Less time in the dock for India Inc

MCA may drop 30,000 minor cases.

The Ministry of Company Affairs (MCA) plans to drop around 30,000 ongoing prosecution cases, about 60 per cent of the current load of litigation, in an attempt to free some of the ministry's resources to play a developmental role.

"For the first time such a large number of cases will be withdrawn. We are working on a system to get approval from the law ministry. It will done within two months," a senior ministry functionary told Business Standard.

At present, close to 50,000 prosecution cases launched by the Registrar of Companies (RoCs) are pending. A significant number of these prosecution cases relate to companies not having filed annual returns and balance sheets with the RoCs, which fall under the ministry.

On average, each case's disposal takes about five years, and the average fine in a case is around Rs 2,247.

"The government is trying to work out a mechanism within the four corners of the law, to find a solution for speedy disposal of the backlog," a ministry official said.

The primary cause for the backlog in prosecution cases is that RoCs, unlike excise, customs and income-tax authorities, do not have the power to take penal action when companies violate the Companies Act.

The violations have to be tried in a court and the judicial procedure can be time consuming.

An expert group headed by OP Vaish had been set up to submit a report on streamlining the prosecution mechanism under the Companies Act.

The report, submitted in October 2005, classified prosecution cases into five categories and suggested that lesser offences could be provided a mechanism for quick settlement. The ministry can then bring all its attention to bear on the serious cases where public interest is involved.

The MCA has also set up a committee headed by Nitin Sen Gupta to advise the government about the issue of the prolonged liquidation cases.

India has the lowest realisation rate for liquidation cases. It is as low as 18 per cent compared with 95 per cent in Japan and United States. The time taken for a liquidation also varies from five to 50 years in India as compared with a couple of years in the developed countries.

"The problem stems from the fact that although the official liquidators are the employees of the MCA, but they are accountable to the high courts," the functionary added.