The government has introduced an amnesty scheme for corporates, permitting defaulting companies to file all pending documents on payment of lump-sum amount based on the period of delay.
The plan, Company Law Settlement Scheme 2000, was announced by Union minister for law and justice Ram Jethmalani in the Lok Sabha yesterday.
The scheme will be valid for a period of three months from June 1 to August 30. And after this period, the corporates will have to pay 10 times the amount as fine.
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The plan was devised after the Department of Company Affairs discovered that there were serious gaps in the system of collecting information from companies, especially those which had defaulted in submitting balance sheets and annual returns to the department.
It is mandatory for companies to file balance sheets and profit- and-loss accounts and annual returns, in addition to other returns. Companies, which do not comply with these rules, can be prosecuted.
According to figures collated by the DCA, 80 per cent of the defaulting companies had charges of defaulting in either filing their balance sheet or annual report against them.
A senior DCA official told Business Standard that default led to prosecution and then litigation. "A good company would not like its record to be marred by a prosecution. So it fights the case (against default) in the high court and later, in the Supreme Court. This procedure carries on for several years. The government, being government does not want to drop the case either. So the amount (for default) keeps getting compounded and both parties lose a lot of money in litigation," he said, explaining why the scheme was launched.
DCA is also working on the 2nd amendment bill to the Companies Act. This will have a totally different structure for fines and prosecution in case of default. So it wants to finish all the pending cases and start with a clean slate when the 2nd amendment bill is passed.
Also, the government wants to avoid a situation where like the present confusion between Fera and Fema, there is any grey area that defaulting companies can take advantage of.
`The current methodology of collecting information - even just the annual report and balance sheet - is seriously flawed. "Our officials go by the number of pages that these two documents consist of. But that is a wrong way of studying them. Some shocking facts came to light upon close scrutiny of documents submitted by some companies, duly certified by chartered accountants," explained an official.
"For instance, we found that on one page, the balance sheet had returns computed in lakh rupees. On the next page it was in thousand rupees. In some cases, there were mistakes of addition in the balance sheets. All these documents were certified by chartered accountants. This is not only fraudulent but also gives a completely wrong reading of the financial health on the company," he added.