Overview

In continuation of the Government’s resolve to strengthen the rules and procedures of Corporate Governance, the Government has took some major decisions to further strengthen these norms. It has been decided by the MCA that in case the Director or authorized signatory of any “struck off” company tries to siphon-off money from its bank account in an unauthorized manner, he/she may attract punishment of imprisonment of not less than six months extendible to 10 years. If it is found that the fraud involves public interest, the punishment shall not be less than 3 years and fine may also be imposed which would be three times the amount involved.

Consequent to instructions issued by Department of Financial Services (DoFS) to all the Banks on 5th September 2017, the Directors (ex-) or their authorized signatories had been restricted from operating the Bank accounts of such companies and they cannot siphon off money from the accounts of these “struck off” companies.

However, even prior to such action, if they have siphoned off any money, strict action would still be taken against them. Further, it was also decided that the Directors of such shell companies which have not filed returns for three or more years, will be disqualified from being appointed in any other company as Director and it is expected that as a result of this exercise, at least two to three lakhs of such disqualified Directors shall get debarred.

All efforts are also being made to identify the actual beneficiaries and persons behind such shell companies. Profiles of directors such as their background, antecedents and their role in the operations are being compiled in collaboration with enforcement agencies. Identification of more shell companies is also in progress. The professionals, chartered accountants, company secretaries and cost accountants associated with such shell companies and involved in illegal activities have been identified in certain cases and the action by professional Institutes such as ICAI, ICSI and ICAoI are being monitored.

Earlier, the names of over two lakh companies were struck off from the Register of Companies under Section 248 (5) of the Companies Act, thereby prohibiting the operation of the bank accounts of such companies till they are legally restored under Section 252 of the Companies Act by an order of the National Company Law Tribunal (NCLT).

In addition to such struck off companies, banks have also been advised to go in for enhanced diligence while dealing with companies in general. A company even having an active status on the website of the Ministry of Corporate Affairs but defaulting in filing of its due financial statement (s) or annual return (s) of Particular of Charges on its assets on the secured loan should be seen with suspicion as, prima facie, the company is not complying with its mandatory statutory obligations to file this vital information for availability to its stakeholders. The release also stated that the restoration, as and when it happens, shall be reflected by change in the status of the company from ‘Struck off’ to ‘Active’.

It is expected that this step will result in reflecting the financial status of the companies in a true and fair manner which would minimize the possibility of frauds and tax evasion. Further, the availability of funds for illegal purposes will also be choked. Therefore, the interest of stakeholders would be fully protected and the image of the country in the global business arena would substantially improve