Nation
3 lakh shell companies may soon vanish from Companies’ Register
The discussion on the existence of non-operative companies or shell companies is making the rounds of corporates, with special emphasis on government departments on curing the malady. 
 
With the widespread epidemic of non-operative and shell companies in the Indian corporate environment, the Registrar of Companies (RoC) has come up with a well thought out cure. We are waiting to see what will be the next step of the RoC against the response being submitted by the companies, which should more or less be over by the end of this month as the companies have been given just 15 days to respond to the show-cause notices (SCNs). In effect, the RoC has turned the tables in the game.  Better late than never.
 
The Finance Minister had clearly indicated that action will be initiated against companies which have been created for the purpose of circulating black money and are not carrying on any business. It now seems that RoCs all over the country have given the non-operative companies (NOC) an ultimatum to either make the compliances and start doing the business activity for which they were formed, or else pack up. 
 
The RoCs have published a list of NOCs under their jurisdiction which have failed to comply with the provisions of the Act. These NOCs have to either submit their reasons for such failure or get struck off from the Companies Register maintained by the RoCs.  
 
Provisions of law
 
248. (1) Where the Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its incorporation (Inserted by Companies (Amendment) Act,2015 and is effective from 29th May, 2015);
(b) [Omitted] (Omitted by Companies (Amendment) Act,2015 and is effective from 29th May, 2015). 
(c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455,
 
he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice. 
 
(6) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company:
 
Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
 
(7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved.
 
Bold step taken by the RoCs
 
Pursuant to the power given under this section, the RoCs have taken the bold step of sending out notices to such companies. Overall the number is over 2.54 lakh companies as per the list available. The list of ROCs of Kanpur, Uttarakhand and Kashmir are not available on the website. From the data provided, it appears that Mumbai has the highest number of NOCs, at 71,530, followed by Delhi (53,312) and Hyderabad (40,200). Bangalore, Chennai, Kolkata and Chandigarh also contribute to a massive number of NOCs, with 15-20,000 each. 
 
Of the total of over nine lakh of companies registered in India, around 30% are NOCs. The action initiated will drastically bring down the number of companies registered in India, but will however raise concerns over the sudden action of the RoCs. While the action, brought in so late, is still commendable, the moot question is why were these companies allowed to be kept in Register of Companies for so long? 
 
With the issue of the show-cause notices, companies are rushing to professionals to seek advice. If the companies accept their default and agree to being struck off the register, the directors shall be held liable for the non-compliances made so far. On the other hand, if someone wants to revive the company, the costs will he be huge, with no assurance on the prospects of the company.
 
Fate of creditors and stakeholders
 
What will be the fate of the creditors with this move by the government? What will be the consequences for the NOCs if their names are removed by the ROC from its records? 
However, if the companies are struck off what happens to the dues outstanding towards creditors, employees, labour, etc? The only way to claim the dues from the companies will be to revive the company u/s 252 (3) of the Act which reads as follows: 
 
“252 (3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies.”
 
This means that such aggrieved persons shall have 20 years to initiate action for recovery of their outstanding dues against the companies before the Tribunal. India is already burdened with pending litigation running into lakhs. Reviving a company in such a scenario will be a daunting task. However, the RoC, under sub-section (6) and (7) of Section 248, is entrusted with a responsibility of satisfying himself that the companies being struck off are making arrangements for realisation of the money due to them and for discharge of their liabilities. 
 
(Dheeraj Kumar Sharma works as Associate at Vinod Kothari & Company)
 

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COMMENTS

Hemlata Mohan

4 months ago

There has to be a beginning somewhere--- this is one. Every action has some
unintended consequences- cant help that given the crooked Indian mind. But atleast this will clear the augean stables and hopefully new registrations will be more sanitized . Cynicismfor every action needs to be shaken off

Ramesh Bajaj

4 months ago

Some companies will take advantage and avoid payment to shareholders, who are not in a position to file cases and go to court.

Ramesh Bajaj

4 months ago

Some companies will take advantage and avoid payment to shareholders, who are not in a position to file cases and go to court.

REPLY

Ramesh Bajaj

In Reply to Ramesh Bajaj 4 months ago

ROC should call all concerned (I cases where complaints are pending / have been made, for a hearing face to face.

