AS THE NARENDRA MODI government continues its crackdown on black money, P.P. Chaudhary, minister of state for corporate affairs, says the Congress-led UPA government grossly misused the system and doled out fat bank loans to businessmen, resulting in ballooning of non-performing assets. He says his government has been on a cleanup drive with measures like demonetisation, de-registration of 2.26 lakh companies for non-compliance and dubious transactions, the amendment to the Companies Act and the enactment of the Insolvency and Bankruptcy Code. Excerpts from an exclusive interview:
How successful has the government been in fulfilling the BJP’s election promise of a crackdown on black money?
Our government has taken a number of bold steps to curb black money in the economy by reducing the volume of cash transactions and enhancing digital transactions. This also helped in eliminating fake currency and curbing terrorist funding. The government demonetised the high-value currency notes, after which a substantial amount of unaccounted money was deposited in banks. [As] income tax returns had to be filed, the number of tax payers increased and the revenue also increased. Besides, Aadhaar has been made mandatory in many of the government-funded welfare schemes, which has helped eliminate intermediaries and ghost payments, plug leakages and put a check on the generation of black money. These steps are part of a continuing fight against the bigger problem of black money and corruption.
Is the government planning to define shell company?
Shell company is not defined in the Companies Act, 2013. Typically it refers to a company without active business operations or significant assets, which basically acts as a pass-through entity. Shell companies are not necessarily illegal, but very often used for illegal purposes such as tax evasion, money laundering, obscuring ownership, siphoning of funds, manipulation of stock prices through circular trading, holding of benami properties, misusing bank loans and falsification of financial statements. A special task force on shell companies has been set up by the PMO under the joint chairmanship of the revenue secretary and the company affairs secretary with members from the departments of financial services, Central Board of Direct Taxes, Central Board of Indirect Taxes and Customs, CBI, ED, Serious Fraud Investigation Office, Financial Intelligence Unit, and on need basis co-opt officers from the RBI, SEBI, Directorate General of GST Intelligence, DG of Corporate Affairs and DG of Central Economic Intelligence Bureau to look into the matter of shell companies. The task force has identified typical attributes of a ‘shell’ company, which is prone to indulge in illegal activities. Based on these attributes, enforcement agencies concerned would be able to identify shell companies and take action as per law.
Why did the government wait for demonetisation to act on shell companies?
There was no question of the government waiting for demonetisation; 2,26,000 non-compliant companies were struck off because they had not filed their annual returns for two consecutive years. Of these 2,26,000 companies, 1,68,000 companies had deposited cash in their bank accounts during demonetisation. Out of this, 73,000 companies deposited as much as 024,000 crore. One company deposited and withdrew Rs2,484 crore during demonetisation. Many companies thus came under the tax radar as a result of demonetisation. There was a need to know how much of this was black money. Agencies like the SFIO, ED, CBDT and FIU are looking into it.
What further action is likely on this?
During the financial year 2017-18, the government had identified a total of 3,09,619 directors for disqualification, as they were directors of those companies that had failed in filing their annual returns for three consecutive financial years. Of these, 2,10,116 were directors on board of companies struck off during the first drive. This is definitely turning out to be a deterrent exercise as the chalta hai system has transformed into a transparent system, and now you have to be compliant with the law.
The government also launched the Condonation of Delay Scheme (CoDS), effective from January 1 to May 1, 2018, for the defaulting companies to regularise their pending statutory returns.Accordingly, 13,993 companies availed CoDS to become compliant and approximately 30,000 of such disqualified directors have been regularised. We have also identified 7,771 Limited Liability Partnerships (LLPs) that have not filed their financial statements or annual returns for two consecutive years for taking action under the Limited Liability Partnership Act, 2008.
What is the government doing about bringing back fugitive economic offenders?
I am glad that as a result of the untiring efforts of our investigative agencies, we have succeeded in bringing back Christian Michel to India. As far as the matter of extradition of Vijay Mallya is concerned, as you are aware, with the sustained efforts of our agencies we have won the first round and the UK court has ordered his extradition to India. We have enacted the Fugitive Economic Offenders Act to prevent defaulters from running away from the country without undergoing the legal trial. If you see, all the loans, including the huge loan to Mallya, were given during the Congress-led UPA regime. The system was grossly misused, resulting in the ballooning of non-performing assets. With the rising NPAs, a situation would have arisen where the banks would have crashed. Now we are not only organising the system but also trying to bring back the money. We have undertaken the biggest economic reform after independence by enacting the IBC. The IBC makes resolution possible. During the UPA tenure, the rate of recovery was much lower. The liquidity of banks and other financial institutions has increased.
Congress president Rahul Gandhi says your government favours corporates.
Rahul Gandhi has made such comments without any basis and evidence. The reality is that their own government squandered public money by doling out huge loans to corporates and now the country is suffering. During the UPA tenure, certain people used public money to enjoy but now they have to think about repayment. We have made a timely intervention with the IBC and a string of other measures. This has not only stemmed the adverse impact on banks, but also had a huge deterrent effect. We have noticed that recovery of loans has started happening even before the creditors approach the tribunal for recovery under IBC. Second, an ecosystem has been created in the economy which calls for transparency. And last, earlier the banks used to run after people to recover their money, but now people are approaching banks. So, the system is changing for the better. I can tell you that some big repayments have been made, which never happened earlier. For Rahul Gandhi to say that banks’ money is being wasted is a statement made without any basis.
The SFIO is severely understaffed. What steps are being taken to strengthen the agency?
Out of 133 posts, 61 are currently filled up. Recently, there was a meeting of committee of secretaries, which suggested several steps for strengthening the SFIO. The proposal for temporary relaxation of regular recruitments, which requires consultation with the UPSC, is also under examination. In order to provide career opportunities to directly recruited officials, and also to ensure progressive growth in the number of permanent cadre officials, a provision of appointment through promotion has been made in the recruitment rules of 36 higher grade posts. Thus, the strength of permanent cadre officials will increase gradually. There is also a proposal to upgrade secretarial posts in SFIO. The ministry has also approved engagement of 41 consultants as experts in various fields in SFIO.
There has been talk of using data mining, artificial intelligence and data analytics to stem corporate fraud. What is the progress?
Artificial intelligence is the future of enforcement platforms. This, coupled with data mining and data analytics, will enhance the enforcement capabilities of the government. The ministry is in the process of conceptualising the approach for utilising data mining, artificial intelligence and data analytic techniques for better compliance and enforcement. Such a system will enable the government to be proactive rather than reactive.
There are multiple agencies dealing with corporate fraud. Do you think there is a coordination problem?
Today, by and large, all the agencies are working in close coordination, and they share the necessary information as and when the need arises. But yes, the government is seriously examining having a central coordination body which will act as a centralised platform that will settle any issues that may arise out of sharing documents between agencies.