The Company Law Committee (CLC) formed by the Ministry of Corporate Affairs (MCA) is discussing the possibility of bringing in stricter regulations for ‘bigger’ unlisted companies. The committee is also likely to define ‘bigger’ in terms of size and turnover.

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Sources at the Corporate Affairs Ministry said to CNBC-TV18 that the Company Law Committee is deliberating stronger regulations for big unlisted companies to make them more accountable. They added that the discussions have picked up pace after the irregularities at ed-tech start-up BYJU'S.

In the past few months, tutoring startup BYJU'S faced fire after reports of failing to file its financial accounts on time and skipping an interest payment on its term loan. The ed-tech startup was also accused by its investors of hiding half a billion dollars.

The CLC is now discussing a broader framework to make bigger unlisted firms including mature start-ups under a stricter regulatory framework. Among other regulations, the committee is likely to deliberate higher levels of regulation on financial reporting. Mandatory submission of quarterly financial statements is among the regulations being discussed for these firms.

Quarterly financial reporting which is basically disclosure of information about the financials of the company is followed by all listed companies in India. The practice is essential for stakeholders to take timely action in case there are lapses or issues in the financials or financial reporting of a company. With the startup ecosystem becoming bigger and several unlisted companies becoming as big as their listed peers, the ministry is looking at parity in regulation.

Currently, listed entities are subject to comprehensive disclosure requirements, but the requirements are not applicable for unlisted companies. Recently, former Securities and Exchange Board of India (Sebi) chief, Ajay Tyagi, had called for a review of corporate governance compliance of mature startups.

Also, market watchdog SEBI spoke about the need for such regulations in its annual report. Sebi said that there is a need to identify, monitor and manage risks introduced into the securities market ecosystem by unlisted companies in a conglomerate with a complex set of listed and unlisted associates.

The tenure of the company law committee, which was formed by the MCA in 2019, has now been extended by a year to look at multiple issues, including regulation of bigger unlisted companies. The amendments to the Company’s Act are under inter-ministerial discussions as of now.

Also Read:BYJU’S appoints Arjun Mohan as India CEO after Mrinal Mohit quits

(Edited by : Sangam Singh)

First Published:Sept 25, 2023 4:46 PM IST