Govt can’t take action against ‘defunct’ cos
AFTER the scheme to let “defunct” companies get out of government records ends this month, the state won’t be able to penalise many of those who havn’t complied. It will also not know immediately whom to punish for non-compliance.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: AFTER the scheme to let ���defunct��� companies get out of government records ends this month, the state won���t be able to penalise many of those who havn���t complied. It will also not know immediately whom to punish for non-compliance.
The company affairs ministry has realised that being defunct (not doing business) is no crime. But, not filing statutory documents is. The simplified exit scheme lets defunct companies get out of records by filing an affidavit that they have nil assets & liabilities, and an indemnity bond.
Nearly 40% of the registered companies are defaulting on their obligation to file returns, though a good many of them are not defunct. Besides, there are many companies who comply with the statutory requirement of filing returns, but do no business.
The government���s target should have been defunct and defaulting companies. In addition to this, nearly two lakh companies which are defunct and defaulting will not be able to bring their assets and liabilities to zero to be eligible for the simplified exit scheme.
Having zero net worth does not mean nil assets and liabilities, said a source. Identifying the defunct and defaulting companies and taking action against them will be a time consuming affair in the present bureaucratic system.
Therefore, the ministry is hoping to rely on its e-governance project, which is under implementation, to target the defunct and defaulting firms. One of the largest projects to reform the slow-moving bureaucracy, the e-governance project will have provisions to send electronic show cause notices with digital signatures to companies not filing returns, and cut down the time for reply to four days from the present seven.
The company affairs ministry has realised that being defunct (not doing business) is no crime. But, not filing statutory documents is. The simplified exit scheme lets defunct companies get out of records by filing an affidavit that they have nil assets & liabilities, and an indemnity bond.
Nearly 40% of the registered companies are defaulting on their obligation to file returns, though a good many of them are not defunct. Besides, there are many companies who comply with the statutory requirement of filing returns, but do no business.
The government���s target should have been defunct and defaulting companies. In addition to this, nearly two lakh companies which are defunct and defaulting will not be able to bring their assets and liabilities to zero to be eligible for the simplified exit scheme.
Having zero net worth does not mean nil assets and liabilities, said a source. Identifying the defunct and defaulting companies and taking action against them will be a time consuming affair in the present bureaucratic system.
Therefore, the ministry is hoping to rely on its e-governance project, which is under implementation, to target the defunct and defaulting firms. One of the largest projects to reform the slow-moving bureaucracy, the e-governance project will have provisions to send electronic show cause notices with digital signatures to companies not filing returns, and cut down the time for reply to four days from the present seven.
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Many companies which retain defunct firms meet their statutory obligations so that they remain legitimate and can be sold later at a premium. Some of them are shell companies of major corporates and they ensure that the law is complied with. In the case of defaulting companies, many directors are hesitant to provide an indemnity bond committing their liability even after the company���s name has been struck off the record, said Sunil Talati, chairman of ICAI���s legal affairs committee.
The e-governance project will also make it easy to register a company quickly, and remove the market for a readymade company at a premium, said a source. The ministry now expects that 25,000 companies may opt for the simplified scheme which is open till this month end. It earlier anticipated that at least one lakh companies would avail the scheme.
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