Government adds more teeth to corporate vigilance system

In the first phase of upgradation,the department categorised the companies as listed and unlisted. Of the unlisted companies only those with a turnover of over Rs 100 crore or paid up capital of over Rs 50 crore or with over 1,000 shareholders will be scruitinised under EWS.

All these companies will be checked for the following if related party transactions account for more than 5 per cent of domestic turnover,if there is sudden occurrence of losses after two consecutive years of profits,if more than half the number of directors on the company’s board are changed during the preceding year,if more than 50 per cent of share allotment money is lying with the company,etc.

The EWS starts sending alert signals if discrepancies are found in a company’s books. Currently,parameters like adverse remarks from auditors,change in auditors more than once in three years,related party transactions of more than 5 per cent of domestic sales etc,have been allotted certain weightage and the government follows it for inspecting company books.

We have realised that the earlier parameters have not yielded expected results. Therefore,it is time to redesign the system so that it is more effective and accurate. Last time,we got 149 names under the EWS but only a few companies were actually involved in malpractices. So,we have decided to revisit these parameters and include new ones, the official said.

The officials said the ministry will go after those companies too which have raised money from the public in the recent past,or where private limited companies (with secured loans) have taken public deposits but havent made the payments on maturity or firms which have issued sweat equity.

The ministry has also decided to include vanishing companies,hitherto not scanned,for irregularities.