The government has requested the Reserve Bank of India (RBI) to freeze accounts of the defaulting firms who have not filed their financial statements and returns. The central bank, however, said that it has no powers to freeze such accounts. The finance ministry also suggested that the RBI circulate details of defaulting companies to all banks with the advice to exercise enhanced due diligence in dealing with such companies, Minister of State for finance Santosh Kumar Gangwar said in reply to a question in Lok Sabha on Friday.
“The government had requested the RBI for freezing of accounts of the defaulting companies who have long exceeded the stipulated time limit, for filing of financial statements and returns, under the Companies Act. The RBI has informed that, at present, it has no powers to freeze such accounts. Moreover, freezing orders issued by the government as per the provisions of the relevant statutes such as Unlawful Activities Prevention Act or Foreign Contribution Regulation Act, are communicated by the RBI to the banks,” Gangwar said.
As per the Companies Act 2013, companies are required to make corporate filings and each of these filings within the deadline which is 30 days (in most cases) from the time frame from the corporate action. In case the company fails to file the prescribed forms within 30 days, it can choose to file the same within a period of 270 days on payment of such additional fee as may be prescribed.
The government’s advice on freezing such companies’ accounts comes in the backdrop of the Ministry of Corporate Affairs removing a total of 1,62,618 companies from the Register of Companies as on July 12. The ministry is also identifying directors of the companies defaulting in filing of financial statements or annual returns for continuous period of three financial years. This is being done to disqualify such directors for reappointment as director in that company or in other company for a period of five years.
Earlier speaking at an Institute of Chartered Accountants of India (ICAI) event on July 1, Prime Minister Narendra Modi had said that transactions of more than 3 lakh firms were under the radar of suspicion post demonetisation. Modi added that names of 1 lakh firms were struck off Register of Companies. These companies were removed as they have not been carrying any business or operation for a period of two immediately preceding financial years and have not made any application within such period for obtaining the status of dormant company under Section 455.
Section 248(1) of Companies Act, 2013, empowers the government to remove name of company from register of companies. The government has been analysing transaction data of companies before and after November 8, the day when old notes of Rs 500 and Rs 1000 were withdrawn from circulation, to detect any untoward transactions.
The government is also taking action against shell companies which have been main route for converting black money into white. During last three financial years (FY14 to FY16), investigations by the income tax department have led to detection of over 1,155 shell companies, which were used as conduits by over 22,000 beneficiaries. The amount involved in non-genuine transactions of such beneficiaries was more than Rs 13,300 crore, Gangwar said.