The MCA should free the companies that are small or have below Rs5 crore paid up capital from the routine filings other than changes in directors and annual returns
There is a school of thought that very rightly laments “The Companies Act 2013 threads small aadmi and his companies with jack boots.”
The statistics from Ministry of Corporate Affairs (MCA) for 2011 put the number of companies registered in India at 11.63 lakh. About 24,682 or 2.12% out of these have paid up capitals between Rs2-Rs5 crore and 23,589 or 2.02% have capitals exceeding Rs5 crore leaving a whopping 95.84% of companies with capitals less than Rs5 crore or $1 million far, far below global standards. In India, stock exchange listed companies constitute only a miniscule 0.6% leaving behind 99.4% to be individuals or private companies running businesses essentially with their own capital or borrowings.
The small entities have hardly any credit support or easy access to bank funding. Banks’ lending for working capital and asset acquisitions cover themselves adequately with securities from all sides- the company signing demand promissory note, backing it with personal guarantees of directors and mortgage/ pledge of personal assets, shares held by the promoters and also insisting on treating unsecured loans from friends/ relatives as collaterals. All this virtually strips them of their corporate personality and treat them as proprietorships or partnerships with unlimited liabilities for recovery of dues. It is rightly put “Thus small companies carry on their businesses risking their own capital and where lenders contribute debt-capital the lender’s interest is more than covered beyond the corporate mask for securities both commercial and legal.” The lenders on insisting on directors’ personal guarantees give them unlimited and free access to all their personal belongings and thereby virtually strip them of their so-called limited liability under the corporate laws.
The Companies Act 2013 that was expected to simplify the provisions relating to private and one-person/ single person companies. But on the contrary, has in fact, amplified the controls both in depth and scale by expressly barring loans to the private company’s directors or relatives, not appointing relatives to offices or to enter into contracts without the prior consent of shareholders. A public company can convert itself into a private company only after the clearance of the tribunal. Though in theory, they are closely held with their Memorandum and Article of Association restricting transfers of shares, but now they are required to state reasons for refusal. The requirement of postal ballots is made applicable even for one and two man companies. This does away with the many privileges extended to private limited companies by the 1956 Act.
The corporate laws of the UK, US, Australia and Singapore virtually leave private companies free to manage their own internal affairs and make use of the Registry for filing of statutory information. In India, there are a plethora of statutory requirements that add extremely high compliance costs.
It is said that more than 30-40% of registered dormant companies that are technically defunct have simply stopped filing returns with the authorities. Even the procedure for striking off names of the companies that have not even commenced business or opened any bank account, require to undergo archaic rules which makes it impossible to get out. This results in leaving office of the Registrar of Companies (ROC) with an extremely large mass of dead wood. The MCA should free the companies that are small or have below Rs5 crore paid up capital from the routine filings other than changes in directors and annual returns. This responsibility should be cast on Chartered Accountants (CAs), Company Secretaries (CS) to file returns duly attested by them confirming compliances on self-governance regulation basis.
(Nagesh Kini is a Mumbai based chartered accountant turned activist.)
For the first time declaring himself as a married man Narendra Modi has reveale his wife’s name as Jashodaben in an affidavit submitted with his nomination from Vadodara
Narendra Modi, the Prime Ministerial nominee from Bharatiya Janata Party (BJP) has for the first time declared himself as a married man by revealing his wife’s name as Jashodaben in an affidavit filed before the Election Commission (EC).
In an affidavit submitted along with his nomination papers filed on Wednesday for Vadodara Lok Sabha seat, the 63-year-old Gujarat Chief Minister stated that he is married.
So far, Modi used to leave the column of spouse which is to be filled in an affidavit as blank. He had kept the column as blank in 2012 Assembly elections as well.
However, for the 2014 Lok Sabha election affidavit, in the column where he has to declare the assets in the name of his wife, Modi has written that he has no information on it.
The Vadodara district election authority had put the affidavit on the display board of the Collectorate at midnight last night.
Earlier, Congress had said that Modi should come clean on his marital status while filing nomination papers for the Lok Sabha elections.
