Lok Sabha Question No. 2256 (UNSTARRED), answered on 2024-12-09
Subject: Strengthening Corporate Governance and Transparency
Ministry: CORPORATE AFFAIRS
Asked by: Shri Sudhakar Singh

## GOVERNMENT OF INDIA

## MINISTRY OF CORPORATE AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 2256 ANSWERED ON Monday, December 09, 2024 Agrahayana 18, 1946 (Saka)

Strengthening Corporate Governance and Transparency

2256. Shri Sudhakar Singh:

Will the Minister of CORPORATE AFFAIRS be pleased to state:

- (a)  the  steps  taken/being  taken  by  the  Government  to  strengthen corporate governance and transparency in companies operating in the country, especially in the light of recent financial irregularities reported in certain firms;
- (b) the number of cases of corporate fraud or non-compliance with the Companies Act, 2013, have been identified during the last three years along with the action taken against the violators;
- (c) the measures being implemented to support startups and small businesses in complying with corporate regulations, particularly in States like Bihar; and
- (d) whether  there is any proposal to simplify the regulatory framework to promote ease of doing business while ensuring strict compliance with the law and if so, the details thereof?

## ANSWER

Minister  of  State  in  the  Ministry  of  Corporate  Affairs;  Minister  of State in the Ministry of Road Transport and Highways.

(Shri Harsh Malhotra)

(a):  The  Companies  Act,  2013  (Act)  and  rules  made  thereunder contain adequate provisions for ensuring accountability and transparency  in  the  management  of  companies.  It  provides  for accountability for management of companies through key managerial personnel, Board of directors and shareholders.  The Act & Rules require  companies  to  maintain  books  of  account,  various returns and registers etc in the prescribed form and keep them at their  registered  offices.  Compliances  with  applicable  accounting standards has also been mandated under the Act. The companies are also required to forward notices for the general meetings along with  explanatory  statements  as  well  as  other  attachments  for information and  decision making  by  the shareholders.  Annual financial statements are also required to be forwarded to shareholders. In addition, the companies are required to file various documents,  copies  of  resolutions,  returns  etc  with  the  Registrar. The disclosures in the Board's report including on risk management, financial statements and annual returns have also been mandated to ensure  that  every relevant information is available to the stakeholders as well as in the Registry.

In  addition,  Security  and  Exchange  Board  of  India  (SEBI)  has notified,  SEBI  (Listing  Obligations  and  Disclosure  Requirements) Regulations,  2015  ('LODR  Regulations'),  with  respect  to  listed companies  which  specifies  corporate  governance  and  disclosure norms  required  to  be  complied  with  the  entities  listed  on  the recognized  stock  exchanges  in  India.  The  said  regulations  are amended  from  time  to  time  by  following  due  process  including deliberations  in  advisory  committee,  public  consultation,  etc.  in order  to  keep  in  pace  with  the  evolving  dynamics  of  the  capital market in India.

(b):  In  the  last  3  years,  the  number  of  cases  filed  for  corporate frauds  or  non-compliance  with  the  Companies  Act,  2013  and  the number of penalties adjudicated by the various RoCs are as under: -

|                                             |   2021-22 |   2022-23 |   2023-24 |
|---------------------------------------------|-----------|-----------|-----------|
| Number of cases where prosecution is filed. |      1774 |      1944 |      1509 |
| Number of                                   |       527 |       615 |      1111 |

| Adjudication of penalties done.   |
|-----------------------------------|

(c):  No  state  specific  policies  are  adopted  by  the  Ministry  of Corporate Affairs (MCA). However, Ministry has taken several steps to support startups and small Business/Companies, such as requirement of cash flow statement to be part of financial statement  made  optional,  abridged  annual  return  prescribed  for small companies,  abridged  Board  Report prescribed for small companies, etc. Details of the steps taken are given at Annexure-A.

