The Ministry of Corporate Affairs (hereinafter referred to as the ‘MCA’) issued a press release[1] on November 5, 2017, wherein it stated that it has struck down around 2.24 lakh companies as they remained inactive for more than 2 years. In furtherance to the same, the MCA has also put restrictions on bank accounts of these companies and has also restricted sale and transfer of their moveable and immoveable properties until necessary actions have been taken by the companies to be restored again.

Further, the MCA also disqualified 3.09 lakh directors who were a part of the Board of Directors of those companies which had defaulted in filing of Financial Statements or Annual Return for three continuous financial years from 2013-14 to 2015-16. It was also disclosed that about 3,000 of the directors who have been disqualified were in violation of the law by being directors in more than 20 companies each.[2]

In addition to this, the MCA also disclosed that a software application is being developed which will establish an ‘Early Warning System’ (hereinafter referred to as the ‘EWS’). This will help to strengthen the current regulatory mechanism and will be housed in Serious Fraud Investigation Office. Earlier this year, MCA had stated[3] that such an EWS will be utilized to generate alerts as well as to strengthen its capability for taking stringent action against corporate misconduct.

Further, it was also revealed that in order to keep a check on the Financial Statements of companies, to prescribe Accounting Standards and to take disciplinary action against defaulting and negligent professionals, the MCA is taking active steps to set up the National Financial Reporting Authority.

The MCA is being vigilant in taking active steps to prevent misconduct of professionals. Not only is the MCA taking actions to prevent fraud and misconduct, it is also trying to establish a system where non-compliance of law is stringently treated. One such step also include the MCA’s recently enforced restriction which prohibits a company to go for more than two layers beyond wholly owned subsidiary[4]. This is expected to curb the abuse of the corporate structure as well. Such active steps seek to promote better governance as well. Further, the presence of EWS (when it has been developed) would definitely assist in identification and detection of corporate frauds and tackling them better. This drive against corporate fraud is definitely taking the defaulting and fraudulent companies by storm.