Chaos in companies calls for bolstering RJSCF for strong corporate governance

Corporate governance has become a much-discussed matter in recent times in Bangladesh. Reasons are numerous. But this is mainly because of occurrences of a series of irregularities and scams in the country's corporate world, particularly in the last couple of years.
Some of the troubling incidents reported in the media include the Hall-Mark loan scandal, BASIC Bank scam, capital-market debacle and alleged price fixing by different companies despite surveillance by the regulators concerned.
Experts and corporate practitioners often hold some major factors responsible for poor corporate governance. These include political interference into the corporate bodies, manipulation in certifying the financial statements of the listed companies, officials' lack of integrity and non-compliance with different regulators' directives.
They also blamed many organisations and institutions for such a situation. But, the role or responsibility of the Registrar of Joint Stock Companies and Firms (RJSCF) is not taken into cognisance.
However, many legal and corporate experts are of the view that negligence and/or incapability of the RJSCF to properly carry out its responsibility is one of the foremost reasons behind the entrenched bad corporate culture in the country. The body could be an effective and efficient regulatory mechanism to salvage the sinking corporate governance and protect interests of the general shareholders.
But, the potential remained unexploited since inception. Harnessing the untapped strength of RJSCF has appeared as the high demand of the present times, in the wake of so many scams and resultant crises facing the companies concerned and financial outfits.
What we generally know is that RJSCF issues registration of various types of entities under different laws. But what is then? Under the relevant legal provisions, it has some responsibilities to watch over functions, especially financial affairs, of the registered entities.
Unfortunately, the RJSCF could not play its due role because of a number of reasons. These include severe shortage of manpower and lack of their efficiency and capability to enforce the legal provisions to compel the companies to stay on the right path.
There are also question about the competence of some officials of RJSCF to deal with the technical works like scrutiny of the financial statements that are certified by the Chartered Accountants (CAs) and submitted before it by the firms.
All of these together are basically acting as one of the major causes to billow the bad corporate culture at the entities since very beginning of their births.
Several types of entities, according to the existing provisions, get their registration with the RJSC. These are: private company, public company, foreign company, society, trade organisation and partnership firm. After registration, they are legally required to submit annual 'return filing' before the Registrar every year.
The returns filing consists of various types of information relating to their management and operation. Those include balance sheet, profit-and-loss account, annual summary of share capital, list of shareholders and directors, and consent and particulars of directors.
The Companies Act 1994 made the submission of annual 'return filing' mandatory for the companies. Its Section 190 states: "After the balance sheet and profit-and-loss account or the income-and-expenditure account, as the case may be, have been laid before a company at an annual general meeting as aforesaid, there shall be filed with the Registrar, within thirty days from the date on which the balance sheet and the profit-and-loss accounts were so laid, or where the annual general meeting of a company for any year has not been held, there shall be filed with the Registrar within thirty days from the last day on which that meeting should have been held…."
Purpose of this provision of the Companies Act is to protect interests of the general people, mainly the shareholders and creditors of the companies. The provision intends to safeguard their interests by making the submission 'obligatory' on the company or its directors to file copies of the balance-sheet.
Because, the compliance enables the shareholders and creditors apart from the general public to know how the affairs of the company are being run, what assets and liabilities the company exactly have and how the company is doing its overall business activities.
But, undesirably, though, a vast majority of the registered entities-- about 93 per cent-- circumvent submission of the 'return filing' for years due to the feeble surveillance and enforcement activities of the RJSCF. Avoidance of the submission kept the Registrar as well as the government in the dark about functions, especially the corporate practice, of the firms. The stakeholders too are consequently deprived of knowing the financial information of those entities.
The RJSCF data, collected under the Right to Information Act 2009, reveal that a total of 176,816 entities, in those six categories, had got registration from the body till October 1, 2013. It is assumed that a good number of those entities (about 25-35 per cent) are dormant though no such official data were found in this connection.
Of the total entities, only 12,836, including 596 public, 11637 private and 16 foreign companies, submitted their annual 'return filing' with the RJSCF in 2012 in compliance with the Companies Act 1994.
