Ministry of Corporate Affairs : Promoting the Growth of Indian Corporate Sector Through Enlightened Regulations
YEAR-END REVIEW- 2010:- The basic charter of Ministry of Corporate Affairs is to promote the growth of the Indian corporate sector through enlightened regulation. To enable formulation of enlightened regulations that provide a framework for the corporate sector and its stakeholders to achieve their aspirations, the Ministry has developed a collaborative form of working with all the stakeholders. In the true spirit of partnership between the government and the businesses, as both are intrinsic parts of a democratic framework and as the structure of corporate governance which is essentially rooted in democracy, there is need to bring out the shareholders and stakeholders as real voices in the corporate democratic space wherein relations are defined by mutual respect. With this background, the Ministry of Corporate Affairs has adopted the mottos of ‘Corporate Growth with Enlightened Regulations’ and ‘Corporate Sector and Inclusive Growth’.
Since last calendar year a number of positive developments have taken place in the framework of corporate regulation, some of which are highlighted below.
A new Companies Bill was introduced in the Lok Sabha on 3rd August, 2009 and it was referred to the Parliamentary Standing Committee. The examination by the Standing Committee of Parliament was successfully completed in August 2010 through a rigorous consultative process and the Ministry is now preparing to introduce the Bill in the budget session of the Parliament during the first half of 2011. This Bill seeks to replace the Companies Act 1956 with a new law that is modern in construction and provides flexibility to respond to the rapid changes in the business environment while incorporating some of the best practices in the field of corporate regulation.
The new Companies Bill, 2009 will be beneficial for companies as well as common people as it provides, inter alia, as below:
(i) Requirements at the time of incorporation would be clear and precise;
(ii) Responsible self regulation with disclosures and accountability;
(iii) Electronic mode provides for company processes;
(iv) Protection of right of minority shareholders;
(v) Introduction of concepts like Key Managerial Persons (KMP), independent directors and committees of Board;
(vi) More accountability on the part of auditors;
(vii) Investor Education & Protection Fund (IEPF) claims to be allowed even after seven years; and
(viii) Shareholders Association / Group of shareholders enabled to take legal action and introduction of ‘Class Action Suits’.
Company Law Settlement Scheme, 2010 and Easy Exit Scheme, 2010
The total number of registered companies in the country at the beginning of the current Financial Year was 7,89,361. However, there are about 1.92 lakh dormant companies which have not filed their Balance Sheet for last 3 consecutive years or more. The Ministry has initiated a massive program to identify and weed out such dormant companies.
The Ministry of Corporate Affairs had floated two schemes namely, Company Law Settlement Scheme (CLSS), 2010 and Easy Exit Scheme (EES), 2010 on 30.5.2010. These schemes were designed to provide a window to the companies to file statutory documents which they have failed to file in the past and also for closure of defunct companies in case they do not want to continue with their business.
Both the schemes, which were in operation for a period of 3 months ending on August 31, 2010, have been successful. The Ministry has decided to re-launch Easy Exit Scheme from 1st January, 2011 for a period of one month in order to facilitate closure of defunct companies.
The National Foundation of Corporate Governance (NFCG) has been expanded so as to make its membership more broad based and to enable it to function as the national apex platform on corporate governance issues. In order to raise the bar of corporate governance practices in the Indian corporate sector, the Ministry had released Voluntary Guidelines on Corporate Governance in December last year which highlighted some of the issues related to independent directors, audit, compensation to directors etc. Keeping in view the adoption of these guidelines and the feedback from stakeholders, the Ministry is considering incorporation of some of the features in the Companies Bill itself.
Corporate Social Responsibility
The Ministry, while providing the enabling environment for the corporate sector to grow, is also focusing on the relationship between the growth of corporate sector and the social & economic development of the common man. Keeping in view this objective, the Ministry had released Voluntary Guidelines for “Corporate Social Responsibility” in December 2009. Further refinement of these guidelines is being done through an elaborate consultative process by the IICA.
Accounting Standards & IFRS
The Ministry of Corporate Affairs is the nodal Ministry in the matter of convergence of International Financial Reporting Standards (IFRS) and has decided that Indian Accounting Standards currently followed by the companies will start converging with IFRS from April, 2011, in a phased manner as part of the G20 commitment. A Core Group on convergence with IFRS was constituted in the Ministry in July, 2009 with representatives from MCA, C&AG, RBI, SEBI, IRDA, PFRDA, ICAI and MOF and some other experts. The Core Group has finalized a roadmap on convergence with IFRS.
The Ministry, through Professional Institutes, has been organizing various workshops for professionals including industry specific tailor-made workshops at various cities throughout the country in order to have hassle-free smooth convergence.
