INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

GOVT TO DELETE 1.5 LAKH DEFAULTING COS FROM RECORDS

 Corporate India is set to shrink in number by a fifth in six months. Company affairs minister Prem Chand Gupta has asked the registrar of companies (RoC) to strike off the names of over 1.5 lakh defaulting companies from official records, after he made it mandatory last month for companies to file all statutory documents electronically. Of the 7.5-lakh existing companies, nearly 20% default in filing statutory documents like annual returns and it is assumed that most of them do not carry out any business (defunct). However, the shell companies floated by corporates do not usually default on statutory requirements even if they do not carry out any business.

   These defaulting companies will legally cease to exist in six months as the RoCs have already initiated proceedings against them under Section 560 of the company law, said a senior government official. However, the claims of lenders will be valid for the next 20 years.

   The ministry's action following this year's peak filing season is indicative of how swiftly it can enforce company law provisions as the software used in its egovernance project makes it easy to find out defaulters in a matter of seconds. It also plugs all possibilities of companies escaping punitive action by taking unfair advantage of the massive paper-based system run by sometimes lethargic officials.

Notices are being sent to all the companies shortlisted by the e-governance system and they would get five months in a three-step process to respond. The company would cease to exist if it does not respond in the final three months when its name would be published in the official gazette. The ministry is perturbed that only 26,000 companies availed its simplified exit scheme, which allowed defunct companies without any asset or liability to get out of official records. “Loading the digital record system with their documents is not desirable. We do not want to carry the dead wood,” said a source.