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Get approvals before prosecuting Govt cos, directors
July, 17th 2007

The officers of Ministry of Corporate Affairs (MCA) will have to comply with a strict procedure before filing any prosecutions against Government companies, directors and officers for contravention of the Companies Act.

Cautioning its officers, the Ministry has directed them to take all mandatory approvals before initiating prosecutions against such entities.

This move is to curb instances of inter-departmental complications which may arise as these officers are governed by their own cadre authorities, a senior official said.

Under the Companies Act, a Government company is one in which not less 51 per cent of the paid-up share capital is held by the Government.

An MCA official said it was brought to the notice of the Ministry that prosecutions were filed against Government companies, directors and officers in default without seeking prior authorisation of the Central Government, causing unnecessary complications and delays.

Refusing to divulge details on the names of such companies, he said that the latest move is only to ensure that all mandatory approvals are in place and legal hassles avoided.

The Ministry has written to its officers that prior to initiating prosecution against Government companies, its directors or officers for contravention of the provisions of the Companies Act, Central Government sanction in terms of Section 621 of the Act and prior compliance of the provisions of the Section 197 of the Criminal Procedure Code (CrPC) should be taken.

The CrPC stipulates prior sanction for prosecution of public servants.

Further, the Registrar of Companies (RoC) has also been asked to submit a reference to the MCA explaining the case against directors or officers concerned before initiating prosecution.

The RoC also needs to highlight the role of the directors or officers concerned so that the Ministry can examine the same for sanction of prosecution.

There were 1,328 Government companies limited by shares as on March 31, 2005.

After taking into account the newly registered companies, conversion between Government and non-Government companies, mergers, amalgamation and liquidation, there are 1,352 Government companies limited by shares at work in the country as on March 31, 2006.

Of these, 737 are public limited and 615 private limited.

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