The Company Law Board has asked the government to instruct the Income Tax department and the Provident Fund Organisation (PFO) to refrain from taking action against Satyam Computers, as such action could derail the new management’s efforts to bring the company back on track.
CLB has pointed out that there have been instances in the past where coercive or punitive action by these authorities have created problems in subsequent operations of companies.
“It would be useful if Income Tax and Provident Fund Organisation consult the management of the company first in such cases,” a CLB official said. “They should take an approach that supports the efforts of the new management to keep the company going in the short and medium terms.”
Violation of provident fund dues is considered a serious offence and is taken up under criminal law under normal circumstances. There are instances in the past where senior officials of a company were put behind bars for not depositing PF contribution to the PFO.
In the case of Satyam, provident fund authorities are interested in ascertaining whether the company has deposited contributions to the fund. Another factor they are interested in, is whether the company had misrepresented the number of employees on its rolls.
The Income Tax authorities, on the other hand, have the power to seize the bank accounts of a company. In normal circumstances, they may instruct a bank to stop all the dealings from the company bank account until further instruction. This would affect the day to day functioning of the company, and its financial transactions.