A few weeks back I got a frantic call from one of my friends, Krish. When I didn’t reply, he messaged me “Crisis. Please call back”. Was it a medical emergency ? Was it a financial crisis ? Was it a relationship issue ? Was it a business setback ? The brief but startling message distracted me from the workshop I was in. One of my colleagues was explaining how to incorporate a company, what are the compliances and what are the consequences of violations to a bunch of fresh engineering graduates at a leading incubator, who were to begin their journey as entrepreneurs. Here I was, wondering how are these young things going to manage the compliance-chakkar which is increasing by the day ? How long will these businesses last ? Not that I doubted their capability but the sheer amount of compliances under the various law is quite overwhelming to say the least, to a 20+ year old who has never worked in a corporate before. How many cofounders will drop out to take up a corporate job or pursue further education ? How many will part ways due to differences ? How many will take compliances seriously ? What if the burden falls only on the ones left behind in the company ? Of course the purpose of the workshop was not to intimidate the young entrepreneurs but to sensitise and alert them about the pitfalls of not paying attention to compliances. I shook myself from these thoughts and gave them a friendly advice to choose a good professional within their budget and set up a process of 2 way communication.
Soon after, there was a 2nd reminder about the ‘crisis’. I stepped out and called my friend Krish. He sounded anxious and impatient. All that he could say was “Sharada, one of my friends is in deep trouble. Some trouble with his business. Please help him out immediately”. The agitated friend Kumar came on line and pleaded “Madam, somebody told me that my company is going to be struck off. I don’t know what it means but I fear Government is shutting down my business. I have employees to pay. Customers to serve and family to take care. I have not done any mistake or fraud. Can you please stop this closure ?” While at the workshop, I was extolling the advantages of having a company and also alerting them of the pitfalls, here I was, listening to a desperate cry for help from an entrepreneur to save his company. Truly, an existential crisis ! Though Kumar claimed that he had filed all the returns with the Registrar of Companies, I knew some gaps must be there and hence he must have got a ‘Strike-off Notice” from ROC. I didn’t assure him any relief but I said I will check and revert. Needless to say, contrary to his claims of 100% filings, his company had failed to file the Audited Accounts and Annual Return (mandatory annual filings) with the ROC since incorporation i.e. 2013. Consequently in line with the Governments’ consistent action against errant companies, his company was listed as “Under strike-off”. He had received a notice a few months back and on the advise of someone had sent some non-committal reply. And he had completely forgotten about it. When we enquired with the ROC, they said they had provided enough opportunities to make good the lapse and now it was a matter of few days before the company would be legally struck off, meaning it would be ‘dead’. No business can be carried on after that, unless it is legally revived. This was not a shell company but a hale and hearty, thriving one with consistent turnover, stocks, employees, customers, vendors and orders. And here was the sword dangling on Kumar’s neck….he was likely to lose them all in one stroke of the ROC. How unfortunate !
Normally I do not sympathise with promoters who do not even complete their basic responsibility of atleast filing the annual accounts. But with Kumar it was a bizzare story of how an unqualified professional, claiming to be a Company Secretary had duped him. Kumar travelled 40kms on his 2 wheeler braving the Bangalore traffic to come to my office with whatever files he had. He explained in detail how he did approach Sankar, a ‘professional’ in his neighbourhood to help him with his accounts, audit and ROC filings. Having known Sankar for years, he trusted him completely when he said “Don’t worry saar, I will take care of everything. Just focus on your business”. Initially I was sceptical about all that Kumar was saying since it is easy to blame a professional for your own lapses. But when I heard the entire story of how Sankar had mishandled the compliance affairs, how he had got moneys transferred to his account from time to time but failed to file with ROC, how he had used different auditors to get the audit done, with Kumar not even being aware of who his company auditor was and how he had finally abandoned the city after duping Kumar and several others, I was shocked. How can a Company Secretary do this ? Why would he do this if he were a professional actually ? As I heard more and more about Sankar, I was convinced he was not a member of our Institute at all. My fears were proved right when I checked ICSI Member directory and didn’t find his name or registration number. Obviously he had fooled Kumar into believing that he was a CS and that he would take care of everything. Little did Kumar know that a CS is a professional registered with a professional body to which he is accountable. He didn’t know what filing with ROC meant, what proofs he could expect, how to verify if the filing was actually done or not. You may wonder if a company director would be so ignorant and gullible. May be. May be not. But Sankar had taken him for a royal ride and swallowed large chunks of money on the pretext of professional fee and filing fee over the years, without filing any documents. And 6 years later, Kumar was facing the heat from ROC. He was on the brink of losing his company.
