Di­rec­tor dis­qual­i­fi­ca­tion hits 500 listed firms

Stock ex­changes send no­tices ask­ing com­pa­nies why their di­rec­tors were dis­qual­i­fied by the min­istry of cor­po­rate af­fairs THE STORY SO FAR

Mint Asia ST - - News - B Y J AY S H R E E P. U PADHYAY

Stock ex­changes have sent no­tices to listed com­pa­nies that share di­rec­tors who have been dis­qual­i­fied for as­so­ci­at­ing with other firms which haven’t filed their fi­nan­cial state­ments or an­nual re­turns for three years.

The no­tices ask such firms to ex­plain why their di­rec­tors have been dis­qual­i­fied and when the com­pa­nies plan to re­place them, said two peo­ple with di­rect knowl­edge of the mat­ter. At least 500 pub­licly traded firms shared di­rec­tors with sus­pected shell com­pa­nies.

“The Na­tional Stock Ex­change of In­dia or NSE has so far sent out 307 no­tices to listed com­pa­nies in two tranches seek­ing ex­pla­na­tions on their dis­qual­i­fied di­rec­tors. The first set of 210 no­tices were sent in last week of Septem­ber and 97 no­tices were sent on Fri­day,” one of the two peo­ple cited 5 Sep 2017: MCA strikes 209,000 firms off the ROC data­base for not fil­ing re­turns for 3 years 12 Sep: MCA says it has iden­ti­fied 106,000 di­rec­tors for dis­qual­i­fi­ca­tion 20 Sep: MCA starts pub­lish­ing names of di­rec­tors who have been dis­qual­i­fied Last week of Sep: NSE sends out 210 no­tices to listed com­pa­nies whose di­rec­tors have been dis­qual­i­fied by MCA BSE iden­ti­fies 500 com­pa­nies who ‘ap­pear’ to have di­rec­tors dis­qual­i­fied by MCA on their board 6 Oct: NSE sends out an ad­di­tional 97 no­tices to listed firms above said on con­di­tion of anonymity.

BSE Ltd has also iden­ti­fied 500 com­pa­nies so far and is send­ing out no­tices to th­ese firms. Mint could not as­cer­tain the num­ber of no­tices sent out by the BSE so far The num­ber could be larger as this is a pre­lim­i­nary as­sess­ment and more no­tices could be sent,” said the sec­ond of the two peo­ple cited ear­lier, also on con­di­tion of anonymity.

A BSE spokesper­son de­clined to com­ment.

“NSE has sent out the let­ters to con­cerned com­pa­nies and has sought clar­i­fi­ca­tion on the sub­ject mat­ter,” an NSE spokesper­son said in an emailed re­sponse to queries from Mint.

On 12 Septem­ber, the min­istry of cor­po­rate af­fairs (MCA) is­sued a state­ment say­ing that it had iden­ti­fied 106,000 di­rec­tors of com­pa­nies that did not file their fi­nan­cial state­ments or an­nual re­turns for three straight years, vi­o­lat­ing pro­vi­sions of the Com­pa­nies Act, 2013. The names of the di­rec­tors were sub­se­quently made pub­lic.

As per the MCA di­rec­tive, th­ese di­rec­tors can­not serve on the board of any com­pany for the next five years. Some of the di­rec­tors were dis­qual­i­fied ret­ro­spec­tively from Novem­ber 2015.

Any dig­i­tal sig­na­tures by th­ese di­rec­tors on an­nual re­ports, fi­nan­cial re­sults and other com­pany doc­u­ments will not be ac­cepted by Regis­trar of Com­pa­nies (ROC).

“While most of (the) firms are small with sus­pended share trad­ing, about 50 com­pa­nies im­pacted are larger com­pa­nies and are in BSE top 500,” said the sec­ond per­son cited ear­lier.

The names in­clude some that are sim­i­lar to those of prom­i­nent politi­cians and busi­ness­men, in­clud­ing non-res­i­dent In­di­ans. Mint couldn’t as­cer­tain whether th­ese di­rec­tors were in­deed pub­lic fig­ures.

Even the ex­changes are fac­ing this dif­fi­culty “as i n some cases there are only names and not the di­rec­tor iden­ti­fi­ca­tion num­ber or DIN for clear iden­ti­fi­ca­tion”, said the sec­ond per­son cited ear­lier.

“In some cases the names look fa­mil­iar but DIN is not read­ily avail­able for clear iden­ti­fi­ca­tion. In some cases the con­cerned di­rec­tor had stepped down from the com­pany about seven years back so he/she can­not be as­so­ci­ated with com­pany,” added this per­son.

Such di­rec­tors are be­ing en­cour­aged to ap­proach the MCA for a clar­i­fi­ca­tion, he added.

“Any ac­tion on di­rec­tors of un­listed com­pa­nies could have a spillover im­pact on the listed com­pany space if they share com­mon di­rec­tors. While the Com­pa­nies Act is seem­ingly am­bigu­ous on whether th­ese dis­qual­i­fied di­rec­tors can con­tinue to hold other func­tion­ing di­rec­tor­ships, if and

.“when th­ese di­rec­tors are asked to va­cate their of­fices, it will step up de­mand for qual­i­fied di­rec­tors from here on,” said Nikhil Bedi, leader (foren­sic prac­tice), Deloitte In­dia.

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