(d):  To  simplify  regulatory  framework  and  promote  ease  of  doing business, Ministry has taken the following steps: -

- i. Decriminalization of 63 offences under the Companies and LLP Acts. While providing relief to corporates, one of the objectives  of  decriminalization  has  also  been  reduction  of litigation burden in judicial courts and shifting the prosecution cases towards adjudication.
- ii. Conversion of more than 54 forms to Straight Through Process (STP)  which earlier required approval of field offices.
- iii. Introducing  e-Form  SPICe+  along  with  a  linked  form  called AGILE PRO-S for providing different services at one place such as  Name  Reservation,  Incorporation,  Allotment  of  PAN,  TAN, DIN, EPFO  Registration, ESIC Registration, GST  number, opening of Bank Account etc. at the time of incorporation of company to start the business immediately. Similarly, new eForm FiLLiP (Form for incorporation of Limited Liability Partnership) was introduced for providing the same services in a single application.
- iv. Definition of Small Company has been amended by increasing the threshold limit of a small company from having a paid-up capital  not  exceeding  Rs.2.00  Crore  to  Rs.4.00  Crore  and turnover  not  exceeding  Rs.20.00  Crore  to  Rs.40.00  Crore. Similarly, concept of small LLP has been introduced which is subject to lesser compliances, lesser fee to reduce the cost of compliances.
- v. Setting up of a Centralized Registrar of Companies (CRC) for incorporation to provide uniformity in the incorporation process.
- vi. Setting up of a Central Scrutiny Centre (CSC) for centralised scrutiny of e-Forms filed under STP.
- vii. Setting  up  a  Central  Processing  Centre  (CPC)  for  centralised processing of specified non-STP e-forms.
- viii. Setting up a Centre for Processing Accelerated Corporate Exit (C-PACE) for easy exit of companies.
- ix. Setting up an e-Adjudication Portal for adjudication of offences related to the Companies Act.
- x. Zero fee for incorporation of company with authorized capital up to Rs.15.00 Lakh.
- xi. Extended fast track process for mergers under the Companies Act, 2013 to include mergers of Startups with other Startups and with small companies, so that the process of mergers & amalgamations is expedited.
- xii. The scope of section 233 of CA-2013 (Fast Track Mergers & Amalgamation through approval of Regional Directors) enhanced. This now also covers merger of a transferor foreign company incorporated outside India (being a holding company) with its wholly owned subsidiary incorporated in India.
- xiii. Zero cost for shifting of the registered office of a company.
- xiv. Companies (Listing of Equity Shares in Permissible Jurisdictions)  Rules,  2024  have  been  issued  allowing  Indian Public  companies  to  list  their  equity  shares  on  international stock exchange(s) at GIFT IFSC.

*******

## ANNEXURE-A

|   Sr. No. | Section/Rule                                                          | Subject                                                      | Provisions in the Company Act, 2013 to support Startups and Small Businesses/Companies                                                                                                        |
|-----------|-----------------------------------------------------------------------|--------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         1 | 2 (40) proviso                                                        | Financial Statement                                          | Requirement of cash flow statement to be part of financial statement made optional.                                                                                                           |
|         2 | 92(1) Provisos.                                                       | Annual return                                                | (i) Shall be signed by a company secretary or where is there is no company secretary by a Director of the company. (ii) Abridged annual return prescribed for small companies.                |
|         3 | 92(1)(g)                                                              | Disclosure in annual return about remuneration of directors  | Disclosure as to aggregate of amount of remuneration drawn by directors adequate for small companies.                                                                                         |
|         4 | 134(3A)                                                               | Board's Report                                               | Abridged Board Report prescribed for small companies.                                                                                                                                         |
|         5 | 139(2) read with rule 5 of Companies (Audit and Auditors) rules, 2014 | Rotation of auditors                                         | Rotation of auditors in small companies is not mandatory.                                                                                                                                     |
|         6 | 141(3)(g)                                                             | Restriction on auditor-ships                                 | Restriction w.r.t. maximum auditor-ships not applicable to auditors of small companies.                                                                                                       |
|         7 | 143(3)(i)                                                             | Disclosure in Auditors report on internal financial controls | These disclosures are not applicable for small companies.                                                                                                                                     |
|         8 | 173 (5)                                                               | Meetings of Board.                                           | Under Companies Act, 2013, Board of Directors of a company are required to meet at least once in 120 days, 4 board meetings in a year. However, in case of a small company, one board meeting |

