Sucheta Dalal :Changing powers: DCA to MCA
Sucheta Dalal

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Changing powers: DCA to MCA  

Jun 13, 2004

Vanishing companies are moving off the website and the actions of insurance companies need a closer watch...

By Sucheta Dalal


Now that the Department of Company Affairs (DCA) is under the independent charge of an independent, albeit tainted, Minister of State, it calls itself the Ministry of Company Affairs (MCA). Its website displays a list of vanishing companies that took over Rs 10,000 crores from investors between 1993-96 and scooted. At one time, there were 229 companies posted on the website, as identified by a high-powered Central Coordination and Monitoring Committee. This was set up following a lawsuit filed by the Midas Touch Investors Association. Recently, the list has shrunk to a mere 122 and a 100 plus companies have disappeared from the list of vanished companies. Virendra Jain of Midas Touch Investors Association, who has zealously pursued the vanishing companies’ case says those companies whose promoters responded to the regulators’ attempts to trace them have been removed from the list. But no one has checked whether any of them actually used investors’ money for the purpose that it was raised. Given the MCA’s abysmal record of successful prosecution, it seems unlikely that they will even be asked this question.

Happy independence

While on vanishing companies, the MCA website lists 82 companies against whom prosecution has been launched under Section 63 (criminal liability for misstatements in prospectus), Section 68 (fraudulently inducing persons to invest money) and Section 628 (false statements) of the Companies Act.

But, the moot question is, will the management of any of these companies be punished in the foreseeable future? Arvind P.Datar, Sr Advocate of the Chennai High Court and author of several law books says there is absolutely no record of successful prosecution by the MCA since independence. All examples and case laws of punishments for misstatements in the prospectus, he says, pertain to the British Raj. In fact, the last known case leading to imprisonment happened in 1944 and there isn’t a single successful prosecution under the now amended Companies Act 1956. Datar insists that it isn’t the inadequacy of powers, but the reluctance to use them effectively that allows unscrupulous companies and their promoters to get away scot-free. Clearly, independence has been a boon for Indian promoters who take investors for a ride.


Insurance shenanigans

While on consumer problems, the Insurance Regulatory and Development Authority (IRDA) needs to focus a lot of time and attention on various issues in the motor insurance business. For instance, we learn that some nationalised insurance companies in Uttar Pradesh levy, what is called a ‘loading’ charge, equal to the regular insurance premium on consumers.

The local office told a consumer that since the insurer has to pay out large sums to settle accident claims the ‘loading’ charge ensures that it doesn’t suffer losses. Can this be correct? Who is checking this illegal levy? Similarly, auto activist Veeresh Malik is locked in a battle with Oriental Insurance Company over the correct procedure of disposing off vehicles that are written off as a total loss. Malik quotes IRDA rules to say that when a vehicle is written off after the owner has paid his claim, it must be transferred to the name of the insurance company before it is sold off to the scrap merchant.

This precaution is meant to ensure that the registration number of the scrapped vehicle is not misused to give stolen vehicles a new identity. But he discovered that insurance companies sell off scrapped vehicles directly to third parties without transferring the registration to themselves. Isn’t this just a way of encouraging thieves? Meanwhile the Consumer Education and Research Centre (CERC) of Ahmedabad plans to file a public interest litigation (PIL) against the insurance companies for their reluctance to issue third party liability cover. There is never an outright refusal, but Prof Manubhai Shah says that insurance seekers are given a runaround until they give up. That is why accident victims rarely receive compensation.


Mobile blues

Mobile phone users have a litany of complaints these days. Frequent dropped calls keep adding to the telephone bill due to the 60-second pulse rate; SMS messages are erratic and have to be repeatedly resent to ensure delivery. This only adds to the service provider’s income. In Mumbai, sources at Reliance and Airtel say (off the record) the problem lies with their rivals, who do not have the infrastructure capacity to cope with increased traffic. The two earlier service providers — Orange and BPL — had all the time in the world to grow infrastructure in order to meet subscriber needs, but haven’t done so. After all, there is no fear of subscriber migration to a rival network, because nobody is ever sure where the problem lies and whether the grass is greener elsewhere. Since the Telecom Regulatory Authority of India (TRAI) hasn’t bothered about service quality, the mobile business remains a seller’s market. Yet, the entire regulatory system is based on the premise that the existence of four telecom companies would ensure competition and great service.


-- Sucheta Dalal