Hi Folks

“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.

As you reflect on the criticality of compliances – big or small – in this 221st issue of Samhita, I would definitely urge all of you to read the article by Mr. Vittal Rao on Payment of Wages and Contract Labour as envisaged under the Code on Wages, 2019. The mere explanation of the definition of Wages makes it amply clear, what far reaching effect the inclusions and exclusions to Wages will have on employee compensation. From employer perspective the costs are definitely going up. Compensation structures have to be redrawn. Employment contracts need to be redrafted bearing in mind the various components of Wages. The implications are far and wide. Yet to emerge and evolve. Please do read to understand – whether as employer or employee.

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Happy Reading