Ernst & Young, PwC, KPMG & Deloitte will not be allowed to provide tax advisory services and the government is committed to the independence of auditors, says Prem Chand Gupta, Minister of State for Company Affairs (Independent Charge), in an exclusive interview with TIOL.
He also said that e-mail will be admissible as evidence under Companies Act.
Company Affairs was a department under the law ministry, finance ministry and the commerce ministry during different periods. Now it is a ministry by itself and heading the ministry is the Haryana-based industrialist elected from Bihar.
Taxindiaonline managed to get a few words from Gupta on some very important issues relating to the new concept paper on company affairs.
The concept paper (on company law) has generated lot of heat and excitement. What was the response and feedback to the concept paper?
The idea of launching the Concept Paper on Company Law on the MCA's website is to provoke critical examination from all stake-holders. The suggestions have started pouring in and it is expected that by October 31 more and meaningful suggestions would be received from major chambers of commerce, professional bodies, institutions, etc.
The approach in the concept paper has been appreciated by all, including the department related parliamentary committee.
Companies Act is considered to be a long and complicated one. Do you have any proposal to prune and simplify it?
Yes, the existing Act consists of 781 Sections. It has been proposed to reduce these provisions by deleting all redundant provisions, arranging all relevant provisions in accordance to their relevancy and priority. All procedural and routine provisions are proposed to be shifted to rules. Now, in the concept paper the number of provisions has been reduced to only 289.
How does the new Companies Act propose to deal with fly-by-night operators who float the companies to dupe the investors and thereafter vanish?
Investor protection is one of the important objectives included in the National Common Minimum Programme of the United Progressive Alliance government. In the concept paper also investor protection is one of the thrust areas.
Through rules it is proposed to provide that promoters will have to disclose more information to establish their identities such as providing PAN, Passport number, etc. at the time of incorporation of the company itself.
The proposed provision to prohibit auditors from providing non-audit services has sent business plans of Big Four (Ernst & Young, PWC, KPMG and Deloitte) haywire who are also providing tax advisory services to their audit clients through their Indian tie-ups like S R Batliboi, B S Rout & Co, etc. Will you go soft on this provision or you are committed to independence of auditors?
Restrictions are proposed in the concept paper to the effect that an auditor will not be able to provide non-audit services.
The same is proposed to be covered through rules. We are waiting for response of all the stakeholders on this along with other issues.
However, we are committed to the independence of the auditors.
What will be the role of 'independent directors' under the new Act?
The independent director is also a director in a company and is equally responsible for the company's functioning.
How effective will be National Company Law Tribunal under the new regulations?
The concept of NCLT was introduced to strengthen the present system of the Company Law Board as well as reducing the burden on the high courts in the matters of liquidation etc. It is expected that it will help in speeding up decisions in the cases and ultimately bringing in better corporate governance in the country.
What changes are in offing for companies incorporated outside India, but having a place of business in India?
The existing requirement of filing document by the foreign companies to only Registrar of Companies Delhi is proposed to be done away with. Now it is proposed that such companies will file documents with the concerned RoC.
In case of winding up of company by court/tribunal, can income-tax/excise/customs recover tax arrears by attachment and sale of property?
No. This would be done as per the norms for making preferential payments as per the existing law which is covered in the Concept Paper.
Will you provide for online registration of companies and e-filing of returns?
Yes, it is provided in the concept paper.
Will e-mail be admissible as evidence under Companies Act?
Yes.
Why was the requirement of holding statutory meeting by public companies done away with?
It has been experienced that this provision does not serve any meaningful purpose.
How is the interest of investors protected?
There are many measures suggested for protection of Investors.
The measures include - creation of Investors Education and Protection Fund, a representation of small share holders in the board of directors to look after interest of small share holders, default in making repayment of matured deposits and interest thereon are cognizable offence, the company which has defaulted in making such payment would intimate to NCLT, such default will render Director of a public company disqualified in holding directorship of other public companies.
This area can be strengthened on the basis of further suggestions likely to be received.
What are the checks and balances on mismanagement of companies?
Certain measures have been proposed in this regard in the concept paper. These include constitution of Audit committee, introduction of concept of Independent Directors, enhancement of penalties, etc.
Do you propose penalties to be more stringent for non-compliance of provisions?
Yes. The concept of minimum penalty has been proposed for public companies and existing penalties have been strengthened in appropriate manner.
What are the restrictions on inter-corporate loans and investments?
The central government will prescribe the limits up to which companies, registered stock broker and any other intermediary may receive inter-corporate loans or deposits.
Is there any provision for rotation of auditors?
No.
It is not possible for all the companies to switchover to the accounting standards; is there any relaxation for companies on this move?
No.
Will the requirement of appointment of a chief accounts officer be an asset or a liability on the company? Does compliance of maintaining books of accounts improve with this move?
Appointment of a CAO is a well thought concept and this will ensure proper maintenance of books of accounts by the companies.
What is your message to companies for ethical corporate governance?
With lesser provisions in the proposed law, greater autonomy is proposed to be given to companies. It is expected that corporate world would take benefit of it to ensure better corporate governance. However, defaulters would be dealt with stringent penalties.