Companies Act Compliance: Consequences of not filing Annual Return

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Last week, the Parliament cleared a bill to further amend the Companies Act.

The financial statements and annual returns of all company must be filed on time with the ROC / MCA each year. As per Companies Act, 2013, non-filing of annual return is an offence, consequences of which affect the directors, as well as the company.

Hence, it is a must for every company to file with the MCA:

1. The annual return within 60 days of the Annual General Meeting and

2. The Financial Statement, within 30 days of the Annual General Meeting.

The various consequences and the penalties for not filing annual return of a company (Forms MGT-7 & AOC-4) are highlighted here.

A. Consequences – for Directors

The Directors of a company are responsible for ensuring the compliance of the company with all applicable rules and regulations. When a company defaults on compliance or dues payable, the Directors are held responsible for the default. The following are penal consequences for a Director of a company for default of non-filing of the Annual Return.

Director Disqualification

In case a company has not been filed its Annual Return for three continuous financial years, then every person who has been a director or is currently the director of the specific company could be disqualified under the Companies Act, 2013. If a Director is disqualified, his/her DIN would become inactive and the person would not be eligible to be appointed as a Director of any company for a period of five years from the date of disqualification. Further, disqualified Directors would not also be allowed to incorporate another company for a period of five years.

Fine & Imprisonment

A director of the company can be punished if the company has not been filed even after 270 days from the date when the company should have originally filed with additional penalty. Any Director who has defaulted in the filing of annual return of a company can also be penalized with an imprisonment of a term extended up to six months or with a fine of an amount not lesser than fifty thousand rupees and it might extend up to five lakh rupees, or with both imprisonment and fine. However, this provision provided under the Companies Act, 2013 is rarely used.

In addition, if any information filed by a Director or any other person in the annual return is false by any nature or if he/she failed to mention any fact or material that is true can be punished with imprisonment for a term  which is not lesser than six months and which could extend up to 10 years. Further, he/she can also be liable for payment of a fine which is not lesser than the amount subject to the fraud involved and it may extend to an amount three times of the sum concerned with the fraud.

B. Consequences of Default – For Company

The following are some of the penal consequences for a company that has not filed its annual return:

Penalty

Normally, the Government fee for filing or registering any document under the Companies Act required or authorized to be filed with the Registrar is Rs.200. A private limited company would be required to file form MGT-7 and form AOC-4 each year and the government fee applicable if filed on time would be Rs.400. In case of delay in filing of annual return, the penalty as mentioned would be applicable:

The penalty for not filing a company’s annual return (Form MGT-7 and Form AOC-4) is increased to Rs.100 per day w.e.f.July 1, 2018.

Strike-Off

In case the company has not filed its Annual Return for the last two financial years continuously, then such companies would be termed as an “inactive company”. On such a classification, the bank account of the company could be frozen. Further, the Registrar could also issue a notice to the Company and initiate strike-off of the company from the MCA records.

 

In case you need any assistance to file annual return for your company, you can contact us at Director@Sunkrish.com

I-T department bars CAs from valuing shares of closely held firms

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The income tax (I-T) has barred all Chartered Accountants (CAs) from valuing shares of closely-held companies.

Earlier, the fair market value of unlisted equity shares was calculated at the option of the company on either the book value on the valuation date or by the discounted cash flow method. Calculated by a merchant banker or a CA.

However, the Central Board of Direct Taxes has removed the CAs from the list of authorised professionals in this regard. From Thursday, only a merchant banker may do this. This change brings this provision at par with Rule 3 of the I-T Act, which says only a merchant banker may calculate the value of unlisted shares issued under Employee Stock Ownership schemes.

Interestingly valuation of shares may still be done by CAs under the Companies Act.

So, unlisted shares or unlisted companies may be sold or valued by a CA’s valuation but, for I-T purposes, it will require a merchant banker’s valuation report.

It is expected that the government is considering a qualifying course for valuation; only those who clear it may do valuation.

Source: Business Standard

Non-compliance to be ‘very costly’ for companies: Government

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Last week, the Parliament cleared a bill to further amend the Companies Act.

Sending out a strong message to corporates, the government has said non-compliance will be “very costly” and strong deterrents will be there to curb the dangerous adventure of using companies for wrongful purposes.

Continuing the clampdown on illicit fund flows, the Ministry of Corporate Affairs has already struck off more than 2.24 lakh companies that have not been doing business for long and has disqualified over three lakh directors associated with such entities.

Against this backdrop, Corporate Affairs Secretary Injeti Srinivas said things are being simplified for legitimate businesses while checks are being strengthened against illegal business activities.

