The Hindu has learned that the central government has recommended disciplinary action against 400 chartered accountants (CAs) and corporate secretaries (CSS) for their alleged role in incorporating Chinese shell companies into metropolitan cities by ignoring norms and regulations. They allegedly played a role in incorporating Chinese shell companies into metropolitan cities by violating standards. The crackdown is part of a series of measures the government took against Chinese companies following the 2020 Galway incident in which 20 soldiers were killed in violent clashes with the Chinese People’s Liberation Army (PLA).
While the foreign direct investment (FDI) of Chinese companies has reached a standstill in the past two years due to various regulatory measures initiated by the government, trade between the two countries reached a record $125 billion last year. In April-June 2020, FDI from China (counting from the year 2000) was 15,422 crore, while it fell to ₹12,622 crores in the first quarter of 2022, according to the Department for Promotion of Industry and Internal Trade (DPIIT ) data.
The Department of Corporate Affairs (MCA) has recommended the action after receiving input from financial intelligence agencies over the past two months. A senior government official told The Hindu that the CAs and CSS against disciplinary action that had been taken had helped set up many Chinese or Chinese shell companies in major cities without adequate compliance with the rules and laws. A ministry spokesman did not comment.
The Institute of Chartered Accountants of India (ICAI), a statutory body that regulates the profession of Chartered Accountancy in the country, said in a statement to The Hindu that the “Disciplinary Directorate of ICAI has received complaints from the office of several Registrars of Companies nationwide against CA professionals for their involvement in companies alleged to have ties to Chinese nationals.”
“The said complaint processed in terms of the Accountants (Procedure of Investigations of Professional and Other Misconduct and Conduct of Cases) Rules, 2007. Hence blame, as alleged, as well as the number of chartered accountants alleged to be involved, must be determined/determined after conducting detailed research/investigation, so it is premature to comment on this,” the ICAI said. In April this year, the MCA amended the Chartered Accountants Act 1949, the Cost and Work Accountant Act 1959, and the Companies Secretary Act 1980 to bring greater accountability. It time-limited disciplinary action against CAs and CSS by the respective institutes.
A response from the Institute of Company Secretaries of India (ICSI) was awaited. Since October last year, the tax authorities have raided about half a dozen Chinese telecom, fintech, and manufacturing companies over allegations of tax evasion and under-billing. On June 1, the MCA amended the Companies (Appointment and Qualification of Directors) Rules, 2014, making it mandatory to obtain a security clearance from the Department of the Interior (MHA) as a person belonging to a country that shares a border intends to become a director or shareholder of an Indian company with India. The official said the decision would affect Chinese companies operating in India through subsidiaries in other countries.
On April 18, 2020, to curb opportunistic takeovers by Chinese companies of loss-making Indian companies, the DIPP notified a new rule requiring pre-approval by the government for FDI from countries that share a land border with India. Prior government approval or MHA security clearance is required for investments in critical sectors such as defense, media, telecommunications, satellites, private security agencies, civil aviation, mining, and all assets from Pakistan and Bangladesh. Since FDI in non-critical sectors is allowed through the automatic route, these proposals would have been approved earlier without the nod from the MHA. In October 2020, an FDI proposal review committee headed by the Union Minister of the Interior and Secretary DIPP was constituted as a member to review security clearances for Chinese FDI proposals intensively.
