The welcome spring in MCAs feet

Updated: Mar 22 2006, 05:30am hrs
The ambitious flagship project of the ministry of company affairs, MCA 21, is now a reality. It was heartening to see the Prime Minister last Saturday launch this portal, the first of the mission mode projects under the National e-Governance Plan and label it a role model project. Kudos to the minister at MCA, Prem Chand Gupta, and his team, for implementing this project, in private sector style, in super-fast time and on schedulea rarity in India.

Come May, all transactions with the RoC offices will be in electronic mode. MCA 21 will allow online registrations, filing of returns and reporting of financial results. MCA 21 is being looked upon by most as an e-filing mechanism to make life easy for corporate India and RoC offices. However, there are several other dimensions. It will enable the ministry to easily track companies defaulting on compliance of corporate laws. It will also provide for cross-referencing of financial statements of companies filed with the MCA and other regulatory bodies. The information will also help lenders in their credit evaluation process. There is also the hidden benefit in terms of the pressure it would put on companies for compliance; a transparent publicly-accessible system would lead more firms to avoid public shame and media criticism.

More important, MCA 21 will open a whole new world of information on the corporate sector by becoming the largest-ever repository of information that is internet-enabled, covering nearly seven lakh unlisted entities. It will include, for each company, memorandum and articles of association, certificate of incorporation, subsisting charge documents, annual returns, balance sheets, as well as annual reports from 2003-04 onwards. In my assessment, 95% of Indias economic activity is not in the listed domain and it has been almost impossible to get information on this large segment. The data archives will help generate reliable statistics and trends, enabling better policy.

MCA 21 apart, Mr Gupta has realised his ministry must keep pace with the world. The non-descript department, an ineffi- cient monolith, has now been converted into a full ministry, with focus on all four constituentsregulators, companies, intermediaries and investors.

A major initiative, under implementation, is comprehensive revision of the Companies Act. The focus has been to address the changes in the economy, enable adoption of international best practices and timely evolution of new arrangements to address the changing, globally competitive environment. It is aimed to promote more transparency and good governance in companies and, at the same time, give them greater independence in operations. On the other hand, the limited liability partnership format of companies is being recognised, as these are essential business structures in the emerging knowledge economy. In another direction, the MCA is in the process of bringing in some critical amendments to the Competition Act.

The MCA 21 initiative will go well beyond e-filing, to enable checks
With other reforms, it will help transparency and governance in firms
We also need good laws for compensating investors in case of fraud
With the growing contribution of services, there was a need to redefine the role of the professionalscompany secretaries, chartered accountants and cost and works accountants. Among other things, new law has been enacted to streamline the disciplinary mechanism in their institutes and setting up of a Quality Review Board.

On another front, a major problem area has been the slow liquidation process, which leads to significant devaluation of assets. MCA has taken several steps to hasten this.

Once the National Company Law Tribunal is fully operational, procedural delays will reduce drastically. There is a cleaning act on, too. Recog-nising that a large number of firms were not functional and would like to discontinue business, MCA had launched a Simplified Exit Scheme, which has been utilised by over 26,000 companies.

Dealing with frauds is an important role, on which little has been achieved. Under the new MCA, 2004-05 witnessed a huge increase in inspections and investigations210 and 23, respectively, compared to 46 and nine in 2003-04. On the other hand, the Serious Frauds Investigation Office has started delivering results. Of 30 cases referred to it, eight have already been completed. MCA 21 would further boost this. In a significant move, for the first time, the ministry is considering issuing instructions for scrutiny of the balance sheet of those companies which came out with public issues or raised deposits from the public of Rs 50 crore or more during 2004-05, to ascertain right use of funds.

Bringing relief to small investors, MCA has opened dedicated investor protection cells. A website,, which is a national registry of defaulters, has already been operating successfully. Further, the MCA 21 platform will provide a more efficient system for redressal of investor grievances. A review of the redressal mechanism to ascertain the effectiveness in turnaround time. as well as in quality of redressal, is on. And, in the crusade against vanishing companies, of a total of 229 such, 114 companies and their defaulting officers have been traced and action initiated against them. One area where MCA could earn more laurels would be if it drafted effective laws for disgorgement and for compensation to investors in case of frauds.

Corporate governance, at present limited to only a few thousand listed companies, is proposed to be enlarged to cover all corporate entities. Also, the National Foundation for Corporate Governance will undertake and coordinate studies, activities and programmes and facilitate training and research.

MCA is certainly in super-active mode. And with a clear focus, to make life easier for good companies and difficult for bad ones. While, at the same time, safeguarding the interests of investors. Time it renamed itself as the ministry of corporate governance.

The writer is the managing director of PRIME Database