In 2017, the Ministry of Corporate Affairs (MCA) announced the deregistration of 2.4 lakh companies and 3.09 lakh Directors under the provisions of the Companies Act, 2013. This came as a huge shock and the Industry was left gasping; never ever in the history of Independent India such action was initiated against the companies.
Why It Happened:
Reason 1: Steps Taken by Regulators as per Companies Act,2013:
- The Companies Act, 2013, which came into force from 01.04.2014, had some relevant changes in clauses, when compared to the Companies Act, 1956.
- All companies, Public and Private came in the ambit of its purview.
- The section 164(2) states that any company who has defaulted on non-filing of Financial Statements and/or Annual Returns for three years in a row will be deregistered from the date of default.
- The subsequent impact of this action will lead to the disqualification of all the Directors’ of such companies.
- In the context of this, the Registrar of Companies(RoC) took the action of strike-off.
- The Strike-off saw an automatic disqualification of all the Directors.
Reason 2: GOVT. Initiative to Fight Corruption & Black Money:
- To restrict black money flow: to counter shadow economy, which is a hurdle in the development of the nation.
- To identify dormant, fraudulent, shell, fake companies and then bar them from the space.
- To ensure compliance and due-diligence by the Companies and their Directors.
- To penalize those who have done huge transactions during Demonetization.
- To prove to the people its sincere efforts to improve the image of the country globally.
- To convey the ease of doing business- straight and fair.
- To prioritize ethical working.
Reason 3: Public Pressure & Media Hype:
- As Mr. Modi’s poll promise was majorly about taming the ‘Demon’ of corruption, the public had high expectations of witnessing strict measures.
- Media kept up popping the topic of corruption and black money, giving details of all the actions taken/not taken by the govt.
- Demonetization and strike-off were two steps which gave an impression that the govt. was progressing in the right direction.
How Can Companies Revive/Restore Themselves:
Option 1: Tribunal:
As per the Companies law, these entities can appeal to the Tribunal under section 252(3) of the Companies Act, 2013. Anyone, who has been impacted, can appeal within 20 years of the date of notification.
Option 2: NCLT:
Any member of the aggrieved party can apply under Rule 87(A) 2017. This can be done within 3 years of being barred/deregistered.
Option 3: Writ Petition:
The defaulters can take up the legal recourse by filing a Writ Petition in the concerned court.
Option 4: CODS, 2018:
The Condonation of Delay scheme, 2018 – a window introduced specially for providing an opportunity to the defaulting Companies and its Directors.
For The Companies:
1: To comprehend the rules, clauses and amendments of the Companies Act, 2013, thoroughly.
2: Due-diligence should be the basic principle.
3: To be ethical and straight-forward in their dealings.
4: To have a ‘no tolerance policy’ against corrupt practices.
5: Self-regulation should be in place.
6: Checks and balances should be there to tackle all wrongdoing in the initial phase.
For The Govt.:
1: To continue in full earnestness with the drive against erring companies.
2: To instruct all authorities, agencies, and branches to coordinate and collate.
3: To take advantage of technological advancement and install devices which can help in collecting relevant data.
4: To educate the target audience about the rules, laws, amendments, etc. through various channels.
5: To gain the confidence of the people at large.
The strike-off is a genuine step taken by the regulators to curb corruption and black money. The govt. has extended its full support to the authorities since it is striving sincerely to attain economic growth. The previous govt. was so lax towards such defaulters that any substantial action by the govt. is hyped by the people and the media.
The action of the govt and its authority have a Herculean task of taming the rogue elements; they are progressing in the right direction with great determination.
Shweta Gupta (Founder and CEO, MUDS)
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