The Vadodara LS seat which has been chosen by Modi from 26 constituencies of Gujarat is considered to be one of the safest seat.
Modi is also contesting election from Varanasi where he is challenging Aam Aadmi Party (AAP) candidate Arvind Kejriwal and Congress’ local MLA Ajay Rai.
Political appointments have the potential of bringing in people who carry with them their allegiance to New Delhi and thereby their vision being blurred while participating in policy decisions. Why can’t we have a pool of potential candidates for top posts?
Search for talent for top level appointments in family or industrial group controlled private sector establishments is becoming more and more transparent and open for candidates based on their curriculum vitae (CV) with focus on talent and experience. At the same time, the news about the delay in filling up of vacancies at the top in various public sector organisations including Reserve Bank of India (RBI) and a tendency to make compromise on selection of candidates for narrow considerations has opened up a debate in the media. The government and the organisations should take cognizance of this healthy debate and grab the opportunity to overhaul the top level human resources (HR) management to meet challenges posed by the changes caused by opening up of the economy and consequent play of market forces.
There were reports that one who was not found suitable for the deputy governor’s post at RBI was likely to be offered a position, which needs much more skill and qualification. The position was that of the director of Centre for Advanced Financial Research and Learning (CAFRAL), which will be having interaction of a higher level in international academic fora. Such compromises, even if it gives temporary relief to those who manage the show, do not send out healthy signals from HR management angle.
Even at this late hour, one expects, government of India (GOI) to evolve a rational and transparent policy by setting out norms for selection of candidates for top level appointments. These norms should be based on the needs of qualification, professional skill and expertise needed at the particular level, not only in RBI, but in other statutory organisations and public sector units (PSUs) including state-run banks. Both the GOI and RBI should ponder over possible reasons for talent not getting attracted to such appointments. The recent developments in RBI need a deeper look.
After a 1964 amendment to Section 8 of the Reserve Bank of India Act, 1934, the number of deputy governors at RBI was increased to four from three. Compared with other statutory bodies and PSUs (including state-run banks), the RBI has been lucky in getting the top level posts filled in time. The government has now moved into top gear to fill the vacancy that will be caused by the relinquishment of office by Dr KC Chakrabarty, deputy governor later this month, two months prior to the end of his tenure. This is particularly swift, though one would have preferred a long drawn and well thought out process, as in some Western countries, where the successor is identified months or even one to two years in advance.
As per reports in the media, a round of interviews has already been held, and some names have been recommended. Those interviewed include nine chairmen and managing directors (CMD) of nationalised banks, all of whom had been CMDs for one year or more. Names of two of these CMDs are also doing the rounds as the front runners for filling up the post. The entire exercise raises two questions.
The first is why is the pool of candidates for the fourth post of DG confined only to CMDs from nationalised banks and does not include a MD or deputy MD (DMD) from State Bank of India (SBI), the largest Indian lender? They generally have several years of experience in their post, and that too in many rich and varied spheres of banking activity, including as head of one of the associate banks or one of the numerous other subsidiaries. Moreover, the SBI is also a state-owned bank, and the level and quality of experience of an SBI MD or DMD are by no means inferior to that of any of the other CMDs of nationalised banks with an experience of one year or more. Does the answer lie in the fact that the Banking Division, which oversees the selection of DGs, is also a body created in the wake of nationalisation in 1970, and is therefore inherently biased towards this set of banks, however, inferior their overall individual performance may be.
There has, however, been an exception to the rule. Vepa Kamesam, who became DG in 2001 came from SBI where he was DMD. He was responsible for bringing in first rate changes to RBI’s currency management, especially in mechanising its work processes, and bringing about other sweeping changes, thus readying it to meet the complex challenges in currency management of a fast expanding economy.
The second and broader question is whether the Reserve Bank should continue to follow the present ‘reservation system’ for appointment of deputy governors? By convention and practice over the last two to three decades, two of the four statutory posts of deputy governors are filled by insiders, the other two going to an economist and a commercial banker, respectively. Sometimes, an odd civil servant like Dr YV Reddy doubled up as the economist DG, before rising to the post of governor. Civil servants from the Ministry of Finance like DR Mehta and RV Gupta also served as DGs in recent times, even though they were not economists.
