Log in

ANINDITA DEY Mumbai, 27 May
The Ministry of Corporate Affairs (MCA) proposes to facilitate the winding up of listed companies which wish to discontinue their business, with an exit scheme tailored for them.

It is in consultation with the Securities and Exchange Board of India (Sebi) on the details, since listed companies would have to complete various formalities before opting for an exit scheme.

Earlier, MCA had proposed anew exit scheme only for private unlisted companies which were defunct and had failed to maintain the minimum paidup capital but still existed in the records of the registrar of companies (RoC).

Officials explained that listed companies had obligations to the public, by having offered equity and having public shareholders. Besides, they may have raised public deposits and have to return these before retiring.

“Similarly, the companies would have to comply with buyback norms to buy shares from the public shareholders before delisting from the market. This would require them to offer a certain buyback share price. Being loss-making companies, the buyback norms and open offer procedures could be relaxed,” officials explained.

However all these formalities would have to discussed and finalised with the market regulator.

Part of corporate reform

SOURCES SAID the move was part of the effort to clean up the corporate system, updating the records of functional companies and doing away with the others.

The present exit policy follows an elaborate procedure that requires diverse mundane details and no-objection certificates from various offices and regulators for dissolving a company.

Under the proposed system, the company will be asked to file an application to opt for the exit route, after which it could be deregistered within a specific time-frame. During the prescribed period between filing and closing shop, inquiries could be initiated if there were serious concerns, said sources. For listed companies, a no-objection will be sought from Sebi.

Till the proposed draft comes into effect, the ministry is set to create a separate portal for defunct companies, citing their names and the period when they have failed to furnish returns. According to Section 560 of the Companies Act, defunct companies are those that have ceased to exist according to the RoC’s records but may not have formally stopped working.

Out of a total of 7,00,000 companies, around 10 per cent were defunct, said officials. These companies do not even maintain the minimum paidup capital of Rs 1,00,000 prescribed in the Companies Act.

Earlier problems noted

EARLIER, TWO such schemes were announced, in 2003 and 2005. These initiatives did not materialise, as there were no records matching the details available with RoC to followup with such companies, officials said.

However, now that the MCA maintains records of director identification numbers (DINs) of companies in coordination with Sebi, the proposed scheme is expected to be a success.

ROC maintains DINs of even private companies that are not listed — like private placement of equity, etc — and also those who do not go for market operations. Therefore, under the new exit scheme, follow-up will be easier and such companies may be asked to deregister immediately.

Talking to Sebi on rules for businesses whose shares are formally traded but which wish to close ANINDITA DEY Mumbai, 27 May

The ministry of Corporate Affairs (MCA) has decided to relax the norms for companies to maintain minimum paid-up capital. According to the Companies Act 1956, the minimum paid-up capital for a private company is Rs 1 lakh and for alisted company Rs 5 lakh. According to official sources, while a company can be set up with any amount, but within a time-frame of two years it should raise the capital to Rs 1 lakh and Rs 5 lakh for unlisted and listed companies, respectively.

If a company fails to do so in accordance with the existing provisions of Section 560 of the Companies Act, the company will be deregistered and declared defunct.

Now it may be a good news for the companies that such entities may not be declared defunct immediately as is done now. Under a scheme prepared by the ministry, such companies may opt for an option to exit business without attracting any penal provisions under the Act.

Alternatively, they may negotiate some more time with the regulator for raising the capital and continue with their business. In the process, earlier penal provisions may not apply.

Sources said that the scheme could be a big relief to the both listed or unlisted companies. “This is because once a company is declared defunct, the Registrar of Companies (RoC) can start criminal prosecution against the company,” said the source.

This relief may come as part of the comprehensive scheme being worked out by the ministry to avoid criminal prosecution for delay in filing one’s balance-sheet with RoC.

At present, any company which has prepared a balance sheet for a given financial year is bound to file it with RoC by October of that financial year.

Not doing so attracts criminal proceedings under Section 610 of the Companies Act 1956, plus a structure of penalties.

The proposed scheme is being termed ‘Immunity from period of delay in filing returns and prosecution’ and meant for all companies, public and private, listed or unlisted, and even subsidiaries or Indian arms of foreign companies operating in India. It is aimed at companies who are functional but have failed to comply with the requirement of mandatory filing of these returns with RoC.

The idea is to do two things. First, make the present penalties more lenient. Second, remove the liability for criminal prosecution.

Another feature of the draft being discussed is that once acompany opts for this scheme, the ministry is to advise RoC to withdraw legal suits filed against the company for prosecution.

...to ease paid-up capital norms

al norms for firms