Chapter 11 - Indian Corporate Law Service (ICLS) | A Bouquet of Services by IPS Lohit Matani and IPS Vishal - UPSC PDF Download

Indian Corporate Law Service (ICLS)

Contributor: Mr. Sheth Vyomesh Rajeshkumar, ICLS 2013 Batch

11.1 Cadre Structure and Allocation

The ICLS posts are spread over the offices of the Registrar of Companies (ROC), Official Liquidators (OL), Regional Directors, Company Law Board (CLB), Competition Commission of India (CCI), Serious Fraud Investigation Office (SFIO) and the Headquarters of MCA.

11.2 Roles and Responsibilities

The Officers have different roles in different offices and their functions broadly include the following:

1. Regional Director: As Regional Directors, they act as administrative heads of a region. They exercise certain statutory powers and functions of the Central Government delegated to them as per the Companies Act. They also exercise administrative control over all the offices, the ROCs and OLs in the region. Officers under Regional Director can conduct inspection as per provision of the Companies Act.
2. Registrar of Companies: In this role under the Companies Act and Limited Liability Act, the officers exercise the powers regarding registration and regulation of companies and Limited Liability Partnerships. Officers under ROC can conduct and supervise inquiry and inspection of the companies under relevant provisions of the Companies Act.
3. Official Liquidator : OL is considered as an officer of the High Court. In this role, they perform the statutory duties of liquidation/ winding up of companies which includes taking of possession of the properties of the companies in liquidation, realization of assets and distribution of the assets of the company amongst the creditors, workmen, unsecured creditors and the contributories (ex-shareholders) of the company, etc.
4. Central Registration Centre: ICLS officer posted at Central Registration Centre is involved with availability of name and incorporation related work.
5. Headquarter Functions: While being posted in the Ministry of Corporate Affairs, ICLS officers discharge various functions such as framing of policies, rules/ regulations etc., issuing notifications and circulars, implementation of e-governance in the Ministry, legal and court matters, and examining inspection and investigation reports.
6. National Company Law Tribunal (NCLT): Here the officers work for adjudicating issues relating to companies in India.
7. Serious Fraud Investigation: Officers investigate and prosecute cases of serious white collar crimes/ frauds.

11.3 Normal Growth Profile

We will be discussing about the various career opportunities as an ICLS Office. However, this topic only deals with various position an ICLS Officer holds during his normal professional growth in the parent department.

11.4 Recruitment

The recruitment into ICLS happens through two channels:

1. People are inducted into ICLS after qualifying in the Civil Services Exam conducted by UPSC.
2. Group B officers like Senior Technical Assistants/ Company Prosecutor, and so on, are promoted to the rank of ICLS after minimum 3 years of their service, depending on their performance. The ratio of direct to promoted officer is 60:40.

11.5 Training

The training structure of the ICLS is divided in to the phases as mentioned below.

Apart from the Foundation Course, the induction training of ICLS Probationary Officers (POs) is organized by ICLS academy, located at Indian Institute of Corporate Affairs, Manesar. The induction training has been designed so as to provide requisite expertise in Corporate Laws and a basic understanding of all related subjects. This induction training enables the POs to acquire the knowledge and skills they need to perform their duties effectively and efficiently as corporate regulators immediately on their posting. The course duration at ICLS Academy is around 10-12 months.

The training is proposed to be divided into three phases which are a combination of classroom teaching and on the job field training. The duration of each of the three phases can be modified depending on requirement. Classroom teachings are conducted at the IICA premises at Manesar (Gurgaon). In the field training the officers are attached for their field training to the offices of Registrars of Companies, Official Liquidators, Regional Directors, Company Law Board, Serious Frauds Investigation Office and Ministry of Corporate Affairs. Apart from above, they are also given training at ISTM, NIFM, NISM, including SEBI, RBI, BPST and other relevant Institutions to perform the duty effectively and efficiently as corporate regulators.

The conclusion of the training is marked by An All India Study Tour (informally ‘Bharat Darshan’) of three weeks. This tour gives the young ICLS Officers an opportunity to visit the various field offices of Ministry of Corporate Affairs such as ROC, OL and Rd offices spanning across the length and breadth of the country. These visits are an enriching experience as they comprise interactions with big corporate houses on their best practices in the field of Corporate Governance. In addition, they also include visits to Institutes of National Importance (such as Satish Dhawan Space Centre at Sriharikota) , National Parks, Wildlife sanctuaries as well as various World heritage Sites in India. The best part about this study tour is that it is customized after inputs from the ICLS POs themselves. Within a week of completion of the tour, ICLS POs are assigned their final postings.

11.6 Variety of Opportunities for ICLS Officers

Deputation opportunities in ICLS are similar to other Central Civil Services (Group A) i.e. through the Central Staffing Scheme for the senior administrative posts in the Government. Deputation provision is applicable to this service but currently, the cadre strength of ICLS is very small, so the opportunities related to deputation are restricted.

