Unlisted ‘important’ cos face stricter norms | Economic Times

Mumbai: Large unlisted companies may have to comply with stricter disclosure rules similar to their listed counterparts. The government on Friday tweaked the Companies Act to introduce a new law that requires certain types of unlisted companies to submit their audited financial reports to the Ministry of Corporate Affairs (MCA) within thirty days of the end of a financial period.The tighter regulations come in the aftermath of the IL&FS fiasco where the regulators could not sense the financial stress due to delayed disclosures. The focus of the new laws could be on sectors or companies that could pose systemic risks especially those which have borrowed sizeable amounts from banks and other financial investors, said people with the knowledge of the matter.For companies that fall under this new law, the timeline for disclosure of results would be even tighter than their listed peers. Until now, unlisted companies used to get up to six months from the end of the financial year to submit their results to MCA. Listed companies need to make the same disclosure within sixty days of the end of the financial year.80441118“Preparation and submission of periodic financial disclosures would enable relevant companies and regulators to take timely action in case of any irregularities,” said Moin Ladha, partner, Khaitan & Co. “This requirement is likely to apply to systemically important companies operating in sensitive sectors like financial services, to ensure that a true and fair picture is available in a timely manner and a larger financial crisis can be avoided.”The government is yet to notify what sort of companies would be covered under the new law and the frequency of disclosures.Usually, listed companies are subjected to wide-ranging disclosures since thousands of investors would have put money in the company. However, in unlisted companies, there are only a handful of investors. Still, there may be an indirect public interest in these companies like in the case of IL&FS. The default by IL&FS Group had a crippling impact on non-banking finance companies (NBFCs) and select mutual funds.“Such companies may have taken loans from banks or availed help from other institutions that are indirectly funded by the people of India,” said Pavan Vijay, founder, Corporate Professionals. “Hence, asking them to make time-bound disclosures is in the public interest.”There are several large unlisted giants in India. All the so-called ‘Unicorns’ in the start-up space are unlisted. In the financial services sector, several strategically-important companies continue to be unlisted.The National Stock Exchange (NSE), National Payments Corporation of India (NPCI) are both unlisted. HDB Financial Services, a lender promoted by the HDFC group is unlisted too.In the United States, private companies are not required to file any financial information except to the tax authorities. China, too, has rules. In various European countries, large unlisted companies are required to disclose several sets of information including balance sheets, corporate governance reports etc.