Government tightens screws on assets owned by deregistered companies

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According to the minister, since the country-wide land records have been computerised, it would not take much time for the states to provide the requisite information to the district authorities and the central government.

The corporate affairs ministry today asked states to complete identification of properties owned by deregistered companies at the earliest and ensure district administrations prevent transactions in those assets.

Amid intensifying efforts to fight the black money menace, the ministry has also urged the states to initiate disciplinary action against the officials concerned in case such transactions go through.

The names of around 2.25 lakh companies which have not been carrying out business activities for long have been struck off the official records and a number of directors associated with such firms have been disqualified.

Against this backdrop, Minister of State for Corporate Affairs P P Chaudhary today held a review meeting with representatives from various states on action taken with respect to properties belonging to around 2.09 lakh deregistered companies.

During the meeting, Chaudhary asked the states’ representatives to complete the process of identification and tracking of properties belonging to such companies at the earliest, according to an official release.

In this regard, the states have been requested to share information with the ministry in a time-bound manner.

On September 12, the ministry had sent a letter to states for identification and tracking of properties belonging to around 2.09 lakh companies that were deregistered. Now, the number of such firms is about 2.25 lakh.

Additional state-wise information pertaining to such companies was also shared with the state representatives.

According to the minister, since the country-wide land records have been computerised, it would not take much time for the states to provide the requisite information to the district authorities and the central government.

Since the names of the companies have been struck off, any transaction pertaining to properties owned by them, their directors or authorised signatories would be “void ab initio and a nullity till such companies are restored by an order of the National Company Law Tribunal (NCLT), the release said.

“In fact, by virtue of the company’s name having been struck off from the Register of Companies under the Companies Act, 2013, its identity as a legal person had been lost and hence, the legal ownership of properties belonging to such a company was non-existent,” it added.

Chaudhary advised the representatives to ensure that requisite directions are urgently issued to all the district authorities dealing with registration of properties to put in place appropriate mechanism to prevent transactions in properties belonging to the deregistered companies.

Officials allowing registration of transactions in such properties by ignoring the requisite directions may be subjected to disciplinary action, he told the representatives.

Emphasising that tackling of shell companies is an imperative element in the fight against black money, Chaudhary said such a drive would help unearth benami properties and discourage illegal practices, which would create a healthy economic environment for honest businessmen.

200,000 more directors disqualified for holding posts in defaulting companies

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The govt has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the RoC and frozen their bank accounts to check any siphoning off of funds.

The corporate affairs ministry has disqualified another 200,000 directors for holding posts in defaulting companies that have not filed their financial returns for the last three years or more, taking the total number to over 300,000, while cancelling the registration of another 10,000 companies.

These directors won’t be able to hold board seats in other companies as well and may have to resign soon from them, potentially impacting other firms as well.

While the current law does not provide for any appeal, the government is thinking of exercising “the review power to take any such plea into consideration,” PP Chaudhary, minister of state for corporate affairs, told ET. “By operation of law, these directors are disqualified but we have to see under what provision of law we can examine this. If we need to frame a rule we will do it.”

According to Section 167 of the Companies Act, a director is disqualified automatically from all other posts of director once barred under Section 164, said Chaudhary, a lawyer by profession.

200,000 more directors disqualified for holding posts in defaulting companies

The government has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the Registrar of Companies and frozen their bank accounts to check any siphoning off of funds.

“This exercise is part of demonetisation. No one had the guts to stop all this till now. It will prove a catalyst for the Indian economy,” said the minister of state, who took over this responsibility after the recent reshuffle. He said the money trail will be traced after data mining of these companies.

 

The government will prioritise those cases where there is evidence of a large movement of cash. He rejected the criticism that the action was retrospective in nature.

“Law has not been retrospective. Companies had two years to file returns… there was healing time,” the minister of state said. So far the shell firm chase has been limited to defaulting firms that have not filed their financial returns for the last three years or more but the government will soon go after compliant firms as well to check their holding companies structures and fund flows.

Chaudhary said the intent is to restore trust in the corporate structure and also improve ease of doing business in the country.

“We do not want to create any terror. Trust in the corporate structure is gone and we want to increase the investor confidence, not interfere in the corporate structure,” Chaudhary said.The government wants to promote ease of doing business to ensure investors that their money is safe in India, he added.

“This exercise has been triggered due to governance. We have shown scale and speed in an unparalleled way in the way we have acted against these companies and directors,” Chaudhary said.

Last week, the government made public the names of 55,000 directors who were disqualified under Section 164 (2) (A) of the Companies Act. The list included the names of prominent politicians including former Jammu and Kashmir chief minister Omar Abdullah and Malayalam filmstar Mohanlal among others.While the government will not impose any penalty on the directors of government-owned companies that figured in the list of defaulters, those in private firms will have to resign from other board seats and won’t be eligible for reappointment for up to five years.

The corporate affairs ministry will also look into these companies to identify shell companies to see if they have been used for money laundering or any other illegal activity. “We need to find who the shell company’s real beneficiary is… It could be in the name of the cook or a driver. We are taking stock of the money in these companies pre and post demonetisation,” Chaudhary said.

While spotting defaulting companies is an ongoing process, Chaudhary said that, using artificial intelligence, the government will sift out the shell companies from among those that are compliant with regulations and also create an early warning system. “The system will trigger alerts every time we see unusual activity taking place in a company. It will also help us find out the beneficial owner of the shell companies,” he said.

