Furore over ‘de-registering with a stroke of a pen’

Companies always given opportunity to respond before action is taken, say lawyers, accountants; link to demonetisation also unclear.

The chartered accounting fraternity and lawyers have said they are unclear as to how Prime Minister Narendra Modi has linked certain alleged “suspicious and questionable operations” following demonetisation to the cancellation of registration of one lakh companies by the government — and that too, “with one stroke of a pen in one minute.”

“The fate of one lakh companies has been locked with one stroke of a pen in one minute. The Registrar of Companies (RoC) has removed these one lakh companies. More will be found and even tougher action can be expected against shell companies,” Mr. Modi had said, addressing chartered accountants on Saturday.

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One lakh suspect firms deregistered

 

The CAs and lawyers contacted by

The Hindu said they were waiting for a list of companies and the reasons for de-registration, as well as how this issue was linked to demonetisation. Whether under the provisions of the Income Tax Act or Companies Act, the companies are always given an opportunity to respond before any action is taken against them, including striking off the names, the sources said,. They added that they were not sure how the government had de-registered one lakh companies “with one stroke of a pen in one minute.”

“This seems more like a veiled threat to all the companies to comply with the law,” said an expert, requesting anonymity given the sensitivity of the issue as the Prime Minister himself had made the statement.

Not unusual

Sources pointed out that there is nothing unusual about striking off names of companies from the ‘register of companies’.

 

As per the norms, the RoC can issue a show cause notice to a company if it has failed to start business within one year of incorporation or has not been carrying on any business for two immediately preceding financial years or has not applied for dormant status. The companies that get such a notice are given 30 days to submit their replies. If not satisfied with the response, the entity’s name can be struck off from the 'register of companies'. The government had in December last year notified the Companies Act provisions for striking off the names of companies.

As per details submitted to Parliament, the names of 10,826 companies were struck off in 2014-15 (till November 4), while 10,344 companies were struck off in 2013-14, 13,414 companies in 2012-13 and 38,241 in 2011-12.

In April this year, the government (RoCs in several States and union territories) had issued show cause notices to over two lakh companies under the Companies Act for striking off their names. The country has over 15 lakh registered firms.