Highlights

  • Ministry of Corporate Affairs has already struck off more than 2.24 lakh companies that have not been doing business for long
  • It has also disqualified over three lakh directors associated with such entities

“It should be very easy to be compliant and very costly to be non-compliant. We want this… There should be a strong deterrent against illegal business. People using the company for wrong purposes, that should be a very dangerous adventure,” he told PTI in an interview.

About the ongoing action with respect to suspected shell companies, he said investigations are being carried out with urgency.

“When you go for prosecution, it should serve as a deterrent. Imprisonment option should essentially be confined to violations involving criminality and fraud,” Srinivas said.

On the scenario of certain genuine entities also facing the heat in the clampdown, Srinivas said every effort is made to ensure that “innocent companies are not inconvenienced”, adding that investigations are carried out only after preliminary scrutiny.

“In any such large exercise, it is not unusual that there could be some collateral damage. It cannot be so perfect but effectively, it is very focused and every effort is made that innocent companies are not inconvenienced,” he noted.

To provide a three-month window for defaulting companies to submit their filings, the ministry would be coming out with the Condonation of Delay Scheme. It is to be in place from January 1 to March 31, 2018.

While making it clear that a law should not be too onerous, he said there is a continuous effort to simplify the law “but non-negotiable in terms of essential compliance”.

Last week, the Parliament cleared a bill to further amend the Companies Act.

The bill would bring about some far reaching changes, Srinivas said, adding that almost 100 sections would get revised and many would contribute towards the ease of doing business.

“At the same time, there is also strengthening of provisions relating to areas such as identification of mismanagement, fraud detection, disclosures and related party transactions,” he said.

The MCA 21 system — which is used by the companies to submit their filings to the ministry — is a strong technology platform that is well entrenched, he noted.

“It is a very robust platform for regulation of companies. It is a huge resource of filings from more than 1.5 million companies. It is user-friendly… It also facilitates better enforcement without being unduly invasive,” Srinivas said.

At the end of November 30, there were a little over 17.12 lakh companies and out of them more than 11.36 lakh entities were active.

Source: Times of India

MCA introduces Condonation of Delay Scheme 2018 for defaulting companies

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MCA introduces Condonation of Delay Scheme 2018 (CODS-2018) for defaulting companies to file its overdue returns/documents due for filing till 30.06.2017 by temporarily activating DIN of disqualified directors

 

 

 

General Circular No………./2017

File No. 02/04//2017

 

Ministry of Corporate Affairs

5thFloor,‘A’ Wing, Shastri Bhawan

Dr.Rajendra Prasad Road,

NewDelhi-110001.

 

To

 

All Regional Directors,

All Registrar of Companies,

All Stakeholders.

 

Sir,

 

Subject: Condonation of Delay Scheme 2018

Whereas,companies registered under the Companies Act,2013 (or its predecessor Act) are inter-alia required to file their Annual Financial statements and Annual Returns with the Registrar of Companies and non-filing of such reports is an offence under the said Act.

 

Whereas, section 164(2) of the Act read with section 167 of the Companies Act, 2013 [the Act], which provisions were commenced with effect from 01.04.2014, provide for disqualification of a director on account of default by a company in filing an annual return or a financial statement for a continuous period of three years.

 

Whereas, Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 further prescribes that every director shall inform to the company concerned about his disqualification, if any, under section 164(2), in form DIR-8.

 

Whereas, consequent upon notification of provisions of section 164(2), Ministry of Corporate Affairs (MCA) had launched a Company Law Settlement Scheme 2014 providing an opportunity to the defaulting companies to clear their defaults within the time period specified therein and following the due process as notified.

 

 

Whereas, MCA in September 2017, identified 3,09,614 directors associated with the companies that had failed to file financial statements or annual returns in the MCA21 online registry for a continuous period of three financial years 2013-14 to 2015-16 in terms of provisions of section 164(2) r/w 167(1)(a) of the Act and they were barred from accessing the online registry and a list of such directors was published on the website of MCA.

 

Whereas, as a result of above action, there have been a spate of representations from industry, defaulting companies and their directors seeking an opportunity for the defaulting companies to become compliant and normalize operations.

 

Whereas, certain affected persons have also filed writ petitions before various High Courts seeking relief from the disqualification.

 

Whereas, with a view to giving an opportunity for the non-compliant, defaulting companies to rectify the default, in exercise of its powers conferred under sections 403, 459 and 460 of the Companies Act, 2013, the Central Government has decided to introduce a Scheme namely “Condonation of Delay Scheme 2018” [CODS-2018] as follows.