Bankruptcy board to register 100 more insolvency professionals to add to 940

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The Insolvency and Bankruptcy Board of India (IBBI), which has so far registered 940 insolvency professionals (IPs), is in the process of granting registration to about 100 more such professionals, according to its whole time member Navrang Saini.

The Insolvency and Bankruptcy Board of India (IBBI), which has so far registered 940 insolvency professionals (IPs), is in the process of granting registration to about 100 more such professionals, according to its whole time member Navrang Saini. “It is a continuous process, the applications come to us through insolvency professionals agencies, we examine the applications and carry out due diligence and then we grant registration to them,” said Saini while addressing an Assocham conference on IBC and RERA. The IBBI had received three applications for registration as information utility (IU) out of which two applicants have been granted in-principle approval and it is in the process of examining the third one.

“We are in the process of giving approval to one of the IU, we may give the final registration if they meet all criteria, we have already given in-principal approval to two IUs and out of that I hope one will start functioning by end of this month, the third application is still under examination with the board,” Saini said.

As on September 12, 3,437 cases have been filed out of which 354 cases have already been admitted by the various benches of NCLT. Out of these, 337 have already been rejected. “To deal with such a large number of insolvency related matters, we need institutional infrastructure,” he said.

Rules for registered valuers are to be made by ministry of corporate affairs which is in the process of notifying and issuing the same.

The board has already invited suggestions on the regulations which have already been notified by the board and it will receive the suggestions up to December 31 and come out with the amendments based on the suggestions received and advisory committees constituted for this purpose by March 31, 2018.

Source: Financial Express

Centre asks banks to restrict accounts of 2.09 lakh firms

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The finance ministry has advised all banks to take immediate steps to restrict transactions in bank accounts of more than 2.09 lakh companies, whose names have been struck off the Register of Companies.

Banks have also been advised to step up due diligence while dealing with all firms in general and been alerted that even if a firm is ‘active’ in the corporate affairs ministry database, it should be seen with ‘suspicion’ if it has failed to file statements or returns.

‘Not compliant’

“…Prima facie, the company is not complying with its mandatory statutory obligations to file this vital information for availability to its stakeholders,” the finance ministry has reasoned.

On July 1, Prime Minister Narendra Modi had first revealed the government’s decision to cancel the registrations of one lakh companies that had suspicious and questionable operations, identified on the basis of data mined from the deposit of bank notes following last November’s demonetisation of Rs.500 and Rs.1,000 notes.

The PM had promised more action would follow on two lakh similar firms and 38,000 shell companies. Tuesday’s statement reveals that progress has been made in scrapping another 1,09,032 firms under the Companies Act since then.

‘Directors barred’

“The existing directors and authorised signatories of such struck-off companies will now become ex-directors or ex-authorised signatories. These individuals will therefore not be able to operate bank accounts of such companies till such companies are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal,” the ministry said, disclosing ‘stepped up decisive action’ against errant companies.

“Since such ‘struck off’ companies have ceased to exist, action has been initiated to restrict the operation of [their] bank accounts. The Department of Financial Services has, through the Indian Banks Association, advised all banks … [to] take immediate steps to put restrictions on bank accounts of such struck-off companies,” the ministry said, adding that the list of firms had been put up on the corporate affairs ministry’s website.

In addition, the statement said that banks had been advised to go in for ‘enhanced diligence while dealing with companies in general.’

“A company… even having an active status on the website of the Ministry of Corporate Affairs but defaulting in filing of its due financial statement/s or annual return/s in particular of charges on its assets on the secured loan should be seen with suspicion…” the ministry has told banks.

Source: The Hindu

Attack on shell firms: MCA issues notices to errant NBFCs

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In yet another attempt to crack the whip on shell companies, the Ministry of Corporate Affairs has issued notices to companies which were supposed to act as non-banking financial companies (NBFCs) but have not registered with the Reserve Bank of India (RBI).

The ministry has taken this action to seek an explanation from these companies on their businesses within 10 days, a source said

If companies are found to be in the non-banking financial activities such as lending, investment or deposit acceptance as their principal business, without the RBI registration, the central bank can impose a penalty or even prosecute them in a court of law.

A similar attempt was undertaken by the RBI a few years back. In 2013, the RBI had clamped down on unregistered NBFCs after the Saradha scam. The central bank undertook such an exercise even in 2014. The pan-India figure of such entities back then was around 70,000. The number of non-registered NBFCs has risen since then, an official said.

The Securities & Exchange Board of India (Sebi) had recently put 331 companies on heightened surveillance. It also delisted entities it suspected of being shell companies. The Centre, too, has frozen bank accounts of 200,000 companies after these were struck off by Registrar of Companies. The directors of these firms were also banned.

The Centre and its agencies are not only taking corrective action but are also initiating pre-emptive steps to check the menace of dormant companies. It is working with Sebi to get all public unlisted companies to issue shares online. Experts said this would ensure greater transparency in these companies and bring down litigation.

After demonetisation, a number of shell companies were found to be operating with the same address, not directly contributing to the mainstream economy. It was then that the government sprung into action.

An NBFC is a company registered under the Companies Act, 1956, engaged in the business of loans and advances among other functions. It is also a company which receives deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, as its principal business.

 

Source: Business Standard