No.2/8/99-CL.V

Government of India

Ministry of Law, Justice & Company Affairs

Department of Company Affairs

*****

5^th Floor, `A' Wing, Shastri Bhavan

New Delhi, the 16^th July, 1999.

The Companies Act, 1956 makes the provision for enforcement/checks to ensure the compliance of the provisions of the Act. It is essential that the companies who do not comply with the provisions of the Act face swift and effective prosecution. Prosecutions can be launched under the Companies Act on complaints by a Registrar, shareholder or Central Government. The offices of the Registrar of Companies set up by the Department of Company Affairs is generally launching prosecutions in such cases of defaults. The Registrar launches prosecutions if the company does not file annual return or other statutory reports or does not hold annual general meeting or do not file the balance sheet duly audited by the auditors within the prescribed time.

2. Contrary to the general impression that efforts are not being made against the defaulting companies, the Registrars are invariably filing cases in the court of Magistrate or Presidency Magistrate, as the case may be whenever definite information regarding default is available.

    

3. Recently a review has been made regarding the progress of the prosecutions launched against defaulting companies.

    

4. In the year 1995-96 3872, in 1996-97 4062 and in 1997-98 6819 cases were filed against defaulting companies. Taking into account backlog of cases brought forward for previous years 26,685 cases were pending as on 31-3-1998.

    

5. More than 70% of the cases filed relates to non-filing of Annual Returns i.e. Sections 159/167 and non-filing of Balance Sheets with Registrars i.e. Section 220(3). 1442, 1604 & 2638 complaints were filed in 1995-96, 1996-97 and 1997-98 respectively under Section 159/162. 1503 in 1995-96, 1507 in 1996-97 and 3028 in 1997-98 prosecutions were launched against companies under Section 220(3) of the Act.

6. The number of companies prosecuted for non-holding of general meetings under Section 166/168 were 68 in 1995-96, 90 in 1996-97 and 187 in year 1997-98.

7. The prosecutions have also been launched for non-compliance to Deposits Rule under Section 58A and 58 companies were prosecuted in 1995-96, 17 companies in 1996-97 and 105 companies in 1997-98.

8. The companies are expected to remit dividend to their shareholders within 42 days of the declaration. 14 companies which violated the provisions of Section 207 for failure to distribute dividend in time have been prosecuted in 1997-98.

9. The courts have imposed a total fines amounting to Rs.34,11,938 besides awarding cost to Registrar of Rs.8,01,367/- in 1997-98.

10. Efforts are being made by the Department to ensure that the cases are promptly filed against all companies which have defaulted in filing the balance sheets and annual returns. Necessary instructions to take stringent and prompt action in this regard have also been issued to all the Registrars of Companies.

11. It will be in the interest of companies to ensure that they voluntarily comply with the provisions of the Act failing which the Department will have no option but to launch prosecution against those violating the provisions of the Companies Act, 1956. It is further to be noted that the penal provisions have been made more stringent in the Companies Bill 1997 which is pending in the Parliament.

Joint Secretary to the Government of India

Joint Secretary to the Government of India