Cannot provide relief for de-registered firms, disqualified directors: Minister

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PP Choudhary, Minister of State for Corporate Affairs

The Corporate Affairs Ministry has ruled out providing any relief for the 2.25 lakh de-registered companies and the 3.09 lakh disqualified directors, stating that these actions were caused by the ‘operation of law’.

“There is no proposal before us to provide any relief to them. No such issue is before us. The only issue before us and taking our attention is to get the pending Companies (amendment) Bill enacted by the Rajya Sabha,” PP Choudhary, Minister of State for Corporate Affairs, told BusinessLine.

The Ministry had de-registered 2.25 lakh companies and disqualified as many as 3.09 lakh directors for not filing financial statements for two or more years. Choudhary said that remedy for these two controversies are before the National Company Law Tribunal (in case of deregistered companies) and the High Courts (for disqualification of directors).

“There is no provision under the law to allow the government to resolve both the controversies. Our actions are by the operation of law enacted by Parliament. It is not within the domain of the government to provide relief without any explicit provision allowing for any relief,” he said.

He also highlighted that the de-registered companies and the disqualified directors had not opted to utilise the window of the Company Law Settlement Scheme in 2014 although it was available for nearly eight months.

Choudhary said the government, in future, could consider providing a departmental mechanism for resolution of grievance instead of going to NCLT for the de-registered companies.

Meanwhile, sources said that over ₹21,000 crore was deposited and withdrawn post-demonetisation by about 35,000 companies forming part of the 2.25 lakh de-registered companies. In one case, a company, which had a negative opening balance on November 8, 2016, deposited and withdrew ₹2,484 crore post-demonetisation. There was another company that had deposited ₹3,700 crore post demonetisation in one account, sources said.

Source: The Hindu Business Online

MCA scanner on banks lending to deregistered companies

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So far 13 banks have provided information to the government on 13,140 accounts of 5,820 deregistered companies, with the most startling details emerging from IDBI Bank, Bank of Baroda and Canara Bank.

The corporate affairs ministry is likely to ask the department of financial services to take action against the banks which have continued lending to companies that have been deregistered.

The ministry is also likely to raise the issue of banks not showing urgency in sharing information on transactions of these companies before and after the announcement of demonetisation on November 8 last year.

The Registrar of Companies, which comes under the corporate affairs ministry, had struck off 2.09 lakh companies from the list of active establishments after they failed to comply with regulatory requirements. Banking transactions of these companies are restricted only for settling liabilities.

Despite this, according to sources, one government-owned bank has lent more than Rs 280 crore to a company after it was deregistered. Such transactions are likely to have occurred among other public sector banks as well, but the government still doesn’t have detailed data on the dealings, they said. “There is a need for greater transparency. We are simply waiting for the banks to come up with more information. Only a few have shared (the information) so far,” a senior government official said.

So far 13 banks have provided information to the government on 13,140 accounts of 5,820 deregistered companies, with the most startling details emerging from IDBI Bank, Bank of Baroda and Canara Bank.

Earlier this month, the government said these 5,820 companies had deposited Rs 4,573 crore post demonetisation in banks and withdrew Rs 4,552 crore, even as they held balances of just Rs 22 crore on the day demonetisation was announced. This number is likely to go up manifold once the banks share more data.

The government is probing accounts of all the 2.09 lakh companies that were struck off the registry, which previously had about 13 lakh companies.

Four banks — Qatar National Bank, Doha Bank, Emirates NBD Bank and Punjab Gramin Bank — stated that they didn’t hold any accounts of the suspect companies.

A few companies were found to be having multiple accounts in some banks, like Bank of Baroda, where one company held as many as 915 accounts.

India should prioritise public banking sector reforms: IMF

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Country's growth is expected to accelerate in the medium-term as temporary disruptions due to demonetization and GST.
Country’s growth is expected to accelerate in the medium-term as temporary disruptions due to demonetization and GST.

India must prioritise implementation of public banking sector structural reforms, enhance the efficiency of labour and product markets, and modernise agriculture sector to accelerate its growth, the IMF said Friday.

The country’s growth is expected to accelerate in the medium-term as temporary disruptions due to demonetisation and the Goods and Services Tax (GST) fade, the International Monetary Fund said in its Asia and Pacific Regional Economic Outlook Update.

