Large unlisted companies may be regulated

A key Ministry of Corporate Affairs (MCA) panel is considering devising a regulatory framework for large unlisted companies, including unicorns, to ensure better adoption and tighter scrutiny of corporate governance standards by them, a person aware of the details said.

Under the proposed framework, such entities could be mandated to submit quarterly filings of financial statements with the MCA, among others, said the person, who did not wish to be identified.

The proposal gained traction after the alleged corporate governance lapses at edtech firm Byju's this year.

The person said once the Company Law Committee under MCA secretary Manoj Govil takes a final call on such a regulatory framework, it could classify large unlisted companies based on factors such as their revenue and turnover. "A final decision on this issue will be taken by the committee soon," he said.

Currently, despite their large turnover and heightened influence over certain sectors, these large unlisted firms, especially the private limited ones, are not subject to the same regulatory filings and scrutiny as even small listed firms.

Amid a proliferation of the Indian startup eco system - now the world's third-largest - and the emergence of dozens of unicorns in recent years, the need for a proper regulatory framework for large unlisted firms assumes significance.

As of May 31, India is home to 108 unicorns with a total valuation of $340.8 billion, according to the Invest India website. As many as 65 of them became unicorns in 2021 and 2022 alone. The country had about 99,000 recognised startups spread over 670 districts as of May 31, according to the Department for the Promotion of Industry and Internal Trade (DPIIT). Analysts say many of these startups have potential to emerge as unicorns in just a few years.

Earlier in this financial year, the crisis at Byju's flared up following the resignation of three directors and the auditor over an inordinate delay in the announcement of financial results, among other lapses. Subsequently, the MCA ordered an inspection of Byju's books to ascertain potential corporate governance lapses there and sought a report in one-and-a-half months.

Earlier, former Securities and Exchange Board of India chairman Ajay Tyagi had called for ensuring stricter governance standards at big unlisted firms.

Tweaks in Companies Act

The MCA is holding inter-ministerial consultations to finalise amendments to the Companies Act, the person said.

The amendments are expected to be modelled on the recommendations of the Company Law Committee with suitable modifications.

The committee had last year made a raft of suggestions, including recognising issuance and holding of fractional shares, restricted stock units and stock appreciation rights; easing the requirement of raising capital in distressed companies and replacing the requirement of furnishing affidavits with the filing of self-certification; bolstering the audit framework and ensuring the independence of auditors.



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