 

  1. The scheme shall come into force with effect from 01.01.2018 and shall remain in force up to 31.03.2018

 

  1. Definitions – In this scheme, unless the context otherwise requires, –

 

(i) “Act” means the Companies Act, 2013 and Companies Act, 1956 (where ever applicable);

 

(ii) ‘overdue documents’ means the financial statements or the annual returns or other associated documents, as applicable, in the case of a defaulting company and refer to documents mentioned in paragraph 5 of the scheme.

 

(iii) “Company” means a company as defined in clause of 20 of section 2 of the Companies Act, 2013;

 

(iv)  “Defaulting company” means a company which has not filed its financial statements or annual return as required under the Companies Act, 1956 or Companies Act, 2013, as the case may be, and the Rules made thereunder for a continuous period of three yea

 

(v) “Designated authority” means the Registrar of Companies having jurisdiction over the registered office of the company.

 

  1. Applicability: – This scheme is applicable to all defaulting companies (other than the companies which have been stuck off/whose names have been removed from the register of companies under section 248(5) of the Act). A defaulting company is permitted to file its overdue documents which were due for filing till 30.06.2017 in accordance with the provisions of this Scheme.

 

  1. Procedure to be followed for the purposes of the scheme:– (1) In the case of defaulting companies whose names have not been removed from register of companies,-

 

(i) The DINs of the disqualified directors de-activated at present shall be temporarily activated during the validity of the scheme to enable them to file the overdue documents.

 

(ii) The defaulting company shall file the overdue documents in the respective prescribed eForms paying the statutory filing fee and additional fee payable as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014 for filing these overdue documents.

 

(iii) The defaulting company after filing documents under this scheme, shall seek condonation of delay by filing form e-CODS 2018 attached to this scheme along with a fee of 30,000/- (Rs. Thirty Thousand only) as prescribed under the Companies (Registration Offices and Fee) Rules, 2014 well before the last date of the scheme.

 

(iv) The DINs of the Directors associated with the defaulting companies that have not filed their overdue documents and the eform CODS, and these are not taken on record in the MCA21 registry and are still found to be disqualified on the conclusion of the scheme in terms of section 164(2)(a) r/w 167(1)(a) of the Act shall be liable to be deactivated on expiry of the scheme period.

 

(2) In the event of defaulting companies whose names have been removed from the register of companies under section 248 of the Act and which have filed applications for revival under section 252 of the Act up to the date of this scheme, the Director’s DIN shall be re-activated only NCLT order of revival subject to the company having filing of all overdue documents.

 

  1. Scheme not to apply for certain documents – This scheme shall not apply to the filing of documents other than the following overdue documents:

(i) Form Number 20B/MGT-7- Form for filing Annual return by a company having share capital.

(ii) Form 21A/MGT-7- Particulars of Annual return for the company not having share capital.

(iii) Form 23AC, 23ACA, 23AC-XBRL, 23ACA-XBRL, AOC-4, AOC-4(CFS), AOC (XBRL)    and     AOC-4(non-XBRL)   –     Forms     for     filing     Balance Sheet/Financial Statement and profit and loss account.

(iv) Form 66-  Form  for  submission  of  Compliance  Certificate  with  the Registrar.

(v) Form 23B/ADT-1- Form for intimation for Appointment of Auditors.

 

  1. The Registrar concerned shall withdraw the prosecution(s) pending if any before the concerned Court(s) for all documents filed under the scheme. However, this scheme is without prejudice to action under section 167(2) of the Act or civil and criminal liabilities, if any, of such disqualified directors during the period they remained disqualified.

 

  1. At the conclusion of the Scheme, the Registrar shall take all necessary actions under the Companies Act, 1956/ 2013 against the companies who have not availed themselves of this Scheme and continue to be in default in filing the overdue documents

 

Yours faithfully,

 

(KMS. Narayanan)

 

Assistant Director (Policy)

MCA-CODs-2018.

MCA extends the due date for filing all AOC-4 (Annual Financial Statemet) till 28.11.2017.

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MCA has relaxed additional fees and extended the last date of filing of AOC-4 XBRL & non-XBRL e-filing for the companies.

 

Ministry of Corporate Affairs has extended the due date for filing the Audited Financial Statement for Financial Year 2016-17 till November 28,2017.

 

 

Keeping in view the requests received from various stakeholders, for allowing extension of time for filing of financial statements for the financial year ended 3I.03.2017 on account of various factors, it has been decided to extend the time for liling e-forms AOC-4 and AOC-4 (XBRL non-Ind AS) and the corresponding AOC-4 CFC e-forms up to 28.11.20l7 without levying additional fee.