The economic growth slowed in India in recent quarters due to the temporary disruptions from the currency exchange initiative demonetisation that took place in November 2016, and the recent rollout of the GST, it said.

 

The GST is a landmark tax reform that should help unify the domestic market and encourage businesses to move from the informal to the formal sector, the IMF noted.

Inflation has been low compared with the mid-point target in recent months, driven by lower food prices, allowing the central bank to cut its policy rate in August, it added.

“Growth in 2017 was revised downward to reflect the recent slowdown, but is expected to accelerate in the medium term as these temporary disruptions fade,” it said.

In India, growth was revised down to 6.7 per cent in FY2017 and to 7.4 per cent in FY2018.

“Growth will be underpinned by private consumption, which has benefited from low food and energy prices, as well as civil service allowance increases,” IMF said.

Headline inflation is projected to stay close to the midpoint of the target band (4 per cent 2 per cent) in FY2017, while moving to the upper half of the target band in the medium term as food prices recover, it said.

The current account deficit should remain modest, financed by robust foreign direct investment inflows, it noted.

According to the outlook, in India, priorities should be strengthening public banks loss-absorbing buffers, implementing further public banking sector structural reforms, and enhancing public banks debt recovery mechanisms.

“Reform efforts should aim at tackling supply bottlenecks, enhancing the efficiency of labour and product markets, and modernising the agricultural sector,” the IMF said, adding that labour market reforms should be a priority to facilitate greater and higher-quality job creation.

 

Source: Deccan Chronicle

IMF favors three structural reforms in India

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According to IMF’s Regional Economic Outlook, India’s growth slowed in recent quarters due to the temporary disruptions from the currency exchange initiative– demonetisation and GST.

The IMF has suggested a three- pronged approach for structural reform in India that includes addressing the corporate and banking sector weaknesses, continued fiscal consolidation through revenue measure, and improving the efficiency of labour and product markets.

Deputy Director Asia Pacific Department of IMF, Kenneth Kang, said the favorable outlook for Asia was an important opportunity for India to push forward with difficult reforms.

“As such, there should be three policy priorities in the area of structural reforms,” Kang, Deputy Director Asia pacific Department IMF told reporters at a news conference here.

“First priority is to address the corporate and banking sector weaknesses, by accelerating the resolution of non- performing loans, rebuilding the capital buffers for the public sector banks, and enhancing banks’ debt recovery mechanisms,” he said.Secondly, Kang said, India should continue with the fiscal consolidation through revenue measures, as well as further reductions in subsidies.

“And lastly, it’s to maintain the strong momentum for structural reforms in addressing the infrastructure gaps, improving the efficiency of labour and product markets as well as furthering agricultural reforms,” said Kang.

Responding to a question on labour market reforms, Kang suggested reforming the market regulations in order to create a more favorable environment for investment and employment.

“There is a need to reduce the number of labour laws which currently number around 250 across the central and the state level,” said Kang.He said India should also focus on closing the gender gap which may help a great deal in boosting the employment opportunities for women in India.

“Improvements in infrastructure can be one important way to facilitate the entry of women into the labour force. But in addition, there is a need to strengthening the implementation of specific gender regulations, as well as to invest more in gender-specific training and education,” Kang said.

According to IMF’s Regional Economic Outlook, India’s growth slowed in recent quarters due to the temporary disruptions from the currency exchange initiative– demonetisation– that took place in November 2016, and the recent roll-out of the Goods and Services Tax (GST).

The report, however, went on to say that the growth in 2017 was revised downward to reflect the recent slowdown, but is expected to accelerate in the medium term as these temporary disruptions fade.

IMF says global growth recovery an opportunity for Indian economy

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IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

The International Monetary Fund (IMF) on Tuesday pared its growth forecast for the Indian economy by half a percentage point to 6.7% for 2017, blaming the lingering disruptions caused by demonetisation of high value currencies last year and the roll out of the Goods and Services Tax (GST).

However, IMF said the structural reforms undertaken by the Prime Minister Narendra Modi-led government would trigger a recovery—above 8% in the medium term.

In its latest World Economic Outlook, IMF said the global economy is going through a cyclical upswing that began midway through 2016. It raised the global growth estimate marginally for 2017 to 3.6% while flagging downside risks. The upward revisions in its growth forecasts including for the euro area, Japan, China, emerging Europe, and Russia more than offset downward revisions for the United States, the United Kingdom, and India.