In RBI, it is pertinent to note that successive governors, including Dr Vimal Jalan, Dr Reddy and D Subbarao chose, for long periods, not to give the portfolios of banking regulation and supervision to DGs coming from commercial banks. Though this need not be interpreted as a vote of no confidence in the entire rationale for having a DG from the commercial bank sector, the fact remains that governors were not sure whether field experience alone will make good supervisors/ regulators.
If lessons from international experience in recent times were to be a guide, the existence of “revolving doors” between the regulator and the regulated, at all levels, are a harbinger of financial wrongdoing and misdemeanours of various descriptions. One only needs to go through the voluminous reports and other material on the recent financial crisis to get an idea of the dangers of such arrangements. Were the decisions, not to give the portfolios of banking regulation and supervision to commercial bank DGs, yet another instance of tremendous foresight on behalf of these central bankers?
Going back a bit in history, the case of Amitav Ghosh (DG from 1982 to 1992) comes to mind. From being CMD of a middling Allahabad Bank, he was made DG of RBI for about ten years, the first posting in 1982 coming during the first tenure of Pranab Mukherjee as Finance Minister. If one were to go by the dissent note of KP Unnikrishnan in the joint Parliamentary Committee (JPC) report of 1992 that covered irregularities in government securities transactions, Ghosh was accused of being responsible not only for the “scam” but also for the deterioration in the quality of banking regulation and supervision over the ten years that he presided over the system.
Yet another instance was that of late SP Talwar, during whose tenure ten bank licences were given, of which only less than half the number are in the best of health, the rest having either wound up, merged or being under a cloud for some reason or the other.
The above instances point to the possibility that such political appointments have the potential of bringing in DGs who carry with them their allegiance to New Delhi and thereby their vision being blurred while participating in policy decisions. They could also result in having DGs who bring with them a baggage of biases and prejudices that could colour important regulatory and supervisory initiatives and decisions.
The present scenario calls for a re-look at the entire process of selection to such high level posts. There is a case for creating a pool of potential candidates for being considered for positions like executive director and upwards, irrespective of their hierarchical positions in the organizations they serve. Such an opening up of opportunities will help infuse talent and may change the age profile, leading to a situation where incumbents can be retained at the highest level for longer periods. It may be mentioned here that while average tenure of RBI governors has been less than five years, their counterparts in US and UK are serving for over a decade. In any case, the Old Lady of Mint Street needs to be spared the embarrassment of further damages to its reputation, perhaps the most valuable asset for any central bank in the world.
Needless to say, such review should have an open mind on the skill requirements, tenure and remuneration packages which have a significant role in attracting talent.
Some related issues
Heads of regulatory bodies in the financial sector have time and again expressed concern over the tightening grip of government on financial regulators, which interferes in the performance of their mandated functions in the recent past. Their voices deserve more attention from the stakeholders. Experts have been brushing aside these voices of distress, mainly on the ground that government being the ‘owner’ of the statutory bodies, has the absolute right to decide the contours of the manner in which they should function.
Ironically, this right of the government has never been in dispute. Objection from the regulators hover around the restrictions on the administrative, financial and functional independence of the statutory bodies within the mandated limits and interference in their application of mind. The political leadership, which is under a false notion that money can control everything, is in a mood to centralize all financial powers in the finance ministry. When this philosophy becomes the guiding factor, it affects all limbs of governance and the survival instinct makes the functionaries look up for guidance from above, in their day to day functioning. This does not augur well for the health of the economy.
Union government is preying on funds wherever they are available. This tendency is reflected in the transfer of funds from public sector institutions to Consolidated Fund of India under different pretexts. Such transfers, while not objectionable, if they are matched by appropriate budgeting keeping in view the nature of sources and uses, causes damage to the economy when resorted to in a casual way. For ensuring timely corrections in such matters also, continuity at the top of institutions like RBI is a must.
(MG Warrier is former general manager of Reserve Bank of India.)