Lok Sabha Question No. 2430 (UNSTARRED), answered on 2023-12-18
Subject: Investigations in Corporate Governance
Ministry: CORPORATE AFFAIRS
Asked by: Dayanidhi Maran

## GOVERNMENT OF INDIA

## MINISTRY OF CORPORATE AFFAIRS

## ANSWERED ON MONDAY, 18 th  DECEMBER 2023

## LOK SABHA UN-STARRED QUESTION NO. 2430 Agrahayana 27, 1945 (Saka)

## INVESTIGATIONS IN CORPORATE GOVERNANCE

## QUESTION

## 2430.   SHRI DAYANIDHI MARAN:

कारपोरेट कार्य मंत्री

Will the Minister of CORPORATE AFFAIRS be pleased to state:

- (a)  the details on any ongoing investigations into corporate governance issues and details of the total number of cases underway;
- (b)   whether the Government is ensuring transparency and accountability in  its  investigations  into  corporate  entities,  particularly  in  response  to allegations by international agencies and reports;
- (c)  the  steps  taken/being  taken  or  is  planned  to  be  taken  by  the Government to prevent siphoning of funds and financial irregularities in companies operating in critical sectors;
- (d) whether the Government is coordinating with other regulatory bodies, such as SEBI, to ensure a comprehensive and effective crackdown on corporate misconduct and financial irregularities; and
- (e)  details  of  the  measure  taken  by  Government  to  intensify  the crackdown and ensure compliance in the case of non-functional (shell) companies?

## ANSWER

Minister of State (Independent Charge) of the Ministry of Statistics and Programme Implementation; Minister of State (Independent Charge) of the Ministry  of  Planning  and  Minister  of  State  in  the  Ministry  of  Corporate

Affairs.

सांख्यिकी और कार्यक्रम कार्ायन्वर्न मंत्रालर् क े राज्य मंत्री ( स्वतंत्र प्रभार ) ; र्ोजना मंत्रालर् क े राज्य मंत्री ( स्वतंत्र प्रभार ) और कॉपोरेट मामलों क े मंत्रालर् में राज्य मंत्री।

(Rao Inderjit Singh)

( राव इंद्रजीत स ंह )

- (a):      Investigations  are  ordered  into  the  affairs  of  Companies  by  the Ministry to examine, inter alia, compliance of provisions of the Act, which include issues pertaining to Corporate Governance. Presently investigations of 65 cases are ongoing with various Regional Directors of the Ministry and 78 cases with SFIO.

The Securities and Exchange Board of India (SEBI) has also informed that investigations,  inter-alia,  are  carried  out  by  them  in  cases  of  fund diversion  and/or  material  misstatement  in  financial  statements,  etc.  of listed companies and governance issues arising out of such cases.  As on November 30, 2023, Investigating Authority has been appointed in 33 such cases.

- (b):   Yes, Sir. References received from any source are examined by the Ministry  under  the  provisions  of  the  Companies  Act,  2013.  There  is  a system  of  examining  the  investigation  reports  through  various  levels which ensure transparency and accountability.  Investigations are carried out as per the provisions of the Act as well.  Investigation reports are processed at different levels of the Ministry, which ensures transparency and accountability in the process.
- (c):    The  Companies  Act,  2013  has  a  strong  mechanism  to  prevent financial irregularities and has different sections to handle noncompliances of the Act.  From time to time, Government has been taking steps  to  amend  the  Rules  to  introduce  greater  transparency  such  as making it mandatory for every existing or prospective Director to obtain Director Identification Number (DIN), introduction of KYC for Directors as well  as  for  companies,  making  it  mandatory  for  professionals  to  verify details of the change of address, including through physical verification, etc.   MCA also undertakes Investor awareness and sensitization drives in association with the 3 Professional Institutes, i.e. Institute of Chartered Accountants of India (ICAI), Institute of Cost Accountants of India (ICoAI) and Institute of Companies Secretaries of India (ICSI).

As  intimated  by  SEBI,  it  has  advised  Stock  Exchanges  to  set  up  a surveillance mechanism to monitor the periodic filings and disclosures made  by  listed  companies  to  find  out  probable  financial  reporting irregularities  &  non-disclosures  and  generate  early  warning  signals  on possible misrepresentations in financial statements. (d):    Yes Sir. The MCA coordinates with other regulatory and enforcement agencies i.e. SEBI, FIU, CBI, ED etc, as and when required. (e): The term 'Shell company' is not defined under the Companies Act, 2013. However, in terms of Section 248 (1) of the Companies Act, 2013 read  with  the  Companies  (Removal  of  Names  of  Companies  from  the Register  of  Companies)  Rules,  2016,  the  Registrar  of  Companies  may remove the name of a company if it fails to commence its business within one  year  of  its  incorporation;  or  it  is  not  carrying  on  any  business  or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company. The Registrar of Companies removes name after following the due procedure given in the Rules. Accordingly, 1,55,217 companies have been struck off under section 248 (1) of the Companies Act, 2013 from 1.4.2021 to 28.11.2023 on the ground that they  have  failed  to  commence  business  within  one  year  of incorporation or are not carrying on any business or operation for a period of  two  immediately  preceding  financial  years  without  making  any application  within  such  period  for  obtaining  the  status  of  a  dormant company.

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