Cleaning up fudged accounts and tackling white collar fraud must become the priority

File your tax returns and financial statements in time or get your bank accounts frozen was the terse message sent across to companies by the Narendra Modi government.

If the centre has its way, it may begin with freezing bank accounts of over 1,62, 618 companies that have either gone out of business and deregistered or not undertaken financial transactions for many moons now. These firms have also hopelessly defaulted in filing the mandatory financial statements of accounts before competent authorities.

Prime minister Modi had recently announced removing these firms from the Registrar of Companies (RoC) roster as part of cleaning up the Indian corporate sector. It’s a welcome move.

Larger question is why should companies default in making financial declarations before the statutory authorities? Shouldn’t their transactions and financial data be above board? Unless there’s something to hide, why not make the financial data available on a real time basis?

These are questions that may bring to fore uncomfortable facts. As per Companies Act of 1954 amended in 2013, most firms will have to file their disclosures in 30 days from the date of corporate action. This time frame could be extended by another 270 days on payment of small fees after citing valid reasons for delay in making statutory declarations.

The irony was that a vast majority of companies — big or small, registered or deregistered — do not file financial statements, profit and loss accounts or even innocuous financial information much after extended deadline as well. In fact, thousands of firms do not even bother to make any statement before the law enforcement agencies for years in continuum.

For instance, if over 1.62 lakh companies were de-registered why cannot their data be archived? Even if a company was dormant for two consecutive years, why is it that no declaration to that effect was made under Section 455 of Companies Act, 2013? Or, why’s it that RBI has very little or no powers at all to freeze accounts of these firms, directors and promoters?

Another three lakh companies have not bothered to update their financial data in the last few years. What has brought them under the needle of suspicion was the flurry of cash transactions undertaken by them during and after demonetisation of high value currencies in November last year. Shouldn’t these companies and their bosses not come clean quickly to escape punitive action?

Giving these companies a deadline with time bound action to make good their previous defaults was one sure way of dealing with the menace. Persistent defaulters in making declarations need not be spared or pardoned given the avowed objective is to clean up corporate India.

Fear of repressive arm-twisting by a bunch of officials cannot be an excuse for not filing tax returns or statements as required under the law. While there’s no room for mishandling companies and genuine businesses, Indian corporate sector will have to learn the hard way to induce transparency in handling their affairs.

Related issue is that of shell companies being rampantly used as a smoke screen for financial manipulations, diversion and laundering of funds by even the biggest corporates, their promoters and directors at an individual level. A complex web of 399 shell companies unearthed by CBI recently pointed to huge laundering over about Rs 2,900 crore by unscrupulous corporates and their top officials. CBI handling over 200 cases of shell companies front-ending across the border transactions worth Rs 30,000 crore points to the gravity of the problem. Most of these outfits have invariably been used to round-trip funds across foreign destinations to turn illegitimate funds white. Invariably, corporates have taken this route to siphon off liquid debt funds sourced from banks and turn their businesses into non-performing assets. Cleaning up corporate books of accounts and tackling the white collar fraud must become the priority.