|    |                                                                                           |                               | in each half of a calendar year with a gap between two meetings of not less than 90 days is sufficient to comply with the requirement of section 173(5) of the Companies Act. (Notification no. 583(E) dated 13.06.2017).   |
|----|-------------------------------------------------------------------------------------------|-------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  9 | 233                                                                                       | Merger through approval of RD | Mergers between two or more small companies or between one or more start-up company with one or more small company allowed through approval of RD.                                                                          |
| 10 | 446B                                                                                      | Lesser penalties              | Small companies are entitled for lesser penalties as per section 446B.                                                                                                                                                      |
| 11 | Rule 8(12)(a) Companies (Registration offices and Fees) amendment Rules, 2014             | Registration office and Fees  | Small companies are exempted from requirements w.r.t. pre-certification of forms by professionals.                                                                                                                          |
| 12 | Annexure- (Table of fees) Companies (Registration offices and Fees) amendment Rules, 2014 | Fees                          | Lesser fees allowed for small companies.                                                                                                                                                                                    |
| 13 | Clause 1(2)(iv) Companies (Auditor's Report) Order, 2020 (CARO 2020)                      | Auditor's Report              | The CARO 2020 is not applicable on small companies                                                                                                                                                                          |
| 14 | Incorporation of small companies (Section 403                                             | Filling fees                  | Zero fee is charged for incorporation of all companies with authorized capital up to Rs. 15 lakh or with up to 20                                                                                                           |

|    | of the Company Act 2013)                                                 |                                   | members where no share capital is applicable.                                                                                                                                                                                                                                                                         |
|----|--------------------------------------------------------------------------|-----------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 15 | rule 4 of Companies (Share Capital and Debentures) Rules, 2014           | Differential voting Rights (DVRs) | Start-ups being private limited companies are free to issue equity shares with DVRs to raise capital without any restrictions.                                                                                                                                                                                        |
| 16 | Rule 3(3) of Companies (Acceptance of Deposits) Rules, 2014              | Deposits                          | Companies may ordinarily accept or renew any deposits from its members not exceeding 35% of the paid-up share capital, free reserves and securities premium account of the company. But a start-up may accept deposits without any limit from its members for the period of ten years from the date of incorporation. |
| 17 | Rule 2(1)(c)(xvii) of the Companies (Acceptance of Deposits) Rules, 2014 | Convertible Note                  | Start-ups can receive an amount of Rs 25 lakh or more by way of a convertible note (convertible into equity shares or repayable within a period not exceeding ten years from the date of issue) in a single tranche, from a person, and such transactions are not considered deposit under Deposit Rules.             |
| 18 | Rule 8(4)(ii)(of Companies (Share Capital and Debenture) Rules, 2014     | Sweat Equity                      | Unlisted companies may issue sweat equity shares to the extent of 25% of the paid up capital at any time, with other restrictions. But a start-up company may issue sweat equity shares not exceeding 50% of the paid up capital upto ten years from the date of its incorporation or registration.                   |

|   19. | Rule12(1)(c) of Companies (Share Capital and Debenture) Rules, 2014   | ESOPs In general, Employee Stock Options (ESOPs) are not given to the employee who is a promoter or a person belonging to the promoter group and a director who                                                                                                                                                                                                                                                                    |
|-------|-----------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    20 | Section 2(40) of Companies Act, 2013 Cash Statement                   | the date of incorporation. Flow A private company which is a start-up /small companies are not required to include cash flow statement with financial statements which otherwise is                                                                                                                                                                                                                                                |
|    21 | Notification no. 583(E) dated 13.06.2017 Signing of annual return     | a mandatory requirement. In case of start-up companies/small companies, the annual return shall be signed by the company secretary or where there is no company secretary, by the                                                                                                                                                                                                                                                  |
|    22 | Notification no. 583(E) dated 13.06.2017 Number of Meetings           | director of the company. Board Under the Companies Act, 2013, Board of Directors of a company are required to meet at least once in 120 days, 4 board meetings in a year. However, in case of a start-up companies/small companies one board meeting in each half of a calendar year with a gap between two meetings of not less than 90 days is sufficient to comply with the requirement of section 173(5) of the Companies Act. |