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| Govt drafts exit scheme for defunct firms |
| Anindita Dey / Mumbai Mar 21, 2010, 00:08 IST |
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The Ministry of Corporate Affairs (MCA) is drafting a new exit scheme for defunct companies. The aim is to clean up the corporate system.
Ministry sources said the proposal was aimed at private companies that had failed to maintain the minimum paid-up capital but existed in records of the registrar of companies (RoC).
“These companies might be operational or might not be. They might be operating in an area different from that mentioned during their registration with MCA. Whatever it may be, companies which have not been submitting timely returns with RoC or have not furnished records which show that they are working can opt for this scheme,” said an official source.
This will be similar to the amnesty scheme under which companies pay a fee and close shop. Sources said this scheme was part of the efforts to clean up the corporate system that would help update records of functional companies and do away with the others.
The present exit policy follows an elaborate procedure that requires mundane details and no objection certificates from various offices and regulators for disolving a company.
Under the proposed system, the company will be asked to file an application to opt for the exit route, after which it can be deregistered within a specific time-frame. During the prescribed period — between filing and closing shop —inquiries could be initiated if there were serious concerns, said sources.
Till the time the proposed draft comes into effect, the ministry is set to create a separate portal for defunct companies, citing their names and the period when they have failed to furnish returns. According to Section 560 of the Companies Act, defunct companies are those that have ceased to exist according to RoC’s records but may not have formally stopped working.
Out of a total of 700,000 companies, around 10 per cent were defunct, said officials close to the development. These companies do not even maintain the minimum paid-up capital of Rs 100,000 prescribed in the Companies Act.
Earlier, two such schemes were announced, in 2003 and 2005. These intiatives did not materialise as there were no records matching the details available with RoC to follow up with such companies, officials said.
However, now that the MCA maintains records of director identification numbers (DINs) of companies in coordination with the Securities and Exchange Board of India, the proposed scheme is expected to be a success.
RoC maintains DINs of even private companies that are not listed — like private placement of equity, etc — and also those who do not indulge in market operations. Therefore, under the new exit scheme, follow up will be easier and such companies may be asked to deregister immediately.
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