Registrar of Companies to crack down on law violators with new reforms

Registrar of Companies expect to conduct a more detailed analysis of transactions involving companies that draw attention due to certain regulatory concerns

The Registrar of Companies (RoCs) will intensify their efforts to monitor and enforce compliance with company law violations this year, according to a report in Mint.

The 25 RoCs in India are responsible for regulating business registrations for companies and limited liability partnership (LLP) registrations, ensuring they comply with applicable laws.

 The Ministry of Corporate Affairs is implementing reforms that have two major components:

1) Replacement of RoC approvals with straight-through processing (STP), which requires companies to obtain only an online acknowledgement of their statutory filings to be considered compliant.

2) Establish a centralised data processing centre to expedite the processing of forms submitted by companies with field offices.

The goal is to free up RoCs for more substantive work related to company compliance and early detection of violations as technology-enabled systems take over the monitoring of routine corporate functions.

The Mint report said that when version three of the government's statutory filing portal, MCA21, is fully rolled out later this year, 95 per cent of the RoC work relating to statutory forms will be fully automated.

As a result, RoCs will be able to focus more on specific areas of enforcement, such as disgorgement. Disgorgement is the process of petitioning a tribunal to recover ill-gotten wealth from people involved in criminal Companies Act violations and distributing the recovered amount to eligible people.

RoCs monitor companies for compliance in the areas of maintaining books of accounts at their registered office, filing annual returns and financial statements, timely reporting of the creation of a lien on a company's assets, and identifying and processing the removal of companies from records for failing to file statutory documents.

With the new statutory filing system's technological prowess and enhanced know-your-customer (KYC) requirements, RoCs are expected to conduct a more detailed analysis of transactions involving companies that draw attention due to certain regulatory concerns, such as thinly capitalised (highly leveraged) companies.

Other major regulatory concerns, such as the diversion of funds from publicly traded companies to entities privately held by their major shareholders, and the circuitous movement of funds among group entities with the goal of money laundering, require more time and resources to investigate. It is expected that relieving RoCs of routine corporate reporting functions that can be fully automated will aid in this effort.

In the recent past, RoCs cracked down on entities registered as Nidhi companies — non-bank firms that lend and borrow among their members — but engaged in unauthorised lending operations, as well as on entities that engage in prohibited equity crowd-funding. The country has currently 1.5 million active companies and nearly 300,000 active LLPs.