It may be a coincidence, but the cabinet reshuffle appears to have energised the Ministry of Corporate Affairs (MCA), going by the flurry of the various circulars which are being issued almost on a daily basis, on best practices to be pursued by the various regulators. The breaking news is that the Companies Bill 2009 will be replaced by a new bill of 2011 – which means it’s on hold indefinitely, but the action within the MCA seems to indicate that Ministry wants to project a proactive image and in doing so, is offering as an opening gambit ‘online incorporation of companies in 24 hours’. Keeping in mind that the World Bank Report on Doing Business in India ranks only New Zealand and Canada in achieving this level, , even with the process being online, the tentative time frame of four to six weeks is still estimated on a zero to end scale, though the World Bank report is 29 days. My take is this promise is unlikely to be fulfilled.
Currently, the name availability process itself can take a week, as it involves complex documentation, particularly for foreign investment. The fast track route requires a declaration from the applicant by way of various representations, warranting that the prescribed guidelines have been complied with. This can be certified by a Chartered Accountant as well. The proposed name does not have to indicate the main object, except in certain cases, and foreign companies are permitted to use their name for subsidiaries with an “India” affix. Nowhere is it clarified whether the notarised and apostatised NOCs still have to be submitted, the most onerous of all requirements.
What is more credible is the various directives to the Regional Directors (RD), Registrars of Companies (ROC) and Official Liquidators (LO) – any practitioner who operates in the Company Courts or in the Company Law Board (CLB) are familiar with the triumvirate, as all schemes of mergers and amalgamation routed through the court process require these regulators to submit reports. Section 394 of the Companies Act (‘Act’) mandates that no scheme shall be sanctioned unless the ROC certifies that the affairs of the Company have not been conducted in a manner prejudicial to the interests of its members or to public interest. The OL also has to submit a similar report in situations where the transferor company is to undergo dissolution, except that in case of the OL, the report is required to be made “on scrutiny of the books and papers of the company”. In addition, Section 394A provides for notice to the Central Government which are delegated to the Regional Director Obtaining the service proof of these notices – in recent years with the online Form 61 has made this easier, still remains a painful exercise.
The circular prescribes with actionable tasks with strict time lines for the ROC and the RD, with demarcation of the issues that are to be addressed – the ROC’s review is restricted to the filing status, investor’s grievances, if any, pending inspections, investigations and any prosecution arsing thereon and comments on the scheme. Hopefully, this will eliminate fishing and roving enquiries at this level and also delays.
The RD’s scope of enquiry has been widened considerably. Instead of the blind adoption of the ROC’s findings, the RD has to assume the role of an expert / auditor in undertaking scrutiny of the findings on valuation, accounting treatment, implications of the scheme, particularly in terms of analysis of whether buy back or reduction of capital is envisaged, and in cases where foreign investment is involved, regulatory compliances are made. Essentially, the RD’s affidavit has to be a comprehensive document to assist the court, and wherever required, the RD is to involve the Law Ministry, Standing Counsels and representatives of other ministries if sectoral sensitivities apply. The OL list is yet to be released.
In case of winding up processes, the efforts indicate recognition of the delays -. not only in protracting the process of closure, but also the sheer harassment the management undergoes, endless paperwork and unproductive attendance in court rooms and the OL’s office, not to speak of taking up the valuable time of the Court in dealing with clerical work. The Courts should delegate these functions to an appropriate body – upgrading the OL’s responsibilities to maintain a “register” is not the answer. The OL’s representative, in any case should be present in the Company Court. What if he defaults, will the Court penalise or replace him? No cheers for this one. The MCA will have to come out with a more innovative solution, attracting investors for quick turnaround opportunities.
The determination of several ministerial issues such as inter-State relocation of the registered office of a Company have been moved from the CLB to the concerned ROC Whether the formalities and delays will get reduced is a matter of conjecture. But the “smiles without scepticism” award goes to the waiver of approval for remuneration above Rs. 4 lakh per month for listed low profit companies, provided the person is not a promoter, but a qualified professional.
Kumkum Sen is a partner at Bharucha & Partners Delhi Office and can be reached at firstname.lastname@example.org