and reports, archive them and forget about them. In l’affaire Robert Vadra, many commentators and media persons are wondering what the RoC was doing with the documents filed with it — the documents flaunted by Prashant Bhushan as being the copies of returns filed with the RoC, showing the interest-free loans given by DLF to a clutch of companies controlled by Robert Vadra, aggregating Rs 65 crore, for some undisclosed and unspeakable quid pro quo .

Section 234 of the Companies Act, 1956 requires the RoC to call for further explanation if the returns and reports filed with him do not throw full light on the matter. He has the right to annex the explanation thus given by the company to the relevant return or report, so that anybody inspecting the documents at his office, gets a full and fair idea of what the transaction really was all about.

In addition, in terms of Section 235, he can report to the Centre about his misgivings on the state of affairs of the company, as gleaned from such reports and explanations so that the Centre can conduct a full-fledged investigation.

If, indeed, the five closely-held companies of Robert Vadra had a combined capital of only Rs 50 lakh, but a combined asset of Rs 70 crore, whose market value was around Rs 300 crore — as alleged by Arvind Kejriwal and Prashant Bhushan — it was a fit case for the RoC sniffing something abnormal and asking for more information.

This is irrespective of whether or not it would have culminated in investigations into the links between him and the real estate major DLF. The same can be said of the returns filed by DLF. Shouldn’t the RoC have considered it fit to probe why a company gave an interest-free loan of Rs 65 crore to the companies controlled by Robert Vadra, when the consideration for such munificence was not apparent from the records?

‘Potential’ of LLP

With the lifting of corporate veil being an exception rather than the norm, people with less than honourable intent take shelter behind corporate entities not only to limit their liabilities, but also to keep themselves away from the public gaze. And they succeed remarkably till a crisis, either of their own making or born of whistle-blowing, blows on their faces.

The advent of Limited Liability Partnerships (LLPs) should give a fillip to such tendencies, what with they giving all the advantages of incorporation, but without the burdensome compliance regime prescribed for companies.

It is curious that crooks and fraudsters in India have not yet woken up to the immense potential of LLP in furthering their nefarious designs, as opposed to full-fledged companies. A property held in the name of a closely-held company, whose strings are held by its promoter, keeps him away from public glare and the resultant scrutiny.

The Company Law Board (CLB) has often come across instances of company promoters funnelling away public funds through closely-held subsidiaries and associates. Ad agencies formed as closely-held companies lend themselves admirably for bribe-taking, with 15 per cent agency commission being an admirable foil for the blatant bribe.

Registrars’ remit

The RoC is neither a library nor an archive. It is not supposed to accept the returns filed by companies and file them away. To be sure, any member of public has the right to inspect all the documents filed with the RoC and take copies on payment of the prescribed fee.

This freedom is circumscribed in case of private companies with the public denied access to the profit-and-loss account, though they have access to the balance-sheet.

Be that as it may, can the RoCs reduce their offices to just data warehouse available for the public? Aren’t they supposed to play a more active role? Public authorities enjoined with oversight functions cannot relax smugly on the ground that companies are in any case monitored by auditors and company secretaries? After all, these professionals can be remiss in discharge of their duties, either by design or indolence.

Auditors would have risen above laconic comments, for fear of being upbraided by a proactive RoC. The gumption of Satyam promoters in forging fixed deposit receipts of Ivy League banks were winked at by auditors with the RoC blissfully stashing away the balance-sheet.

Income-tax authorities too have not shown much interest in the analytical study of returns and annexures filed with them, except when the mistakes stand out.

Instead, whatever little success they register is thanks to raids, though admittedly the annual information report filed by banks and property registration authorities, among others, too has come to the aid of the Income-Tax department lately.

(The author is a New Delhi-based chartered accountant.)

Related Topics