Well, we worked round the clock to help him complete the filings and rescue him from the death-bed of ‘strike-off’ but the filing fee alone came to a whopping 4.5 lac, considering the normal fee, additional fee and per day fee. Kumar had to struggle to gather this kind of an amount which he paid us in instalments for completing the filing. Why am I sharing this long story ? Because all of us need to follow the doctrine of “Trust but Verify” even in case of a ‘so-called professional’. Sad but true. In this context, I believe UDIN (Unique Document Identification Number) introduced by all the 3 professional bodies – ICAI, ICSI & ICAI (Cost Accountnats) – for certifications and authentications done by a Chartered Accountant, Company Secretary & Cost Accountant in practice is very, very relevant and timely. There can be no back-dating, no duplication, no professional signing as a practitioner and at the same time working in some corporate, no faking of documents etc. It is true that all these unholy acts are being done by qualified professionals. What to talk of unqualified crooks like Sankar ? UDIN has been made compulsory by ICAI since 1st July, 2019 while the other 2 bodies have made it mandatory from 1st October, 2019. This is a welcome use of technology for improving governance, transparency and accountability. Hopefully the stakeholders at large will begin to trust us more. Sankars will not thrive and Kumars will become alert !
“Don’t harass the honest. Don’t spare the dishonest.” This is prominently displayed in the Regional Director, Hyderabad’s office (Ministry of Corporate Affairs). Honestly, I wish this is being implemented in reality. As a professional, I agree we are not to criticise the stringent laws being put in place. Rather our responsibility is to be the conscience keepers of corporates and guide them on the right side of law, failing which they land up paying a heavy price. But more often than not, I do find small enterprises with first time entrepreneurs being either completely ignorant of the law (which I am aware is not excusable !) or ignoring our advice (but at what cost !). In the interest of ‘conserving the resources’ – read working on shoe-string budget or being boot-strapped with hardly any budget for finance and compliance functions, they land up paying eye-popping penalties along with a heavy professional fee.
This said, of late new companies that are struggling to find their feet are being slapped with adjudication notices. What is the crime ?
Not using the words “Registered Office” on the letter head – the registered office address was correctly mentioned in one case but the words “Registered Office” were missing ! The likely damage about Rs. 3 lacs !
Not filing INC20A, a form to indicate completion of all steps for Commencement of Business by a company – in one case, the young entrepreneurs had infused the initial share capital within time but had missed communicating the same to the ROC via filing the form within 180 days. Penalty Rs. 50k to 1 lac per Director & Company !
Not informing to the ROC within 30 days about shifting of Registered Office within a city – Penalty of upto 1 lac per Director & Company !
While I do not dispute the powers of the ROC in sending adjudication notices in above cases, the question is are these such serious crimes that deserve severe punishments which almost make fledgling businesses go bust even before starting ? Agreed that unscrupulous promoters bend the laws and create shell companies to launder money and finance illegal transactions but can there be some mechanism where honest entrepreneurs who have genuinely ‘missed out’ certain compliances be treated less harshly ? In the current circumstances, even if the situation is explained, ROC’s hands are tied by law, once he gives a notice for adjudication. What I am stating here is not imaginary. It is just a microcosm of the multitude of cases shared with me by some of my professional colleagues. On the other hand, several dishonest large corporates continue to commit serious crimes that are not detected even by Big Auditors and Regulators. They don’t deserve to be spared but the small ones must not be ‘harassed’. While penalties must deter offenders they must not be so severe that they deter businessmen from starting up as a company – they must only deter them from committing such offences in future. Else, this regime is surely going to be the death-knell of small enterprises which are already reeling under economic stress. Their flood of woes seems to be on the rise.999