Ramesh Bajaj

In Reply to Ramesh Bajaj 4 months ago

In cases, where complaints have been made, it should be made mandatory for ROC to call even the CA and Company Secretary, along with complainant and officers of the company, including chairman and directors. There should compulsorily be a hearing face to face to arrive at a solution on basis of truth and not on basis of influence / connections.

SRINIVAS SHENOY

4 months ago

I feel that it is the right follow up action taken by the government. I hope the government succeeds in this mission to clear up the black money, with the minimum of inconvenience to the general public. It is always better late than never.

Rahul Pande

4 months ago

Be wary of such actions which are more for shadow boxing less of intent.

uttamkumar dubey

4 months ago

All such moves will aid more of blackmailing and circulation of blackmoney unless govt. resort to transparent approach .There has to be clearcut guidelines for the same.Simply blowing things in air won't do.

Simple Indian

4 months ago

Seems the RoCs staff just got a bonanza, an unofficial pay hike ! Most such shell companies operate in the unorganized sector which also employ over 80% of the workforce in India. So, such steps are just to harass entrepreneurs in the MSME sector or smaller entities who are known to fudge their books with connivance of their CAs/auditors and with the 'cooperation' of tax authorities.

Notices served to Vasan Health Care, Advantage Strategic Consulting
Chennai, The Enforcement Directorate (ED) on Monday said it has issued notices to Vasan Health Care Pvt Ltd and Advantage Strategic Consulting for violation of the Foreign Exchange Management Act (FEMA) totalling to Rs 2,307 crore.
 
The two companies are connected to former Finance Minister P. Chidambaram's son Karti P. Chidambaram.
 
The ED said it had served notice to Vasan Health Care Pvt. Ltd of Rs 2,262 crore. 
 
Advantage Strategic Consulting was served Rs 45 crore for sale of Vasan's shares to overseas investors.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 
 

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In 5 years, private schools gain 17 mn students, govt schools lose 13 mn
Between 2010-11 and 2015-16, student enrolment in government schools across 20 states fell by 13 million, while private schools acquired 17.5 million new students, according to a new study that offers insights into India's public-school education crisis.
 
Average enrolment in government schools -- where teachers are paid, on average, salaries that are four times those in China -- declined from 122 to 108 students per school over five years, while it rose from 202 to 208 in private schools, according to a research paper by Geeta Gandhi Kingdon, professor of education and international development at the Institute of Education, London.
 
Yet, 65 per cent of all school-going children in the 20 states, about 113 million, continue to get their education from government schools, according to District Information System for Education (DISE) and Ministry of Education data.
 
Why are students opting out of government schools, which educate the poorest and most vulnerable students until the age of 14 for free, and migrating to fee-charging private institutions in such large numbers?
 
The study, which uses DISE data, traced this student migration to the belief among parents that private schools offer better value for money and better teaching. Multiple evaluations after controlling for students' home backgrounds indicate that "children's learning levels in private schools are no worse than, and in many studies better than, those in government schools", said Gandhi.
 
Despite the Rs 1.16 lakh crore ($17.7 billion) spent on Sarva Shiksha Abhiyan (SSA) -- the national programme for universal elementary education -- the quality of learning declined between 2009 and 2014.
 
Less than one in five elementary school teachers are trained. In Delhi, capital city and its richest state, by per capita income, half of all government-school teachers are hired on temporary contracts. They are likely to be less motivated and accountable than teachers with full-time jobs.
 
The preference for private school education and the differences in learning outcomes of private and government schools vary between states. For instance, in 2015-16, in Uttar Pradesh, over 50 per cent of children studied in private schools, while in Bihar, less than four per cent of children attended private schools, according to DISE data.
 
In 2016, in Kerala, the proportion of children (aged 11-14) enrolled in government schools increased from 40.6 per cent in 2014 to 49.9 per cent. In Gujarat too, it increased, from 79.2 per cent in 2014 to 86 per cent, according to the Annual Status of Education Report (ASER) 2016 data. ASER is a learning assessment of children in rural India.
 
In Punjab, Gujarat, Maharashtra, Andhra Pradesh and Karnataka, government schools outperformed private schools in reading skills in local languages, once household and parental characteristics were controlled for, according to a state-wise analysis in ASER 2014.
 
In Kerala and Tamil Nadu, where government schools were better than private schools to start with, learning outcomes improved between 2011 and 2014, once other factors were accounted for.
 
