Non-compliance can result in imprisonment - Strictness of government

A country can never be developed until it is free of corruption and the only strategy to control corruption is implementing the laws strictly. As we know that Government of Indian with the help of various Ministries and departments is trying to implement laws strictly. As per the Press Information Bureau dated 5th November, 2017 Indian Government has constituted various committees to list out the defaulters and take strict actions against them.

As per the PIB, around 2,24,000 companies have been struck-off till date for remaining inactive for a period of 2 years or more.

Following the action of striking-off defaulting companies, restrictions have been imposed on operation of their bank accounts in accordance with the law. Further, Preliminary Enquiry on the basis of information received from 56 banks in respect of 35,000 companies involving 58,000 accounts has revealed that an amount of over Rs. 17,000 crore was deposited and withdrawn post demonetization. In one case, a company which had a negative Opening Balance on 8th November, 2016, deposited and withdrew Rs. 2,484 crore post-demonetization. One company was found to have as many as 2,134 accounts. Apart from the restrictions on bank accounts, action has also been taken to restrict sale and transfer of movable and immovable properties of struck-off companies until they are restored. The State Governments have been advised to take necessary action in this regard by disallowing registration of such transactions.

Besides striking off, around 3,09,000 Directors have been declared disqualified who were on the Board of Companies that have failed to file Financial Statements for a continuous period of 3 financial years during 2013-14 to 2015-16.

Out of these Directors, over 3,000 are Directors in more than 20 companies each, which is beyond the limit prescribed under section 165(1) of the Companies Act, 2013.

To address the criminality angle, the Director, Additional Director or Assistant Director of SFIO have been recently authorised to arrest any person believed to be guilty of any fraud punishable under the Act. Under Section 447 of the Act, which defines fraud, stringent punishment including imprisonment up to 10 years is stipulated with a view to checking the problem of Dummy Directors, action is underway to seed DIN with PAN and Aadhaar at the stage of DIN application through biometric matching for new applications. The same may be extended to legacy data in due course.

Further to test check Financial Statements, prescribe Accounting Standards and take disciplinary action against errant professionals, steps are underway for setting-up an independent body "National Financial Reporting Authority (NFRA)".

Action is also being initiated against Professionals guilty of fraud and all complaints against them are being reviewed. A High Level Committee (HLC) has been constituted for suggesting revamp of the disciplinary systems of Chartered Accountants, Company Secretaries and Cost Accountants.

A separate initiative is underway to develop a State-of-the-Art software application to put in place an 'Early Warning System' (EWS), which will be housed in SFIO. The objective is to strengthen the Regulatory Mechanism.

The Prime Minister's Office has constituted a Special Task Force (STF) under the Joint Chairmanship of Revenue Secretary and Secretary, Corporate Affairs, to oversee the drive against such defaulting companies with the help of various enforcement agencies. The Special Task Force has so far met 5 times and action has been initiated against several defaulting companies, which is expected to help in the drive against black money.

Government of India has given clear instructions to the companies and the professionals to comply the various laws applicable to them. It is a clear message that non-compliance will not be tolerated.

Disclaimer: This is an effort by Lexcomply.com to contribute towards improving compliance management regime. User is advised not to construe this service as legal opinion and is advisable to take a view of subject experts. 

 

RSJ LexComply 
on 08 November 2017
Published in Corporate Law
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