Up to October 1, 2013, as per the data, about 124,283 public and private companies had registered with the RJSCF. Of them, 111698 are in its Dhaka office, 10472 in Chittagong, 1219 in Khulna and 894 in Rajshahi office. Separate figures of both public and private companies were not found. However, it was estimated that public companies are 12,000-15,000 and the rest about 110,000 come under private-company category.
Of the total registered public companies, only 596 submitted their annual 'return filing' in 2012. In other years, the number is almost same such as 558 in 2011, 527 in 2010 and 578 in 2013 (till November 20). And only 11,637 private companies placed 'return filing' in 2012. The figures in other years are also close to it: 10,626 in 2011, 9,513 in 2010 and 11,049 in 2013 (till November 20).
Some 311 foreign companies were registered with the RJSCF in its Dhaka office. Only 5 of them complied with the return-submission provision in 2010. The number was 16 in each of the years 2011 and 2012, and 22 in 2013 (up to November 20).
The number of partnership firms registered with the RJSCF is 38186, as of October 1, 2013. Of them, 35,908 are in its Dhaka office, 1934 in Chittagong, 191 in Khulna and 153 in Rajshahi. But, only 5 of them submitted the return filing in 2010. The number was 9 in 2011, 10 in 2012 and 23 in 2013 (till November 20).
The RJSCF issued registration to 13,083 societies while only 288 of them complied with the submission provision in 2010, 297 in 2011, 386 in 2012 and 315 till November 20 in 2013.
About 953 trade organisations had obtained their registration till October 1, 2013 while the numbers of such compliant ones are 142, 148, 191 and 155 in 2010, 2011, 2012 and 2013 (till November 20).
Default committed by the entities in filing the copies of their balance sheets before the Registrar is undoubtedly resulting in defeat in the underlying objective of the company law. Non-compliance with the return- filing provisions by vast majority of the firms is an impediment to inspecting their financial statements, apparently allowing them to continue irregularities unabated.
So, offence under this section cannot be held to be merely a technical offence--it's a question of protecting the general people's interest, ensuring the good corporate governance and ultimately expediting the economic growth in the country.
The non-compliance came to such a pass that the entities generally come for heir annual 'returns filing' only when they feel its necessity, such as urgency of updating documents from RJSC in order to take bank loans or sign any deal with other firms or institutions.
RJSCF itself admits that there is need for enforcement of the law to compel the registered entities to follow the corporate discipline, articulated in the Companies Act, as the people are generally not law-abiding. But the RJSCF cannot do so for not having sufficient and qualified manpower, among others.
Shortage of manpower is depicted clearly by the information that following recommendations of the Enam Commission in 1983, when only about 15,000 entities were there, RJSCF's four offices across the country were given 78 employees and the number of employees remained same after 30 years though the number of total entities rose eleven times during this time.
In addition to non-compliance from vast majority of the entities, RJSCF's incapability to properly scrutinize the 'return filings', placed by a small number of companies and firms, gave the firms a free hand to shun the corporate discipline in a bigger way and go freewheeling.
Due to the experience of such poor corporate culture since their inception, the companies are not able to come out of the bad practice even when they are listed with the stock exchanges, thus eventually harming the general investors at large.
As the registrar, RJSCF is supposed to preserve the submitted documents of the entities. And other regulators like Bangladesh Bank, the National Board of Revenue (NBR) and Bangladesh Securities and Exchange Commission (BSEC) can collect those from RJSC, if necessary, in order to inquire into any suspicious matter of those firms. But, this is also not done due to the feeble legal enforcement by the RJSCF.
Considering all the above-mentioned factors and for the sake of reinforcing the establishment of corporate governance, it is the high time the authorities took effective measurers to strengthen the RJSCF and unlock its immense potential to this effect. The measurers that should be taken into active consideration include the increasing of the number of manpower and giving them time-befitting training.
Salary and allowances of the posts at the RJSCF also need to be increased to attract brilliant and experienced persons into the job of policing the merry-go-round corporate world. Instead of deputation from the Commerce Ministry for RJSCF for a short time, the authorities should recruit permanent officials to expedite its function.
Though usage of technology was raised at the RJSC, it remained very low compared to its usage in other institutions. So, there is also need for utilizing the technological muscle of the watchdog body to make it really effective.

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The writer is a Staff Correspondent of FE. He can be reached at [email protected]