11.7 How the service is better from others?

ICLS Officers are given the following facilities to serve the public without greed and diversion:

1. ICLS is a newly evolving service having a good aspect of growth in future.
2. It provides opportunity for specialization in corporate frauds, and regulatory functions. Thus it improves the demand of an officer even outside the governmental machinery.
3. The offices in which ICLS officer works are based on latest IT and other technologies. The e-governance in their works has simplified and modernized their functioning.
4. Due to usage of IT technology, the job is much transparent.
5. Postings of direct ICLS officers are mostly in good cities.
6. Service mostly deals with professional class of people only.
7. Unlike some strenuous services, ICLS provides a good work life balance, and thus great job satisfaction.
8. As the service is not much highlighted in media, the work pressure from media is minimal.

11.8 Occupational Hazards

ICLS is a very satisfying job which provides ample opportunities to grow educationally as well socially. However, the officers always complain about the lack of separate pool for ICLS officers for accommodation. Sometimes, the work becomes monotonous as it is basically related to the Companies Act. Also, public contact in the service is restricted due to nature of work involved with the service. Further, as the service is recently added with Central Civil Services, the process and facilities are yet to be streamlined.

11.9 Challenges Faced

1. An Officer is required to have in-depth knowledge in accounting, auditing and law because of specialized nature of work of the service.
2. An Officer is required to be sound enough as one has to deal with director, CS, CA, advocate etc. professional who have tendency to argue much rather than accepting the things.
3. While investigating into the affairs of the company, the ICLS Officer has to tactfully deal with corporate professionals to extract information and analyze it.
4. During the winding up/ Liquidation of a company, the officer has to deftly take over possession of the assets and properties of the company in liquidation. This process may turn out to be a challenging one if workers or personnel at a working factory become violent. A proper coordination with various agencies such as Police as well as the office of District Magistrate is to be ensured for smooth possession of assets.

11.10 Case Studies relating to the work, challenges and ethical dilemmas faced by ICLS Officers

11.10.1 Reebok Corporate Fraud

One corporate fraud of the order of Rs 870 crore took place in Reebok India. It happened due to systemic mismanagement in the business planning and running of the company done by its MD and COO. On the complaint of the company’s financial directors, the officers of ICLS under Mr. Suraj Dabi took up the investigation of this case.

They found that the governance and operations in the company were mismanaged. Mr. Suraj found that the bills of the company were inflated and not managed correctly. On his investigation, he saw that the MD and COO fudged the company’s accounts. They did over invoicing of the company’s products of Rs 147 crore. There are many franchisees of Reebok throughout India. These franchisees sell the products of Reebok and in turn give a share of the profit to the parent company Reebok. MD and COO started operating secret warehouses. They rented four warehouses without informing their seniors and used them to store goods and claimed they were supplied to genuine dealers.

Apart from this they ran a false franchisee referral programme, receipts from which were about 114 crore. Actually, they had alleged links with franchisees. They used this link to siphon of genuine products to ghost companies and distributors across the company, claiming them to be defective products.

Mr. Suraj and his team scanned over 50,000 emails from 1992 to understand the conspiracy behind this fraud. He found that MD’s expenses were more than his income. The EMI of MD was more than his monthly take home pay. Moreover, he had nine real estate properties in Delhi NCR.

However, the task of investigation was not easy as they had to tactfully deal with corporate professionals to extract information from them. Corporate professionals are learned people but do not disclose information easily. They do not relish the interference of outside personnel in their company’s affairs. It also disturbs the usual atmosphere of a private company.

Q. What is a corporate fraud? What are the various means in which a corporate fraud can take place? Why a corporate fraud does takes place and what measures have been taken in India to avoid it?

Q.  What difficulties an ICLS officer faces while investigating a corporate fraud? What safeguards he/ she should take while investigating a corporate fraud?

11.10.2 Liquidation Turns Violent

Mr. Sataram Savalakhe started bamboo pressing factories all over the state of Maharashtra under the name of the company “Savalakhe Bamboo Ltd.”. There were 100 such factories in total. The capital investment of each factory was Rs 50 crore and they all appointed 200 workers each. Fresh bamboo was brought from Assam, pressed in these factories and then used for making furniture.

However, Mr. Sataram was not managing these factories judiciously. He had taken a credit worth Rs 10,000 crore from banks, market and other creditors. But many of his factories were not earning profit. Some of them were non-functional because of non-availability of raw material and rest was not operating at their maximum capacity. Because of facing persistent losses for 10 years, Savalakhe was unable to pay back to his creditors. Due to this he was declared bankrupt.

Many of his creditors approached the Bombay High Court. The court appointed Mr. Rakesh Pakhle, an ICLS officer as a liquidator to take possession of the property of the company and wind up its assets. Mr. Rakesh directed all the factories to be stopped functioning. He also started auctioning the machineries of the company. He intended to gain money from selling the machines and distribute them among the creditors.

However, all the factories were employing 300 workers each. Rest aside, Savalakhe was paying a good and timely salary to the workers there. Because of the liquidation process, all the workers were going to become unemployed. They started seeing Mr. Rakesh as their enemy.

Workers across all the factories started protesting. They did not allowed Rakesh and his team members to even enter the premise of the factories. He also faced a direct threat to his life. He was also pressurized by certain political elements. His juniors were also reluctant to continue in this task as their family members advised them to back off.

Q. What challenges did Mr. Rakesh and team faced in this situation? What steps should he take so that the liquidation process takes place smoothly? Would it be correct to withdraw from the liquidation process in the face of the above difficulties? Why or why not?