“In India, growth momentum slowed, reflecting the lingering impact of the authorities’ currency exchange initiative as well as uncertainty related to the midyear introduction of the countrywide Goods and Services Tax,” it said in the WEO.

However, IMF expects the Indian economy to recover sharply in 2018 to grow at 7.4%, though 30 basis points lower than its earlier estimate in April.

One basis point is one-hundredth of a percentage point.

In its South Asia Economic Focus (Fall 2017) released on Monday, the World Bank reduced India’s GDP growth forecast to 7% for 2017-18 from 7.2% estimated earlier, blaming disruptions caused by demonetisation and GST implementation, while maintaining at the same time that the Indian economy would claw back to grow at 7.4% by 2019-20.

Both the Asian Development Bank as well as the Organisation for Economic Cooperation and Development (OECD) have also cut their growth projections for India to 7% and 6.7%, respectively, for fiscal 2017-18.

IMF said a gradual recovery in India’s growth trajectory is a result of implementation of important structural reforms. GST, “which promises the unification of India’s vast domestic market, is among several key structural reforms under implementation that are expected to help push growth above 8% in the medium term,” it added.

The multilateral lending agency said India needs to focus on simplifying and easing labour market regulations and land acquisition procedures which are long-standing requirements for improving the business climate. It also called for briding the gender gap in accessing social services, finance and education to accelerate growth in developing countries like India.

IMF said given faster-than-expected declines in inflation rates in many larger economies, including India, “the projected level of monetary policy interest rates for the group is somewhat lower than in the April 2017 WEO.”

In its monetary policy review last week, the Reserve Bank of India (RBI) kept its policy rates unchanged and marginally raised its inflation forecast for rest of the year.

Highlighting the growing income inequality within and among emerging market economies, IMF said a country’s growth rate does not always foretell matching gains in income for the majority of the population. “In China and India, for example, where real per capita GDP grew by 9.6% and 4.9% a year, respectively, in 1993–2007, the median household income is estimated to have grown less—by 7.3% a year in China and only 1.5% a year in India,” it said.

Source: Live Mint

GST crashes even money lenders’ usurious rates

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Rates have dipped to a third to 6 per cent from 9-18 per cent about 6-9 months ago.

Interest rates that money lenders charged borrowers hardly budged for decades irrespective of policy decisions. But even that is collapsing faster than what it is in the formal banking system, thanks to the implementation of Goods and Services Tax.

Borrowing in the informal market is no more lucrative.

Lenders who fund small traders and merchants have lowered their rates to just a third of what they were charging, but still the demand is not showing up.

Rates have dipped to a third to 6 per cent from 9-18 per cent about 6-9 months ago, said two dealers aware of the market dynamics.

“Those businessmen have now limited options to run operations in cash especially after GST implementation and demonetisation,” said a textile business owner, who did not want to be identified.

“From a local politician to an industrialist or local trader whoever has additional unaccounted cash are normally the lenders in this informal loan market.”

A huge army of businessmen borrowed in an informal market from money lenders to avoid getting trapped by the banking system and the tax department. This was known as ‘Kachha Credit’ among practitioners.

With the implementation of GST which produces a chain of transactions till it reaches the ultimate consumer, merchants have little scope to escape accounting for their trades.

So, instead of funding their purchases through informal credit at high rates which was beneficial since it allowed escaping the tax net, they are choosing to fund businesses through formal credit. To keep businesses running, money lenders have lowered rates.

Since the tax department is keeping close watch on businesses, all traders preferred anonymity. This market is known as a plat form for lending and borrowing unaccounted or untaxed money without any collateral. Traders now shy away from availing such credit amid cash squeeze triggered by reform measures like GST and demonetisation. Sometimes, people take highly leveraged positions borrowing such money, which a bank would have declined.

A garment trader who may be eligible to borrow say, Rs 10 lakh in the absence of creditworthy balance sheet, can take a loan up to Rs 50 lakh due to personal knowledge of businesses, dealers said. The practice is prevalent in the garment industry.

Mumbai’s Bhiwandi, a business centre, used to be the hotbed of it. It has died down after the Central Value Added Tax, a central government tax levy introduced by Vajpayee led NDA, was introduced.

 

Source: Economic Times

 

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.