MCA's new motto: Friend first, regulator later

Ministry moves to cut subjectivity in decision making, delegates more powers to Registrar of Companies.

The Ministry of Corporate Affairs (MCA) wants to shed its stern regulatory image and acquire a gentler, corporate-friendly reputation. The new mantra is to be a facilitator in corporate growth instead of just another regulator.

The mantra is now being translated into action. For example, to cut out subjectivity in decisions, MCA has decided that field officers will not conduct any scrutiny of company balance sheets or send notices based on personal judgments or external tips. Scrutiny alerts will be generated in a software-based central risk assessment tool based on historical data of all companies.

The Registrar of Companies (RoC) has also been directed to look into its own records for such indicators. Top MCA sources said a notice would be issued or interrogation will start only when there is prima facie evidence against a company. This is to ensure that companies are not subjected to undue harassment.

Stern notices will also give way to “persuasive letters” before any investigation begins. Notices can follow, but the idea is to send out a signal that the ministry is not interested in witch-hunting but believes in the principle of natural justice under which the accused gets a full opportunity to present its case.

RoC will also be granted the power to impose fees for any monetary violations by companies. This will be similar to compounding by the Reserve Bank of India for violation of the Foreign Exchange Management Act, or the power enjoyed by the Securities and Exchange Board of India to grant consent in case of market irregularities. While this has been provided for in the Companies Bill 2008, the ministry is preparing the guidelines so that the powers can be used judiciously.

All these changes mark a significant shift from the current procedure under which RoCs first files for prosecution against the company even for technical defaults, after which the company applies for bail. The entire matter depends on time-consuming court proceedings.

Similarly, the RoCs will have to conduct strict due diligence of balance sheets before asking an external professional to go in for technical scrutiny of a company. The ministry has recently decided to outsource audit of listed and non-listed companies to external professionals.

The department's field formations have also been directed to conduct seminars and programmes for investor awareness to encourage listings by companies, provide efficient registry-related services and demystify corporate law.

The ministry offices across the country have been asked to prominently advertise the date by which companies need to file balance sheets to ensure compliance with Companies Bill provisions.