Indian Institute of Corporate Affairs
The Indian Institute of Corporate Affairs (IICA) was established by the Ministry of Corporate Affairs in 2008 to take up training and capacity building, especially of the Indian Company Law Service (ICLS) officers and also to act as a think tank on corporate matters. To facilitate its activities, a self-sufficient state of the art campus is being built at Manesar in Haryana and is nearing completion.
Though at a nascent stage, IICA has already taken up capacity building and training in various subjects and matters relevant to corporate regulation and governance, competition law, business sustainability through environmental sensitivity and social responsibility etc.
The Ministry has up-scaled its international cooperation initiatives so that the developments in the global business environment can be suitably incorporated in the process of enlightened regulation. An MOU was signed with Japanese authorities where Indian experts will be providing knowledge to Japanese counterparts in the field of convergence with IFRS. Arrangements are being worked out with USA, Australia, Russia and Netherlands for mutually beneficial exchange of ideas.
Investor Awareness Initiatives
The participation of the common man in the corporate economy in India is still very low despite the increasing trend of household savings. In order to bring a national focus on investor awareness issues, the Ministry organized the India ‘Investor Week’ in July this year in collaboration with 18 partners namely, BSE, NSE, MCS-SX, CII, FICCI, ASSOCHAM, ICAI, ICSI, ICWAI, AIAI, AIMA, SICCI, FAPCCI, IMC, PHD Chamber, RBI, SEBI, and UTI-MF.
To make the investor education content available to the common man, the Ministry released the ‘Beginners’ Guide to the Capital Market’ published in English, Hindi and all the major regional languages along with launching the investor awareness website www.iepf.gov.in in the major regional languages during the ‘Investor Week’ . A comprehensive Guide to the Capital Markets was also released during this week. Under this initiative, the Ministry is organizing over 3000 investor awareness programmes throughout the country.
The MCA21 system has been upgraded to address the issues related to peak filing so that the stakeholders are offered further ease of availing the services of this e-Governance portal. A new record of 70,040 filings in a single day was achieved on 29th October 2010 that includes 21,801 balance sheets. E-Stamp or electronic stamp duty payment in MCA21 has emerged as a successful joint initiative of Centre-State in e-Governance for speedy service delivery to recipients of MCA21 services. More and more States have joined this initiative and at present this facility has been extended to 29 States & UTs of India.
The Ministry is also pursuing the adoption of Extended Business Reporting Language (XBRL) enabled filing process in MCA21 so that the system can be utilized for more effective data analysis, regulatory enforcement and value added services to the policy formulators, researchers, corporate sector and other stakeholders.
The Ministry has already made available ‘Company Master details’ in the public domain under the MCA21 e-Governance program. The Master details containing 17 important company information such as, date of incorporation, registered office address, class of company, authorized capital, paid up capital etc. are available free of cost.
In addition, an electronic registry containing documents filed by companies such as, Incorporation documents, charge documents, balance sheet, annual returns and other documents filed by the companies is available in the public domain by paying a token fee. The regulators and other Government agencies are allowed free online access to the electronic registry
Early Warning System (EWS)
The Ministry has devised Early Warning System (EWS) based on the information available in MCA-21 System. Based on ‘identified risk parameters’, the system generates alerts in respect of unusual tendencies in financial statements. Based on these alerts, respective Registrars of Companies examine the concerned cases to find out irregularities, if any, and take action according to law.
Companies Bill, 2009 also provides for stringent provisions for non-compliance of the provisions of the Bill.
India Corporate Week 2010
While the Ministry is focusing on the entire business sector and a number of initiatives in this direction are underway, it is felt that there is need to provide positive reinforcement to the efforts made by the corporate sector in the development of India. To this effect, the Ministry decided to observe the third week of December as ‘India Corporate Week’ (ICW) every year. The first ICW was organized in December 2009 with the theme ‘Corporate Sector and Inclusive Growth’.
The theme of the second ICW, organized recently from December 14-21, 2010 was ‘Sustainable Business’. During this week, a large number of events were organized throughout the country focusing on this theme. The week started with the inauguration of the national event by the Prime Minister, Dr. Manmohan Singh at Vigyan Bhawan, New Delhi on 14th December. Various organizing partners of MCA hosted a number of programmes on the above theme in Tier-II and Tier-III cities also throughout the country. The number of such programmes during the week were over 250. The major organizing partners were: CII, FICCI, ASSOCHAM, PHD Chamber, Madras Chamber of Commerce & Industry, All India Association of Industries, Institute of Chartered Accountants of India, Institute of Cost & Works Accountants of India and Institute of Company Secretaries of India. During the ICW- 2010, Ministry launched nation-wide Investors’ Education Website in Hindi and eleven regional languages. The Ministry also released a book titled ‘India Unlimited – A Corporate Journey’, in partnership with NFCG and Penguin Books Indian Pvt. Ltd.