Propaganda against Compliance Tools


Politics is claimed to be a dirty game of propaganda in India and the public already accepted it as a reality of life. Unfortunately, Indian professionals start using similar tools against compliance regime and compliance professionals. Role of the media is also come to under strong protest recently. This is evident that Indian media do no research and do not cross verify the facts. Recently published propaganda titled “FM Nirmala Sitharaman urged to waive e-form 22A for firms” published by Deccan Chronicle on 12th June 2019 and copied by few others seems to be published without cross-checking on law and facts.

It seems one Chartered Accountant has submitted a five-page Memorandum against the well one check-point of the law mentioned in the Form INC – 22A popularly called Form Active. The form well drafted by the Ministry of Corporate Affairs is intended to check the compliance status of a company. The form Active is almost auto filled excepting geotagging of the Registered Office of the company. We have discussed the Form Active in detail earlier here thereafter at the time of extension of the date of filing of the form; we also discussed a practical problem and a way for a correction here without undermining any profession or newly introduced compliance regime. Though, the date of filing of this form may require another extension (from today 15th June 2019) on the ground of certain hardship but not on the certain ground mentioned in above mentioned the propaganda.

Earlier, Ministry of Corporate Affairs removed the name of about 5 lakh companies from the register of companies (popularly called strike off) which have not filed their Annual accounts and annual return for three or more financial years. Interestingly, not even a 0.01% of stakeholders of these companies including company promoters, shareholders, directors, auditors, debtors and creditors raised any objection and only handful stakeholders approached National Company Law Tribunal for revival. It is understood that more than half of these stakeholders used or rather say misused these companies for some particular purposes and actually left these companies after their misuse. They seem happy with the strike off vanishing their misdeeds. These companies, where the corporate structure was misused, may correctly be called shell companies. Rest of these stricken off companies belong to innocent promoters without a proper business plan or their promoters either died or just retired after doing business and closed business without winding up their companies due to cost associated with winding up or due to lack of knowledge of the requirement and benefits.

However, Form Active is under attack since its inception due to questionable compliance status among Indian companies presently doing business in India. This is a harsh reality in India that certain stakeholders and companies do not want complying even basic laws in the pretext of hardship of doing business. Despite all criticism, India bettered its ease of doing business rating it focused on corporate compliance since the inception of the Companies Act, 2013. Present, criticism against the form is basically a reevaluation of the frustration of certain stakeholders who are presently misusing corporate structure. This is high time for the government to take a strong stand against such practices and keep real-time checks on “shell companies in making”. Form Active is one of such effective checks.’

Appointment of Whole Time Company Secretary

The appointment of whole time Company Secretary is a compliance requirement for more than two decades. The company secretary appointed in the company keep a real-time check on the compliance status of the company and advice companies to comply with the law. The company Secretary in employment guards companies, their promoters and management from unintended non-compliances. However, as an employee, he may be unable to stop intended non – compliance but he certainly red flag on such planned non- compliances. However, his role of raising red flags uses to be questioned by certain sections of stakeholders as a negative profession hampering business and “business profit”. Is a referee in a football match raising red card a negative person or a positive person helping players to play smoothly, safely and happily?

The appointment of a company secretary is totally in the spirit of the law and more than that a real-time help for an honest business to comply with the law and guard itself against unintended violation. Many companies with prudent management either employ company secretary or hire services of a company secretary to get real-time help.

Number Game

It is usually claimed that the total number of active companies are about 10 lakh but available company secretaries are just 50 thousand. However, all companies do not require employing a whole time company secretary.  Only a minuscule number of companies with their paid-up capital 5 crores or more need to employee a whole time company secretary. It is claimed that 90 thousand companies require appointing company secretaries against a total supply of 45 thousand company secretaries. Unfortunately, more than half of company secretaries are unemployed or underemployed and taken the certificate of practice just to save their face before their ageing parents and troubling families. Presently against the claimed requirement of 90 thousand companies secretaries even as per the propaganda in question claim that 20 thousand are already employed. We may have 2 thousand company secretaries doing the gainful practice. What about the remaining 23 thousand company Secretaries, with or without the certificate of practice but without gainful assignments? Unless all these company secretaries get employed, it cannot be claimed that there is a huge gap in demand and supply of company secretaries. Let the supply exhausted first.

Relocation Issue

It is claimed that company secretaries unwilling to move to smaller towns for various reasons. This is not a tenable argument. Are not other professionals working with companies having a registered office or corporate office in small towns? The issue is the unwillingness of controlling stakeholders and therefore offering unsustainable remuneration to the company secretary.

Budget Constraint

The propaganda in question claimed that company secretary does not fit in the budget of small companies. Once promoters opted to have a certain organizational form for their business, they need to comply with the law associated with that organizational structure.  Are not promoters aware of the requirement of company secretaries for the last three decades? Is a company with paid-up capital of five crore rupee a budget deficient company? It should not unless it has disproportionate high paid-up capital based improper financial advice and planning. Such companies are free under the law to reduce paid-up capital using legally permitted route. But finance will advise like this claiming earlier advice to increase paid-up capital was without proper homework.

The government should crack down on disproportionately higher paid-up capital as it is used to gain higher bank loan which later turns into Nonperforming assets.

Other Appointments

The company secretary is a compliance officer specifically targeted under targeted propaganda without cross-checking the Form Active. The form show errors in case of failure in appointments of other key managerial personnel like Chief Financial Officer, Chief Executive Officer, Managing Directors also.  There may be a plentiful supply of persons to be appointed on these positions as there is no specific qualification is prescribed for these positions. This is for the reason – Company Secretary helps better real-time compliance and need to be better qualified.

Conclusion

The government should immediately intervene to help companies to have better equipped and knowledgeable professional in their employment. Even after all available qualified company secretaries get exhausted for employment, the government should not relax the requirement of appointing a company secretary but relaxed qualification criteria for small companies to permit them to have a semi-qualified company secretary subject to the supervision of fully qualified company secretary employed in a holding or subsidiary or associated company. In certain cases, such supervision may be given to Company Secretary in Practice but not for more than 20 companies for each Company Secretary in Practice.

There is an urgent urge on the Government to put the compliances in the brain of the companies when there are in infancy otherwise we will continue to generate shell companies.

Being a company secretary in practice, I may say that a company secretary in employment help with the real-time compliance advisory. Prevention is always better than cure. The Government may not afford another five lakh companies to become shell companies in the absence of compliance.

 

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One response to “Propaganda against Compliance Tools

  1. “Politics is claimed to be a dirty game of propaganda” This one line is true and we also accept it but India Law stands with people.

    Propaganda against Compliance Tools, This new is good for some people those were just waiting for the same but another site some people happy about this news.

    Like

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