News highlights:Ministry of corporate affairs cracking down on those who are directors at more than 20 companies
MUMBAI,17 May, 2016
The ministry of corporate affairs (MCA) is cracking down on those who are directors at more than 20 companies and has asked Registrar of Companies officials to start legal action against those exceeding the limit. Interestingly, four persons hold directorships in more than 100 firms each.
Action has already been taken against 250 persons in the past few months, a corporate affairs ministry official told ET. "While we ensure compliance and have been taking action for quite some time, a public notice has been issued for the first time," the person said.
The Companies Act, 2013, does not permit an individual to hold directorships in more than 20 companies (10 if they're public).
Corporate affairs ministry data show that at the end of April, 642 individuals were in violation of the limit, holding directorships in a total 17,418 companies, which translates into an average 27 board memberships each, exceeding the limit prescribed under the companies, which translates into an average 27 board memberships each, exceeding the limit prescribed under the Companies Act. Half of these persons are based in and around Kolkata, followed by Mumbai, Delhi and elsewhere.
Show-cause notices sent by the registrars seem to have made an impact though. The latest information from Bengaluru-based Zauba Technologies, which provides data based on publicly available corporate records, shows the total number of directors exceeding the limit at 500 in 15,390 companies.
The ministry had issued a public notice last month, observing that several persons had been found to be functioning as directors in more than 20 companies in violation of Section 165(1) of the Companies Act. All such individuals were given 30 days to comply with the rules.
"These are largely cases involving paper (shell) companies created for the purpose of jama kharchi," said a practising company secretary, who didn't want to be named. That refers to the use of accounting entries among a plethora of companies allegedly used to launder money or win government contracts, which are subsequently given as sub-contracts to other units in the network.
Industry welcomed the ministry's move. "Leveraging technology to detect and punish defaulters was only waiting to happen," said SN Ananthasubramanian, former president of the Institute of Company Secretaries of India. This will hopefully deter professionals and promoters from indulging in what could be described as financial and corporate deception, he said.
The existence of multiple director identification numbers (DINs) and multiple directorships shows that provisions of the Companies Act have been violated in the absence of exemplary penal action, he said.
Some experts feel that those who certified the e-forms should also face action. "At a time when the government is promoting self-regulation, professionals like chartered accountants and company secretaries who certify their documents should also be stopped from adopting unscrupulous practices, lest they lose their privilege," said the head of compliance at a leading bank.