 

The official circular in this regard is appended below.

=================================================================

F No. 01/34/2013-CL-V
Government of India
Ministry of Corporate Affairs

5th Floor, A Wing, Shastri Bhawan,
Dr. R.P. Road, New Delhi – 110001
Dated:- 27th October, 2017

To

All Regional Directors,
All Registrar of Companies,
All stakeholders

Subject: Relaxation of additional fees and extension of last date of filing of AOC-4 and AOC-4 (XBRL Non-IndAS) under the Companies Act, 2013 – reg.

  1. The Ministry of Corporate Affairs has extended the date of filing of AOC-4 (XBRL E-Forms using Ind AS) for the financial Year 2016-17 without additional fees till 31.03.2018 vide General Circular No. 13/2017 dt 26.10.2017. Keeping in view the requests received from various stakeholders, for allowing extension of time for filing of financial statements for the financial year ending on 31.03.2017 on account of various factors, it has been decided to extend the time of filing e-forms AOC-4 and AOC-4 (XBRL Non-IndAS) and the corresponding AOC-4 CFC e-forms upto 28.11.2017 without levying additional fees.
  2. This issues with the approval of competent authority.

Yours faithfully,

KMS Narayanan

Assistant Director

011-23387263

 

Ministry of Corporate Affairs – General Circular14_28102017

200,000 more directors disqualified for holding posts in defaulting companies

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The govt has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the RoC and frozen their bank accounts to check any siphoning off of funds.

The corporate affairs ministry has disqualified another 200,000 directors for holding posts in defaulting companies that have not filed their financial returns for the last three years or more, taking the total number to over 300,000, while cancelling the registration of another 10,000 companies.

These directors won’t be able to hold board seats in other companies as well and may have to resign soon from them, potentially impacting other firms as well.

While the current law does not provide for any appeal, the government is thinking of exercising “the review power to take any such plea into consideration,” PP Chaudhary, minister of state for corporate affairs, told ET. “By operation of law, these directors are disqualified but we have to see under what provision of law we can examine this. If we need to frame a rule we will do it.”

According to Section 167 of the Companies Act, a director is disqualified automatically from all other posts of director once barred under Section 164, said Chaudhary, a lawyer by profession.

200,000 more directors disqualified for holding posts in defaulting companies

The government has struck off more than 200,000 firms that have not complied with the provision of the law from the list maintained by the Registrar of Companies and frozen their bank accounts to check any siphoning off of funds.

“This exercise is part of demonetisation. No one had the guts to stop all this till now. It will prove a catalyst for the Indian economy,” said the minister of state, who took over this responsibility after the recent reshuffle. He said the money trail will be traced after data mining of these companies.

 

The government will prioritise those cases where there is evidence of a large movement of cash. He rejected the criticism that the action was retrospective in nature.

“Law has not been retrospective. Companies had two years to file returns… there was healing time,” the minister of state said. So far the shell firm chase has been limited to defaulting firms that have not filed their financial returns for the last three years or more but the government will soon go after compliant firms as well to check their holding companies structures and fund flows.

Chaudhary said the intent is to restore trust in the corporate structure and also improve ease of doing business in the country.

“We do not want to create any terror. Trust in the corporate structure is gone and we want to increase the investor confidence, not interfere in the corporate structure,” Chaudhary said.The government wants to promote ease of doing business to ensure investors that their money is safe in India, he added.

“This exercise has been triggered due to governance. We have shown scale and speed in an unparalleled way in the way we have acted against these companies and directors,” Chaudhary said.

Last week, the government made public the names of 55,000 directors who were disqualified under Section 164 (2) (A) of the Companies Act. The list included the names of prominent politicians including former Jammu and Kashmir chief minister Omar Abdullah and Malayalam filmstar Mohanlal among others.While the government will not impose any penalty on the directors of government-owned companies that figured in the list of defaulters, those in private firms will have to resign from other board seats and won’t be eligible for reappointment for up to five years.

The corporate affairs ministry will also look into these companies to identify shell companies to see if they have been used for money laundering or any other illegal activity. “We need to find who the shell company’s real beneficiary is… It could be in the name of the cook or a driver. We are taking stock of the money in these companies pre and post demonetisation,” Chaudhary said.

While spotting defaulting companies is an ongoing process, Chaudhary said that, using artificial intelligence, the government will sift out the shell companies from among those that are compliant with regulations and also create an early warning system. “The system will trigger alerts every time we see unusual activity taking place in a company. It will also help us find out the beneficial owner of the shell companies,” he said.