Regulation of companies in India. Review on Dept. Of Company Affairs

I have earlier commented on a review on the subject. I thought I should expand my comment, and convert it into a separate review.

The Department of Company Affairs is actually meant to administer the Companies Act, which governs the functioning of all the joint stock companies in the country.

There are different categories of companies, namely public limited companies, private limited companies, companies listed in stock exchanges, Government Companies and foreign companies.

All these companies essentially enjoy the privilege of limited liability. This means that the owners (shareholders) do not have the risk of their properties attached to pay the debts of the company. Their liability is limited to the extent of the share capital they have agreed to invest in the company. The company itself is treated as a separate entity in the eyes of the law, distinct from the shareholders who own the company. In return for the privilege, Companies are required to periodically make certain period disclosures about themselves. These disclosures are in the form of periodic returns relating to their ownership, management, financial position etc. Such Returns are filed with the Registrar of Companies, who is the operative grass root arm of the Department of Company Affairs.

Any member of the public can obtain information about a registered company by paying a nominal fee for inspection of the documents. There is a Registrar of Companies virtually in every State. His jurisdiction extends to all companies whose Registered Office is located in the State.

The Registrar of Companies also has a watchdog function, whereby he conducts investigation on various companies to ascertain whether the companies are complying with various provisions of the Companies Act. He looks into the complaints made by investors on matters ranging from non receipt of dividends to non receipt of notices of shareholders' meetings, to which they are entitled.

The offices of the Registrars of Companies are controlled by the Regional Directors. There is Regional Director for each Region of India, namely Eastern, Western, Northern and Southern.

The Companies Act in India is a very voluminous legislation, containing 658 section and a host of Schedules. The regulatory functions are performed at different levels, central, regional and local.

There is also a quasi judicial body functioning under the Companies Act, called the Company Law Board (CLB). The CLB adjudicates on different matters relating to share holders’ disputes, complaints against companies on certain matters like non registration of Share Transfers, and defaults made by companies vis a vis the shareholders and depositors. Apart from the Principal Bench in New Delhi, the CLB has an Additional Principal Bench in Chennai, and four Regional Benches. A recent amendment in the Companies Act proposes to establish a National Company Law Tribunal (NCLT) to replace the CLB. NCLT will have a much expanded scope. Adjudication of some matters which were earlier with the High Court will now be within the purview of NCLT. NCLT also will discharge the functions of BIFR, in respect of revival of sick companies, with different terms of reference from what BIFR had. The institution of BIFR is also proposed to be abolished.

Under the Department of Company Affairs, there is also a centralised Investor Protection and Education Cell. This cell is meant to inform investors about the various rights they have under the Companies Act .

Apart from administering the Companies Act, the Department of Company Affairs also administers the Competition Act (which replaces the erstwhile MRTP Act) and has a supervisory role over the three professions of chartered accountants, cost accountants and company secretaries.

There are more than 500,000 companies functioning in India. A vast majority of them are small companies. The Department of Company Affairs has a very difficult task of administering them. A major part of the time of the Department is spent on procedures and prosecution of small companies. Because of the work load, the Department’s ability to concentrate on serious violations by large companies is reduced. Of late, there have been efforts to increase its effectiveness by computerization and modernization. While this helps to some extent. However, if the Department has to be more effective, there should be less regulation of small companies, and more vigilance in respect of large companies.