The so-called “Ease of Doing Business” as envisaged by the Union Finance Minister is seriously hampered as a result of systemic negligence and changes made to databases containing charge-records that undermine the credibility of small businesses.
The present process for satisfaction of charges is the biggest hindrance to healthy and unfettered growth of business as it is tedious, time consuming and expensive. It is also fraught with paperwork and technicalities that are not conducive to business sustainability and greater transparency for lenders even.
Essentially, when a loan is sanctioned by a bank or a financial institute, a ‘charge’, depending on what the case is, is created with the Government organizations like ROC (Registrar of Companies), with CERSAI (Central Registry of Securitization, Assets Reconstruction and Security Interest), etc.
Besides, credit information is also enlisted with non- Government organizations like CIBIl or other CICs and many other sites in India and also abroad floated by different organizations like “www.watchoutinvestors.com etc.
When a loan is repaid, these charges/ information have to be satisfied in all such organisations so that the borrower can borrow fresh funds for the growth of his business. Instead of accelerating business growth and fostering transparency, such charges end up bein bottlenecks that impede the progress of entrepreneurs, especially those owing small businesses. Due to the delinquency of agencies handling the satisfaction of such charges, honest small business owners are denied clean, charge-free status even years after such charges have been satisfied. This delay breeds distrust between lending entities and small businessmen and also unfairly obstructs flow of credit into the MSME sector, the fallouts of which are further experienced by the agricultural sector and the country at large. These factors, coupled with a bureaucratic regime that is constantly changing and hard to rely on, lead to long-term financial sickness which could have been mitigated had officials in charge of the system acted responsibly and with greater sensitivity to business needs. A call for action that requires officials to act responsibly and with a sense of urgency has been made in this article. The steps and policies that would facilitate such developments have been outlined below:
A. After the repayment of the loan the bank issues a No Dues Certificate (NDC).
B. The Company Secretary of the borrower fills up a form CHG-4.
C. On this form, the authorized signatory of the borrower attaches his DSC (Digital Signature Certificate)
D. On this form the authorized signatory of the bank has to also attach his DSC.
E. With both the above DSCs, the form is handed over to the company secretary who has to endorse his DSC in the same form.
F. Now the form is filed by the Company Secretary with the ROC for satisfaction of charge.
A borrower is harassed at every one of the above mentioned stages at the moment. Despite having satisfied his charges, he still has to work tirelessly to be given the green-signal and be cleared of a defaulter’s status. The absence of adjudicating authorities who can mediate objectively and expeditiously means that the business owner is left without easy legal remedy. The RBI cannot normally intervene since the ombudsmen have only specific non-commercial responsibilities within his jurisdiction. The court is obviously the last resort for a struggling MSME borrower, frustrated, many business owners simply give up and are left with a permanent, bad track record.
Similarly, that the loan has been repaid has to be reflected in the Credit Information Report (CIR) of Credit Information Companies (CICs) like CIBIl in favour of the borrower. As per CIBIl, a mundane entry based on a mandate from banks is done as part of a regular upkeep.
Normally the eligibility of a borrower for availing further credit is decided on his credit ratings of the CIBIl. If his score is over 750 point, generally the borrower is eligible for further loan. It means today the CIBIl, in a way, controls the economy of this country.
Earlier, the CIBIl used to reflect in the CIR the name of the bank and the particulars of the loan availed by the borrower clearly. This has now been discontinued and only the repayment behavior of any particular loan is reflected in the CIR. When after repayment of the loan, the required entries are not made in the CIR of CIBIl, the CIBIl blames it on the bank and the banks blame it on the CIBIl. In essence, an evasive game of ‘passing the buck’ ensues where no party is willing to accept responsibility. As a result, the innocent borrower continues to suffer.
Against this backdrop, the following steps needs to be taken.
1. The NDC must be provided by the bank /FIs across the table on handing over the last pending payment of the borrower towards liquidation of the loan.
2. The NDC should be short and to the point without making any additional remark.
3. Since the NDC is clear evidence of the bank for liquidation of the loan, the requirement for fixing the DSC of the authorized signatory of the bank on the CHG-4 form is unnecessary and must be waived.
4. Similarly since the Company Secretary of the company files the charge on the letter written by the authorized signatory of the company, the DSC of the authorized signatory of the company is unnecessary and must also be waived.
5. However, the Company Secretary being a certified professional after receiving the NDC of the bank and the covering latter of the company must file the CHG-4 form with attachment of his DSC which should be enough.
6. The one month time set for completing the total procedure is again harsh to the borrower since issue of the NDC and filing of the CHG-4 form depends on the external factors. Hence no time limit should be fixed.
7. The time limits on the contrary should be fixed On Banks, CIBIl / CICs, other registration authorities etc. to make necessary changes in their documents reporting liquidation of the loan by the borrower, within one month of the receipt of the NDC.
8. CIBIl and other CICs must clearly mention the name of the bank and the loan details on the CIR of the borrower so that in case of delay or default the borrower can take up the matter with the relevant authorities.
9. In case of any dispute, the Regional Director of RBI/ the Ombudsman must be authorized to issue instructions and further the Secretary (Industry) of the State should also be vested with adjudicating powers.
The Government is clearly making a wholesome effort to facilitate, ‘Ease of doing Business’. Nevertheless, certain anomalies like the one explained above need to be reviewed, vetted and the procedure rectified as soon as possible so as to ensure the success of the ‘Make In India’ policy of our country.
(The writer is working chairperson, EFCAI, and former chairman, Orissa Assembly of Small and Medium Enterprises. He can be contacted at efcai12@gmail.com)