Black money crackdown: No relief for well-known names, says Centre

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New Delhi | Updated: October 10, 2017 10:40:00 AM

Prominent business and political leaders who have been disqualified for five years from being directors of any company following a massive crackdown on suspected shell firms they were a part of are unlikely to get any “special and easy” relief from the government.

Black money crackdown, black moneySince the number of disqualified directors stands at a massive 3,00,000, the government may be exposed to a litany of legal tussles, especially over whether due procedures were followed by it. (Reuters)

Prominent business and political leaders who have been disqualified for five years from being directors of any company following a massive crackdown on suspected shell firms they were a part of are unlikely to get any “special and easy” relief from the government, a senior official told FE.

The move could have significant ramifications, as top business leaders, including Pawan Goenka (Mahindra & Mahindra), S Sridhar (DCB Bank), Vinod Kumar Dasari (Ashok Leyland), NRI businessman Yusufali MA, GV Krishna (Hindustan Petroleum) and leading consultant Rama Bijapurkar, reportedly feature in the list of disqualified directors. If the disqualification is strictly enforced, they have to quit boards of the big, operating companies they represent now. Even politicians like Omar

Abdullah, Oommen Chandy and VK Sasikala, and actors such as Malayalam superstar Mohanlal are among those reportedly disqualified.

Since the number of disqualified directors stands at a massive 3,00,000, the government may be exposed to a litany of legal tussles, especially over whether due procedures were followed by it.

“Just because somebody is considered prominent doesn’t mean he will be accorded any special relief by the government. Plus, they have access to judicial recourse,” said the official. However, he added that some of the disqualified directors or their representatives have approached the ministry of corporate affairs, explaining their position and seeking a roll-back of the move. Some of them are learnt to be suggesting that a distinction be made between the liability of a promoter-director and an independent director.

“However, even if the government reviews the ban in future (either due to any court order or on its own), which isn’t planned as of now, it will take into account facts concerning all stakeholders and not just prominent names. But directors of shell firms found to have been involved in illegal transactions won’t be let off,” the official added.

Identities of the debarred directors are being established (if indeed they are the prominent names or their namesakes or victims of identity theft, etc), another official said.

A senior Delhi-based corporate lawyer said the government is mindful of the fact that any selective application of the law to save the big names will expose it to criticism of promoting crony capitalism and not being quite serious about cleaning up the corporate system even after demonetisation. Also, only through strict enforcement of rules can the government nudge directors to behave in a more responsible manner, he added.

The directors were disqualified under Section 164 of the Companies Act, 2013, which says, “No person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years…shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.”

Even the hundreds of thousands of suspected shell firms that have been struck off from the register of companies will have to be armed with favourable orders from the National Company Law Tribunal (NCLT) to get restored, said official sources. The government struck off 8,207 shell companies in the past one month on top of the 2,09,032 deregistered firms until September 5, thus taking the total number of such entities to 2,17,239 as of October 4, the official said.

“It’s fair to assume work load on NCLT will rise. And before the cases reach NCLT, government agencies such as the Enforcement Directorate and income-tax department have to follow up with solid investigations. So far, only 5,800 companies, or 2.5% of the total struck-off firms, have been found to have been involved in suspicious activities. It will be a Herculean task to probe all the shell firms. Probably a smart way of doing it would be to use data analytics to investigate 10-15% cases that are really high-value ones,” said Samir Paranjpe, partner at Grant Thornton India.

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