States with better-functioning government schools have more elite -- that is, more expensive -- private schools because there is no market here for the "low-fee" budget private schools that have been sprouting across the country, Gandhi's study said.
 
This explains why in poorer states, such as Bihar, Madhya Pradesh, Rajasthan, Uttar Pradesh and Orissa, about 70 per cent to 85 per cent of children studying in private unaided schools pay less than Rs 500 per month as school fees. Up to 80 per cent of private schools are "low" fee schools when benchmarked against per capita and daily wagers' incomes, the data show.
 
In 2016, for the first time in 10 years, private-school enrolment did not increase in rural areas -- it fell from 30.8 per cent in 2014 to 30.5 per cent in 2016, according to the ASER 2016 report. But this has not stemmed the growth of private schools nationwide.
 
Between 2010-11 and 2015-16, the number of private schools grew 35 per cent, while the number of government schools grew one per cent. Section 6 of the Right to Education Act 2009 legally obligates states to create more government schools.
 
The migration out of government schools has left many unviable, with high per-pupil expenditure, and low value-for-money from public education expenditure. About 24,000 government schools across Rajasthan, Maharashtra and Chhattisgarh have closed, according to the study.
 
India's government teachers earn more than not just their counterparts in private schools but also in other countries, Gandhi's analysis shows.
 
Despite being paid at least four times the salaries of teachers in China (in terms of multiples of their respective per capita incomes), the performance of Indian teachers judged in terms of their students' learning levels, has been poor in the Programme for International Student Assessment (PISA) test in 2009, with India ranking 73rd and China ranking 2nd, among 74 countries.
 
Up to 80 per cent of India's public expenditure on education is spent on teachers -- salaries, training and learning material, according to a six-state report. Teacher salaries in of teachers in Uttar Pradesh are four to five times India's per capita gross domestic product (GDP) and more than 15 times the state's, according to a 2013 analysis by Amartya Sen and Jean Dreze. This is much higher than the salaries paid to teachers in OECD countries and India's neighbours.
 
"This suggests the need to link future teacher salary increases to the degree of teachers' acceptance of greater accountability, rather than across-the board increases irrespective of performance or accountability," said Gandhi.
 
The private education sector offers salaries based on market factors of demand and supply, said Gandhi, and given that there is a 10.5 per cent graduate unemployment rate in India, jobless graduates are willing to settle for low salaries in private schools.
 
A common suggestion is increasing India's spending on education. In 2015-16, central government spending on school and higher education was less than other BRICS countries -- India spent three per cent of its GDP on education, compared to Russia (3.8 per cent), China (4.2 per cent), Brazil (5.2 per cent), and South Africa (6.9 per cent).
 
However, increased government spending in education is not enough to improve educational outcomes. Between 2006 and 2013, public expenditure on school education increased from 2.2 per cent to 2.68 per cent of GDP. The education policy must be thoroughly revised to put in place better accountability and monitoring mechanisms to exploit the gains of increase in fiscal outlays on education.
 
Public private partnership (PPP) model may be the solution, Gandhi argued, combining the best of both worlds-public sector funding and private resources for education.
 
Before choosing any particular form of educational PPP, India must study these different designs and their relevance/applicability/adaptability, and must also pilot test the chosen models before scaling up any novel intervention, Gandhi suggested in her paper.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

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COMMENTS

Meenal Mamdani

4 months ago

I can only give you the impression I have interacting with Zilla Parishad schools in Raigad district.
My aunt found the students way below their grade level competence. She started a privately funded program, using village women, to supplement the instruction students received in the ZP school.
Those who attended the extra-curricular program did great. Did the ZP teachers make common cause with the poorly paid tutors of this private, non-profit, program? No, of course not, not until the parents started pulling their kids put of ZP schools and putting them into private schools in the near by township of Neral, at the foothills of Matheran.

If the numbers in ZP school drop, the number of teachers sanctioned are reduced. So now the ZP school has woken up to the reality. But, it is still hard for the ZP teachers to accept that they are accountable to the village parents and not to the district officials. So, the fate of the ZP schools hangs in the balance over the years.
If ZP school teachers cannot accept that they need to fulfill the expectations of the local parents and not just the remote district officials, then the ZP schools are on their way out.

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