Surgical strike on Shell Companies to curb Black Money - A Modi government way

Elbert Hubbard, an American writer, once said "Responsibility is the price of Freedom." While the corporate expects government to give more freedom to facilitate ease of doing business in India, Government of India is ensuring Companies who gets exemptions (freedom) from stricter compliance do its part of filing on time. 

Prime Minister Modi on July 1, 2017 at CA day announced and which was later confirmed by FM Arun Jaitley in Parliament, registration of nearly 1.62 lakh companies were cancelled by Ministry of Corporate Affairs (MCA). In a follow up suit SEBI recently banned 331 so called 'Shell Companies' from trading on Stock Exchanges. The criteria for Shell Companies were not very clearly defined but it is understood that any Companies, which has not filed its Annual Filing Forms (Form AOC-4 Balance Sheet and/or Form MGT-7 - Annual Return) for period of 2 or more year is considered as a Shell Company automatically.

MCA, had issued notices to all such companies under Strike Off Rules, and successfully strike off nearly 1.62 lakhs companies. It could be argued that how non filing of two annual documents leads to this conclusion? Hence, the recent modification enabled companies to make an application to NCLT to revive its status from struk off to active company once again. Click here to know the process to revive the company struck off my MCA. 

Even prior to that, certain exemptions which were granted to Private Companies, Section 8 Companies etc were made available to only those companies which has not committed a default in filing its financial statements under Section 137 or Annual Return under Section 92 of the Companies Act, 2013 with the Registrar.

What next? Linking of AADHAR with DIN(Director Identification Number)? Though there is no official Circular or Notification available but MCA through its website, issued following message:

"MCA is actively considering Aadhaar Integration for availing various MCA21 related services. As a preparatory step, all individual stakeholders viz. DIN holders/Directors/Key Managerial Personnel/Professionals of the Institute of Company Secretaries of India-Institute of Chartered Accountants of India-Institute of Cost Accountants of India (whether in employment or in practice) are requested to obtain Aadhaar as early as possible for integrating their details with MCA21 and also ensure that the information in Aadhaar is in harmony with PAN. When implemented, all MCA21 services shall be available based on Aadhaar based authentication ONLY. The date of Aadhaar integration with MCA21 would be announced shortly"

Aadhar integration will further help MCA to identify the duplicate DIN holder or a person holding more than one DIN will be automatically be removed as it is practically impossible to obtain more than one AADHAR number for one individual and when integrated with DIN, any individual who has obtained more than one DIN will be either forced to cancel it or it will automatically be cancelled by MCA just like striking off shell Companies.

To enable surrender of DIN, MCA also recently introduced DIR-5 (application for surrender of DIN) as an eForm. Which means that a due time is already given to all Individual holding more than one DIN to surrender it. 

Loksabha has already passed Companies Amendment Bill, 2017 (Bill) on July 27, 2017 and same is now tabled at Rajya Sabha with a primary object Government is set to amend the Companies Act 2013 by bringing some facilitation for ease of doing business. The Bill while ensuring ease of doing business also lays down a stricter regime for the Companies defaulting in annual filings (Form MGT-7 – Section 92 and Form AOC-4 Section 137).

The Bill will allow late fling but with a hefty fees which means that once the bill is implemented, the Company will ill afford to delay its Annual Filing forms with Registrar.

Moving one step ahead it is understood that government is also planning to gun to the directors of such defaulting companies by identifying them as defaulters on the basis of 3 years continuous non- filing of return by their companies. Such directors would then be disabled to function as directors in any present or future companies for a period of 5 years.

  

There would be personal threat to directors as well and any recurring default of 3 years in filing annual documents by their companies will eject them from current directorship and will make them disabled to take any directorship till 5 years. This is a ban on them from entering into a corporate world.

In addition to all these actions, the Companies Act, 2013 itself enables the MCA/NCLT to levy penalty in Lakhs for default of various provisions and Act has also provided for imprisonment of defaulting Directors and Officer in default in various cases of non compliance. 

If going by the actions taken by MCA in past few months, message is loud and clear. If you (Company) wishes to enjoy exemptions and various initiative of ease of doing business by Government of India, you will have to follow the law. The way Government (through MCA) is planning its action, there won't be any way out for non compliant Company/Director in future, just like #demonitisation. It looks like a big hammer is getting ready for all the Directors and Companies who are registered under Companies Act, 1956 or Companies Act, 2013 but still non-compliant of the Companies Act, 2013 thinking that Government does not take offence seriously.

- CS Jigar Shah