Why must they continue as directors when they presided over non-compliance as the new normal?
The minister of state for corporate affairs, PP Choudhary, recently decided to disqualify directors of companies which did not file returns for three or more years. The ban is only for appointment in any other company as director and reappointment as director in any of the companies where they had served as directors. In fact, non-filing returns continuously for three years and more shows the extent of audacity these directors demonstrated. The board of directors are there for running a company as per provisions of Companies Act, 2013, the rules framed thereunder, and regulations issued by Sebi from time to time. Non-compliance is a serious issue. The press notification gives the number of such directors at 2-3 lakh! The exact number is yet to be found out. It is not clear how many of them are there, how many can be categorised as shell companies, what is the extent of violation of laws and rules these companies committed, and what is the quality of corporate governance provided by these directors.
Why should there be any lenience on taking action as per law against them? Non-filing returns is non-compliance of applicable Companies Act provisions and violation of corporate governance. Why should a director, who presides over non-compliance, must continue in office? Why should not the government debar them forthwith and appoint eligible persons to hold the position? The ministry may consider reviewing all such cases and take stringent penal action as per the law against culprits. If there are no returns, there will be no record of any products or services of these ignominious entities. Nobody can make out what is their registered office and whether they are still in operation or what are they really doing? Are these companies filing tax returns? Are they making profit or loss? Are they indulging in money laundering? There are no definite answers.
The minister has every right to take appropriate action against them. The serious fraud examiner’s office, under the ministry, can probe into the affairs, and corporate governance norms made stricter. If a director or an authorised signatory of any company tries to siphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months, extendible to 10 years. If fraud is involved, “the punishment shall not be less than 3 years and fine may also be imposed which would be three times the amount involved.” As per instructions by the Department of Financial Services to all the banks on September 5, 2017, “the Directors (ex-) or their authorised 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.”
The provisions of Companies Act must be complied with. If directors themselves violate the rules, how can the stakeholders expect corporate governance from such companies? Ministry officials are expected to be alert to ensure compliance of applicable regulations. Non-performing directors are doing disservice to corporate governance and defamation to global image of India.
At the same time, we have to consider few questions. How does the ministry know how many bank accounts these companies have when they have filed returns for three years or more? What are the measures initiated to identify the actual beneficiaries of such companies? Can the ministry clearly establish these are shell companies without any returns and any probing into their activities? It is good to compile the profiles of these directors in collaboration with enforcement agencies, and identification of all shell companies needs to be done on priority.
We have to think over what is the charter of duties and responsibilities of professionals like chartered accountants, company secretaries, cost accountants in such shell companies supposed to have involved in illegal activities? And what action is proposed to be taken against them by the regulatory bodies of the profession, such as ICAI and ICSI? It is heartening to note the minister is keeping strict vigil on the action against shell companies and directors. Money laundering, corruption and black money can be controlled only when the vitiated system is cleansed. The minister is emphatic that the interest of the stakeholders will be protected and the image of the country in the global business arena would be improved. Lastly, we also have to ask ourselves, is it so that the country lacks qualified eligible personnel to be appointed as board members who take the job seriously and comply with regulations?