India Inc grows, RoC left gasping

Infrastructure fails to keep pace with increased workload.

For long, India Inc has aired its frustration with the procedural delays and ineffective working of the Registrar Of Companies (RoC). In the first of a two-part series, we do a reality check of the state of affairs

The country's corporate sector has grown leaps and bounds ever since the economy was opened in 1991. At the same time, the RoCs, regional directorates and Official Liquidators (OLs) have reached a state of near-collapse.

In 1980, there were 3,100 companies per RoC. By 2003, this number had risen over ten-fold to 30,600. The number of documents being filed with each RoC had risen from about 3,00,000 per RoC per year to over 3 million per RoC.

Clearly, the infrastructure is bursting at its seams and the quality of work done by the RoCs is suffering.

"Technical scrutiny has become a sham. Most of the time is taken up in routine matters," an official in the ministry of company affairs told Business Standard.

The technical scrutiny of financial statements filed by the companies is the first line of check against non-compliance with the Companies Act and forms the basis for inspection of companies.

An internal report of the ministry notes that the technical scrutiny of balance sheet and other documents has been reduced to being a scrutiny proforma rather than of content. It says there should be a professional examination of the accounts filed by companies, which can lead to a fuller investigation.

As per norms agreed in 1980, each registrar's office was required to complete three limited inspections per month. This had not been adhered to.

The report blames the fact that the strength of officers in the inspection wing had not been proportionate to the growth recorded by the corporate sector.

Against the sanctioned strength of 49 inspecting officers, the department has 24 officers, who carry out about 200 inspections per annum, which is, on the average, less than 10 inspections per inspector in a year.

To inspect 1 per cent of all companies each year, the department needed to do 6,000 inspections per annum and needed about 600 inspectors. To just inspect 1 per cent of public companies, the department needed about 90.

An entrepreneur first encounters an RoC at the time of applying for a name. The name search facility on the Internet is inadequate as only identical names can be compared, whereas for approving a name, RoC has many criteria-based out of different circulars. They also have diverse practices in deciding if the "significance" of the name sought is relevant.

Absence of an updated all India directory of approved names results in one RoC not knowing the names approved at other RoCs. Although the RoCs were required to check whether a name was already a trademark, they did not maintain a record of registered trademarks.

The state of affairs at the 18 official liquidators was worse. The number of companies in liquidation had increased to over 5,700 now from 4,991 as on March 1997.

According to a senior official, paucity of officers' strength in the offices of official liquidators was primarily responsible for the undue delays in the completion of liquidation proceedings, resulting in a recovery rate of 12.5 per cent of the value of the assets auctioned.

Tomorrow: The government is putting in place a plan to stem the rot.