BACKGROUND:
After a thumping victory in 2014, Mr. Narendra Modi, in his inaugural speech vowed to tackle the issue of corruption and improve the ease of doing business in India. Aiming to cleanse the economy, he took a very bold step in November, 2016- DEMONETIZATION. In continuance to this, all related Authorities, Agencies and Departments joined hands and coordinated in collecting and sharing data of defaulters. This was done to unearth black money, money laundering, hoarding, counterfeiting and evasion of tax.
At the backdrop of this, the Ministry of Corporate Affairs (MCA), dropped a bombshell in September, 2017, by announcing the ‘strike off’ of approximately 2,20,000 companies from the register of companies. This ‘mass struck off’ was an unprecedented action by MCA and it created massive ripples in the financial world. The side-effect of this action saw more than 3,00,000 Directors as disqualified.
REASONS BEHIND THE ACTION:
- REASON #1: It’s an open secret that India has a parallel economy which runs on black money.
- REASON #2: There are many companies which have not filed Annual Returns/Financial Statements for the last 3 years.
- REASON #3: Some companies accounts saw huge amount of money being deposited and syphoned off after demonetization.
- REASON #4: A few companies had as many as 200 accounts, without transparency.
- REASON #5: The Directors of such companies ignored their duty of compliance and due diligence.
- REASON #6: Most of these companies blatantly flouted the Companies Act,2013 and its provisions.
- REASON #7: Some companies are ‘shell’ companies which have no legitimate business instead they are used by the legitimate company for money laundering.
- REASON #8: The banks did not take cognizance of the wrongdoing by these companies, in fact, at times they colluded with them.
CONSEQUENCES:
- CONSEQUENCE #1: Names of all such companies was removed from the register of companies.
- CONSEQUENCE #2: All bank accounts of defaulting companies were frozen.
- CONSEQUENCE #3: Directors of these companies are disqualified.
- CONSEQUENCE #4: Fines and penalties imposed as per the laws under the Act.
WAY AHEAD FOR DEFAULTERS:
The aggrieved companies and directors can appeal/ apply for revival of companies and restoration of DIN to The Tribunal within 3 years of being deregistered.
The aggrieved can also appeal to The National Company Law Tribunal (NCLT) as per the provisions under section 252 of Companies Act 2013, for revival & removal of directors disqualification.
Along with this, taking into account the huge number of companies and directors affected, MCA had opened a window known as CODS (Condonation of Delay Scheme) 2018, for fast redressal of grievances. The companies which applied for revival and removal of directors disqualification under this scheme and were given reprievation e depending on the documents submitted. This scheme especially benefited the disqualified directors as restoration of DIN was done immediately, although temporarily.
FUTURE COURSE OF ACTION:
Mr. Modi has time and again made it clear to all that this is a continuous process and hence will continue till the mission is completely successful. MCA, along with other agencies, is diligently working on the issue. It’s claimed that very soon the next list of ‘strike off’ companies will be in public domain.
As per news reports, the current fiscal year, 2018-2019 will witness an equal number or more number of companies being struck off. A rough estimate of 2.25 lakh companies and 7,191 LLPs (Limited Liability Partnership) may be blacklisted for not filing returns.
A task force, which has been made specially to unearth shell companies, has met eight times and has collated an extensive list of such fraudulent companies.
CONCLUSION:
The companies shall realize that compliance, due diligence and transparency are the need of the hour. Those which are already affected by strike off & applied in the COD scheme, may get reprieve if all requirements are fulfilled. Already nearly 14,000 companies have been revived through this scheme.
The other companies, have to have an ethical approach and shall comply with all rules and laws. The Directors, who are the custodians of fair practices, shall guide the company in a manner that all records are updated and clean.
A clean and healthy business environment will lead our country to progress.
A stitch in time, saves nine!” The companies and their directors shall be extra cautious and vigilant so that they do not default and attract penalty upon themselves.
The author can also be reached at mudsmanagement@gmail.com
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