RoCs set to crack the whip on company law violators
New Delhi, April 10, 2023
The Registrars of Companies (RoCs) will sharpen their oversight and enforcement efforts against company law violators later this year as ongoing reforms to cut red tape free them from routine work, two persons aware of the development said.
India’s 25 RoCs oversee registrations of companies and limited liability partnerships (LLPs), ensuring these entities follow the law.
The ministry of corporate affairs is rolling out reforms that have two key parts: one is replacing RoC approvals with straight-through processing (STP), requiring companies to only obtain an online acknowledgement of their statutory filings to be considered compliant.
The second is to create a centralized data processing centre to swiftly process forms filed by companies with field offices. “Once the new data centre is set up, forms filed by businesses will not go to RoCs but will be handled directly at the centralized facility. This and the other changes mean that the RoCs will be freed from routine work and can focus more on enforcement-related work," said a person aware of the discussions between the government and field officers.
The aim is to free up RoCs for more substantive work relating to compliance by companies and early detection of violations as tech-enabled systems take over the monitoring of routine corporate functions.
A second person aware of the development, who also spoke on condition of anonymity, said that when version three of the government’s statutory filing portal MCA21 is fully rolled out later this year, 95% of the RoC work relating to statutory forms will be fully automated.
As a result, RoCs will be able to pay more attention to certain areas of enforcement, including disgorgement, the person said. Disgorgement refers to moving a tribunal to recover ill-gotten wealth of people involved in Companies Act violations that are criminal in nature and the distribution of the recovered amount among eligible people.
An email sent to the ministry seeking comments for the story on Friday remained unanswered at the time of publishing.
RoCs keep a close watch on companies for compliance in the areas of maintaining their books of accounts at their registered office, filing annual returns and financial statements, timely reporting of creation of a lien on the assets of companies, and identifying and processing removal of companies from records for defaulting on filing statutory documents. With the technological prowess and enhanced know-your-customer (KYC) requirements of the new statutory filing system being implemented for companies, RoCs expect to do a more detailed analysis of transactions of companies which draw attention due to certain regulatory concerns—for example, thinly capitalized (highly leveraged) companies.
Probing other major regulatory concerns like diversion of funds from widely held companies to entities privately held by their major shareholders and circuitous movement of funds among group entities with the aim of money laundering, need more time and resources.Freeing up RoCs from monitoring routine corporate reporting functions that can be fully automated is expected to help in this.
In the recent past, RoCs have cracked down on entities registered as Nidhi companies—non-bank firms that lend and borrow within their members—but engaged in unauthorized lending operations and on entities that resort to crowd-funding of equity, which is not allowed. There are 1.5 million active companies and close to 300,000 active LLPs in the country.
[Mint]
