Under the prevailing cloud of allegations about corporate frauds, I vividly recall a cover story that we did in this publication almost 18 months back (Statutory Compliance – A big joke, BFM May, 2011). Therein we analysed how the Registrar of Companies needed to act like a vigilant watchdog rather than being a toothless facilitator helping companies to get away with all sorts of corporate governance lapses. We further argued that such a passive approach on part of the RoC was allowing creation of dubious corporate structures providing a perfect recipe for the generation of black money.
There is no doubt that with 721,719 companies already registered (as on March 31, 2011) with the RoC and the number increasing by close to a lakh per year (in FY 2011), the task is daunting. But all it needs is a strong bureaucratic will to manage this menace. RoC is the first touch point for all companies when it comes to due diligence in cross checking the details submitted by the promoters. All it really takes is an initial physical verification of the addresses provided. It could be as simple as the physical address verification exercise undertaken by mobile service providers when we buy a sim card. This basic procedure has the potential of saving the nation from spectacular shocks in later days.
Moreover, RoC needs to be more efficient and techno-savvy to make the huge task a bit relaxing. For example, keeping a track of who is a director in how many companies is not an easy task. But technology can come in great use here. RoC can put up a system through which an individual’s details as a director are automatically fed into the records of RoC. This can be done by allotting an id unique to that director, linking back all his details to this single reference point. Every time an application is submitted for a director’s enrollment in a different company, the software would be able to pull up all archived data linked to this id. This will help the RoC keep track of companies and people, which under the current setup is a great challenge.
Moreover, the RoC also has to use a strong hand in ensuring the fact that companies do follow the rules strictly when it comes to filing their annual submissions with the regulator. Because late or irregular filing allow the companies who intend to indulge in frauds the much desired time frame to cover up their crimes and then get away with the regulatory requirements by paying a miniscule late fee and filing their documents. For a country that ranks 20 in terms of Corporate Governance (in a list of 38 countries, survey conducted by GMI ratings), and 75% of it’s top corporate executives agree in a survey that corporate fraud is on a rise (KPMG India Fraud Survey, 2010), these lapses are some serious trouble and must be taken care of on a serious note.
It’s time when the RoC rises from being a mere book keeper to an aggressive regulator in terms of attitude. Looking at the burgeoning size of India Inc. the sooner RoC understands this, the better it is for India.
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