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

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

Context

• 48 hours before launch of GST, one lakh companies lost registration for post-demonetization lapses. Registrar of Companies (RoC) has removed these one lakh companies.
• Two lakh other registered companies are under the scanner for involvement in what looked like dubious transactions in the aftermath of demonetization.

What is the Issue?

• The registration of over one lakh companies which had allegedly engaged in suspicious transactions post-demonetization had been scrapped.
• The de-registration was done on the basis of the mining of the deposits made in banks after demonetization wherein many companies were found to have engaged in serious irregularities
• Government has identified 37,000 shell companies which engage in money laundering and help those with black money.

Why such Bold Step?

• After the move of demonetization, Government of India seeks to cast Goods and Service Tax (GST) as the second strike against black money and corruption.
• The government is acting tough with the ones who are being part of corruption, black money, parallel economy.
• This is a move to curb tax evasion and generate resources for the poor and needy
• The government has clearly stated that the government will not get influenced by the pressure of the high income group class that are reluctant to pay taxes.

Norms of De-registration

• 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.
• With regard to the current issue, 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.

Reactions to this De-registration

• The chartered accounting fraternity and lawyers have said that they are unclear as to how alleged “suspicious and questionable operations” following demonetization to the cancellation of registration of one lakh companies by the government
• They are strongly questioning the move and are upset with the instantaneous decision that was brought forward “with one stroke of a pen in one minute.”
• The CAs and lawyers are waiting for a list of companies and the reasons for de-registration, as well as how this issue was linked to demonetization.
• They are also seeking a clarification whether under the provisions of the Income Tax Act or Companies Act, the companies are always given an opportunity to respond before any action has been taken against them, including striking off the names.