Ease of Doing Business– From the eyes of a professional

In common parlance Ease of Doing Business is an index which has been created in order to facilitate comparability across economies and indicate which businesses ace in the environment of simpler government regulations and stronger protection of property rights. This index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation’s proximity to large markets, quality of infrastructure, inflation, or crime.

A nation’s ranking on the index is based on the average of 10 sub-indices:

• Starting a business – Procedures, time, cost, and minimum capital to open a new business
• Dealing with construction permits – Procedures, time, and cost to build a warehouse
• Registering property – Procedures, time, and cost to register commercial real estate
• Getting credit – Strength of legal rights index, depth of credit information index
• Protecting investors – Indices on the extent of disclosure, extent of director liability, and ease of shareholder suits
• Paying taxes – Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as share of gross profit
• Trading across borders – Number of documents, cost, and time necessary to export and import
• Enforcing contracts – Procedures, time, and cost to enforce a debt contract
• Resolving insolvency – The time, cost, and recovery rate (%) under bankruptcy proceeding

India has moved 14 places to be 63rd among 190 nations in the World Bank’s ease of doing business ranking on the back of multiple economic reforms by the Narendra Modi government. However, it failed to achieve government’s target of being at 50th place.

The Coronavirus led pandemic became a boon for the Indian economy in ways more than one. Not only did it reduce our dependency on other countries for import of goods & services, it also gave us the time to introspect and utilize our own caliber and potential which the nation has in abundance in the form of manpower and material and on top of it attract foreign money too; which in turn gave rise to the Atmanirbhar Bharat mission.

As a result, top business honchos decided to shift their entire production to our country.

Did we ever imagine any company which would shift its entire shoe production business away from China to India with a capacity of over three million pairs annually, with an initial investment of Rs.110 crore?

Or did we ever foresee Apple to shift nearly a fifth of its production capacity from China to India and scale up its local manufacturing revenues, to become country’s largest exporter?

Apple’s primary suppliers — Foxconn Technology Group, Wistron Corp., Pegatron Corp. — and Samsung Electronics Co. were among a list of global firms that were cleared by India’s Ministry of Electronics and Information Technology. About 60% of the total production, or 6.5 trillion rupees, is expected to be exported in the next five years.

Recent steps taken in respect of Corporates are as announced in the Budget 2021 are:

• Decriminalization of LLP Act, 2008
• Threshold limit for paid up capital & turnover increased for Small Companies
• OPC allowed to grow without any restriction on paid up capital & turnover
• Residency limit for setting up OPC reduced to 120 days from 182 days
• Non-residents allowed to incorporate OPCs

Below mentioned are some of the recommended changes from the view point of a practicing professional which if implemented in the right direction can reduce the compliance burden for the companies and in turn increase India’s ranking in the ease of doing business index:

• Recommended changes in respect of Companies

1. Uniform nomenclature of Business codes for Annual Filing: Every company registered at MCA needs to comply with Annual Filing through Form MGT-7, Form MGT-9 and Form AOC-4. However in each of these forms, the practice of applying different Business codes (like NIC Code in Form MGT-9, NPCS Code in Form AOC-4 and other codes in Form MGT-7) should be done away with and a set of Uniform Codes should be given for all the forms to embrace uniformity.

2. STP(Straight Through Process) Mode for Form SH-7:Form SH-7 is filed in case any alteration needs to be made in the amount of share capital, for example by raising the capital, redemption of shares, issue of right shares or consolidation or division of shares. For raising the authorized share capital, only ROC has to be intimated. This form should be made available in STP mode for raising the authorized share capital because it becomes burdensome for small private limited companies to raise capital since the time and cost involved if it stays in approval mode becomes a long process. Form SH-7(Notice to Registrar of any alteration of share capital) for increasing the authorized share capital should thus be made available in this mode only to avoid delay in processing of the forms.

