THE MINISTER OF STATE IN THE MINISTRY of CORPORATE AFFAIRS (SHRI R.P. N. SINGH)
(a)to(f) The Ministry introduced an âEarly Warning Systemâ (EWS) in 2009 based on certain
financial and non-financial indictors to ensure, as far as possible, that there is no recurrence
of cases similar to Satyam case. The criteria of EWS are used for online examination of Balance
Sheets and other records of all listed companies and unlisted companies [(a) with a turnover of
Rs 100 crore or more,
(b) with a paid up capital of Rs 50 crore or more, and (c) having 1000 or more shareholders.]
to generate early alerts of possible violations which could lead to commitment of frauds. The
criteria devised in 2009 was revisited and revised for identifying companies for their early
scrutiny with the following salient features:-
(i) The companies (listed & unlisted) are run through six parameters, such as, (a) where the
quantum of related party transactions are more than 5% of domestic turnover (Revenue items),
(b) there is abnormal increase or decrease in profitability as compared to earlier year by more
than 100%, (c) where the cash and bank balances are more than 50% of current assets during last
2 years, (d) where the combined quantum of investment made is more than 50% of the paid up
capital and reserves during the last three years only, (e) where the quantum of loans and
advances to total current assets is more than 50%, (f) Companies having large unsecured
loans, as first filter;
(ii) The set of the companies identified / selected under category
(i) above, are then run
through another set of five parameters, such as (a) Whether audit report of the company has
been qualified or contains adverse remarks of auditors; (b) Whether accounting period is
changed during the last 3 years & Changes of a few days without the month changing need not
be taken note of; (c) Whether auditors were changed in last 3 years; (d) Whether 50% or more
of the directors ceased to be directors during the last one year; (e) Whether promoters or
relatives have either reduced their stake to 10% or below of the total paid up capital
(Form 20B) or the change in their stake is 5% or more of the total paid up capital, for
listed and unlisted companies separately, as a second filter;
(iii) Lists of listed and unlisted companies are also generated in various categories such as
(a) disqualification of directors, (b) companies which failed to repay the matured deposits and
interest thereon, (c) companies having charges but have not filed balance sheets and annual
reports.
The list of aforesaid companies is finalized from the point of view of âpublic interestâ
involved. For the purpose of examination, public interest has been shifted to mean (i)
the companies having accepted deposits but have not repaid matured amount and interest;
(ii) companies having collected money through IPO; and (iii) the companies having taken
secured loan but have not filed their due annual returns with the ROCs.