Research topics proposed by the Ministry of Corporate Affairs show that its policy priorities for the future include predicting bankruptcy based on the financial statements filed by companies, integrating its database of companies with those other regulators and the extension of sustainability reports to unlisted companies.
In a request for research proposals released last week, MCA said these ministry-funded projects will help improve regulatory oversight, provide early warning of business failures and improve the ease of doing business.
One of the major research projects is the integration of the Department’s database of statutory filings by companies with those of other regulatory bodies. “Integrating the MCA21 database and databases from other departments and regulators will not only help avoid multiple filing requirements, but will also strengthen enforcement,” the ministry said.
According to experts, reducing multiple filings will improve ease of compliance, which should have been introduced earlier. “The same information is provided to different regulators as part of statutory filings, all of which are online. So why not make statutory documents available to all relevant regulators? The idea should be to help businesses,” said Rajat Bose, a partner at Shardul Amarchand Mangaldas & Co., a law firm.
This decision may help the government in another way. Often the misappropriation of funds raised as debt or the proceeds of a public float is linked to money laundering, tax evasion, etc. These are governed by different laws such as the Companies Act, the PMLA or the Income Tax Act. Regulator database integration can help authorities quickly detect the extent of defects and violations
Another area of research is to design an early warning system for bankruptcies, taking into account factors such as the increase in loans granted to major shareholders (promoters) or group companies in relation to the debt of the business, regular cancellation of loans, rolling over of loans, mismatches in assets and liabilities for financial companies and increased pledging of developer shares, the ministry said.
Asset-liability mismatches have been cited by experts as the reason for the severe financial strains that non-banking financial companies have suffered in recent years. Non-bank lenders must incorporate.
Using the extensive database of financial statements available from the ministry to develop a bankruptcy prediction model is another research proposal the ministry intends to fund.
Improving the ease of doing business is a major area of research. Examining the possibility of forming advance ruling authorities for the Corporations Act such as those that exist for income tax and GST is another area the department wishes to explore. Advance ruling authorities advise on the legal provisions applicable to a proposed transaction, a regime intended to reduce litigation.
Corporate social goals that go beyond shareholder profit are a key area the department is exploring for insight. One of the research topics proposed by the ministry is the feasibility of extending the Sebi’s corporate responsibility and sustainability report (BRSR) beyond listed companies and for the voluntary report.
The evolution of a corporate governance index is yet another area of research. In addition to measuring companies’ performance on this front, such an index could offer solutions to identified shortcomings, the ministry said.