3. Dispensing away with the requirement of Valuation Report in Form PAS-3: Where any company offers its shares to be allotted ; be it equity shares or right shares, it needs to file Form PAS-3(Return of Allotment).For this purpose a valuation report needs to be obtained from a registered valuer. However for all practical reasons this requirement becomes cumbersome for small private limited companies. To take an instance suppose a private limited company is newly incorporated in the month of May and it plans to allot shares, it would require the valuation report of the registered valuer which would be furnished by him with the help of projected financial statements. This requirement takes up the cost, time and efforts of the company which could have been directed towards other prominent work for the betterment of the company’s future. Thus this requirement should be dispensed with for small private limited companies.

4. Display of Auditors particulars: Whenever any person becomes desirous of finding out Auditor’s details or wants to enquire about the auditor, there is no information available about the auditing firm.

Though it is available after making the Public inspection but if it is available on the portal itself then it will boost up the good governance and Compliances; because even if anyone is unaware about the Public inspection thing they can obtain the details from the master data and inform the concerned auditor accordingly. It will boost whistle blowers and prevent frauds. Therefore all particulars of the Company’s Auditors like Name, Address and Email ID should be up in the public view in the Master Data of the company.

5. Option to insert Mobile Number and Email Id in Form DIR 6: Intimation of change in particulars of Director needs to be given to the Central Government in Form DIR-6 within 30 days of such change. In this form an option to add Mobile number and email id should be given as these are some of the basic particulars about a director, which need time to time updation.

6. Anomaly in Appointment in Form DIR-12: As per the provisions of Companies Act 2013, any person who is not minor and is of sound mind is eligible to become the director of a company. However, ignoring this stance, whenever an appointment needs to be made vide Form DIR-12, the category of persons is only limited to Independent director, Small shareholder director, Promoter or a professional. There should be category of persons other than these.

7. Relaxation of Penalty of Rs.100 per day for non-compliance of Annual filing– This penalty of Rs.100 per day for non-compliance of Annual filing pinches a lot and should be relaxed to be twice or thrice the amount of normal fee. This would help ease out the burden even further.

8. Increase the time limit for Name availability of the company: For an LLP a name is reserved through Form RUN LLP (Reserve Unique Name LLP) and a bracket of 3 months is given to incorporate failing which the name reservation would no longer available. However in the case of companies the time bracket is 20 days from the date of approval, in case of new company incorporation.

This time limit is too less for a non-resident Indian who has to go through a laborious process to get all his documents notarized by the Notary Public and then apostilled. By the time he gets all these documents ready the time limit lapses. Thus increasing the time limit for name reservation would ease the burden on company’s founders.

• Recommended changes for LLP/Partnership 

1. Availability of Partner’s Name in Master Data: Currently in the master data of an LLP only the names of designated partners is on public display. However all partner’s names must be displayed on the portal as in the case of a company where all director details whether executive or non-executive are displayed on the Master Data of the MCA Portal. This would ensure full disclosure of all the partners associated with the company.

2. Make LLP Form-3 available for public inspection: LLP Form3 is the form for filing Partnership Agreement/Deed and changes therein if any. Whenever any person enters into any partnership, he becomes entitled to some rights and liable to some obligations as stated in the partnership deed. This form, however has neither been kept open for public inspection nor for the partners, due to which the terms and conditions of the deed cannot be inspected. Thus whereas in case of the companies the MoA/AoA are available for public inspection, similarly LLP Form 3 should be made available for public inspection on payment of fees for a better picture of the partner’s rights and obligations.

Taking such progressive measures would not only give the required boost to the companies but also would take India a notch higher in the ease of doing index which would even result in attracting businesses to incorporate more legal entities. Also these recommended changes can be made effective through circulars/orders and executive changes, and no legislative changes are required.  Not to forget when India is steering towards empowering the Make in India initiative and a huge impetus has been provided to the Atmanirbhar Bharat initiative, this could be a golden chance to cash upon the opportunities provided to us, reduce our dependence on imports, create a lucrative market to attract foreign direct investment and progress towards being a developed nation.