As a direct fallout, these companies, mostly based in New Delhi and Mumbai, will not be allowed to borrow from banks and financial institutions. Neither will they be able to enter new contractual agreements with various parties.
The names of the companies will be uploaded on MCA’s website shortly.
“We have blocked 155,392 companies who have failed to file their balance sheets from any of the years since 2006-07,” MCA secretary D.K. Mittal said.
The measures are aimed at getting companies to make available balance sheets and related documents, thereby improving corporate governance. The development comes at a time when the regulatory role of MCA has come in for Supreme Court criticism in the context of the investigation into the allocation of second-generation (2G) telecom spectrum.
With 34,411 defaulting companies, the Delhi region tops the chart, followed by Mumbai with 30,502. The country has around 800,000 active companies.
Along with these companies, 284,778 directors and 1,303 professionals, including chartered accountants associated with these firms, have been barred from dealing with MCA.
Consequently, these directors and professionals will not be allowed to file information on behalf of other companies they represent.
“Ultimately this is going to affect their business,” Mittal said on Friday.
He said the decision to block these firms was taken earlier this week and that the defaulters will have to comply with the rules and pay a penalty to resume their engagement with MCA. He, however, did not give details on the penalty.
On 3 June, Mint had reported that the ministry was preparing to crack down on companies that haven’t been electronically filing balance sheets, statutory returns, and profit and loss statements through its MCA21 website, aimed at allowing easier public access to information.
“It would be a mistake to see any crisis of corporate governance that has been triggered by multi-billion swindles, primarily through the prism of transparency and compliance,” said Monish Chatrath, a partner and corporate governance expert at consultancy firm Mazars India.
“The failure of some of the best-intended laws and stringent disclosure norms to control the unbridled growth of greed, in all parts of the globe, is a pointer to this,” he said. “The spotlight needs to firmly be on key aspects of the governance framework, with particular emphasis on the audit and finance functions that have a legal, moral and ethical responsibility.”
The Central Bureau of Investigation (CBI) accused MCA of a “somersault” regarding the clearance it gave to a company being probed by the agency in the 2G case. One of the companies that got telecom licences had allegedly violated the rules.
Although this issue was raised by the Registrar of Companies in Mumbai at the time, MCA said there was nothing irregular about the company’s ownership, Mint reported on 7 July.
“There was some communication gap between the ministry and CBI, which is now resolved,” Mittal said, while releasing the national voluntary guidelines on social, environment and economic responsibilities of business.
A voluntary guideline for corporate social responsibility (CSR) was released by corporate affairs minister Murli Deora on Friday. These are prescriptive in nature, but will have to be disclosed in the annual accounts from next year.
“As a next step, the companies will have to disclose their CSR activities in their account books and to the shareholders, even if such activity is nil. The ministry is working on a Bill to enforce this. We also have a plan for an annual audit on the CSR activities of all the companies,” said Mittal.
Deora said: “We are not making the spending of 2% of profit on CSR activities mandatory for all, as this is in a very nascent stage.”