Introduction:
The Ministry of Corporate Affairs (MCA) through notification dated 21st February, 2019 introduced the Companies (Incorporation) Amendment Rules, 2019. As per the amendment, new rule 25A mandates all companies incorporated on or before 31st December, 2017 to file one time return E-Form INC-22A, which is also known as E-form ACTIVE (Active Company Tagging Identities and Verifications). Continuing with the move to crack down Shell Companies, Ministry of Corporate Affairs has announced E-ACTIVE drive. Similar drive for directors for submitting their KYC through form DIR-3KYC with latest documents was also initiated by MCA last year.
The new e-form ACTIVE records the registered office of the company along with photos of the place with latitude and longitude, where it is situated. However, although the objective of filing this form is to find the genuineness of the registered office of the company, the form is not concentrated on only that aspect, instead indulging in the rest of the information like details of auditors, KMPs, filing of financial statements etc.
On 25th April, 2019 late evening, Ministry issued much awaited notification Companies (Incorporation) Fourth Amendment Rules, 2019 extending the deadlines of filing this form upto June 15, 2019 giving more time to corporates for compliance of the new rules. Although it has been two months since notification issued, but still there are various perplexities among stakeholders regarding filing of this form, this write up bring forth some of the following issues faced by the Industry:
Practical Difficulties and Unresolved Issues:
1. Details of appointment of Statutory Auditor:
During the initial days of introduction of Companies Act 2013 for the Period 01/04/2014 to 19/10/2014, Form ADT-1 was a physical form and used to file as attachment with E-form GNL-2. Later on MCA had released e-form ADT-1 for filing details of appointment of auditor. Hence, auditor’s appointment details for the Period 01/04/2014 to 19/10/2014 was filed with MCA through Form GNL-2 as at that time e-Form ADT-1 was not there.
In addition of above, it is also pertinent to note that the there are several other instances where Form ADT-1 is not required. In the case of casual vacancy, where the next Auditor is appointed only up to the date of the following AGM and in the case of the appointment of the first Auditor, no ADT-1 is required. But, because the Form has been designed to pick up the details only from the E-Form ADT-1, even after the change of the Auditor, the INC 22A picks up the wrong details that are no longer valid in those scenarios.
Form INC-22A does not allow filling details of Auditor or SRN manually, companies are unable to complete the process in such cases. Therefore, Ministry may be advised to make appropriate amendment in the form to fill the data related to Auditor with SRN number manually.
2. Maximum number of directors beyond the limit prescribed under the Companies Act
Form INC-22A does not accept the SRN of the forms filed under the Companies Act, 1956, therefore companies which have increased their number of directors more than 15 under the Companies Act, 1956 by way of special resolution and Central Government’s approval, are not able to proceed with the form because form INC-22A is only accepting the forms passed under the 2013 Act.
Also in case, company has taken approval for increase in number of directors before the year 2005, when forms were filed offline. In filing of the Form 22A, SRN Number is required to be filled in. Whatever number is filled in now is not accepted on-line as the old records were maintained off-line in those days and the system does not accept old numbers.
Ministry should come with a revised version of the form INC-22A so as to enable companies in such cases to file this form.
3. Details of forms AOC-4/AOC-4XBRL and MGT-7 filed for FY 2017-18
Issues are being faced by corporates having different financial year, i.e., other than 1st April to 31st March, in case the company has not followed the uniform financial year as per section 2(41) of the Companies Act,2013 but has taken order from honourable CLB ( Company law Board), RD (Regional Director) & NCLT (National Company law tribunal ) in this regard. SRNs of forms for such companies are not being pre-filled automatically.
Therefore, Ministry should revise the form to make it simpler wherein SRN details and pre-fill options should be made optional allowing users to fill details manually.
4. Compliance by Dormant companies:
Rule 25A provides exemption to the companies which have been struck off or under the process of striking off or under liquidation or amalgamated or dissolved. Hence, dormant companies are not exempted from the provisions of Rule 25A. But, while filing e-form INC-22A, the moment CIN is entered in the form, a message is shown as “Dormant company under Section 455 can not file this form”.
Dormant companies, as the name suggested is an inactive company. The status of dormant company is obtained when the company is not carrying any business and does not have any significant accounting transaction, hence, the form is rightly designed to exclude them but list of exempted companies under the Rule 25A does not include dormant companies.
This needs to be clarified and if the form is being revised for enabling dormant companies to file the same, then compulsory field for filling SRN of Form AOC-4 and MGT-7 should be replaced with form MSC-3, in case of dormant companies.
5. Director’s status as Director of Non KYC compliant company
As per the Rule 25A, in case a company does not file this form, the company shall be marked as ‘ACTIVE-non compliant” and shall be liable for action under sub-section 9 of Section 12. The new rules do not provide that the directors of such ACTIVE-non compliant companies shall be marked as ‘Director of ACTIVE non-compliant company’.
However, official letters issued by Ministry and also webinars organised by the officials of MCA are mentioning that Directors associated with such companies failed to file this form will be marked as ‘Director of ACTIVE non compliant company’.
For example, in case if a person is a non-executive director in five companies, and one of those five companies could not file this form then such director shall be marked as Director of ACTIVE-non compliant company’ and would be liable for other implications of such non compliance.
This is again a stringent provision and since this is not provided in the new rule itself, most of the directors are not aware of such consequence.
6. Details of SRN of resolutions filed under the previous Companies Act, 1956 are not acceptable in the form.
The relevant forms to be filed under the 1956 Act were different from the forms which are prescribed under the 2013 Act. For instance, Form No 23 got substituted by Form MGT-14 with certain changes.
There are also cases, wherein companies have changed their names, have changes in their CIN numbers also due to series of corporate restructuring demerger, changes in activities and other matters. Hence, when details of forms are filled in the form INC-22A with changed new CIN, the form INC-22A is not accepting such SRNs with the changed CIN. The form is not designed to accept such changes.
MCA should either accept those information of such nature or manual filling of such information should be allowed and should not seek SRN details of such filing.
7. Applicability of filing form INC-22A for all companies including listed companies
MCA vide Notification dated 21 February 2019 has amended the Companies (Incorporation) Rules, 2014 by which every company is required to file the particulars of the company and its registered office in e-form ACTIVE on or before 25 April 2019 (now extended upto 15 June 2019).
Serious consequences of non-filing have been mentioned in the amended rules. The ostensible purpose of this amendment is to detect shell companies and for such other purposes.
For listed entities and especially the top 100 listed entities of BSE Sensex or Nifty50 companies, such a provision is completely unnecessary. These are companies which are constantly monitored and regulated by various regulatory authorities, including SEBI, stock exchanges, MCA etc. No purpose would be served by requesting such companies to prove their existence / ACTIVE status, when it is a well-known fact in the public domain.
8. Photograph of Registered Office showing external building and inside office also showing therein at least one director/ KMP who has affixed his/her DSC to this form.
The new Rule 25A and the instruction kit of Form INC-22A do not provide the manner of taking photographs to be mandatorily attached with the form. There is confusion among the stakeholders whether the photographs to be taken should also show latitude and longitude, the photograph of outside building having many offices in therein can also show the name boards of other offices in photograph, the name board of the company to be in English language or name in regional language is also required under Section 12 of the Companies Act etc.
A comprehensive manner should be provided for the guidance of stakeholders and better compliance of the new rule.
Concluding Remarks
Form INC-22 A(ACTIVE) is introduced by MCA to list out shell companies and other companies running on fake registered office. This is again a drive of MCA in continuation of its past actions against shell companies. However, this is only a one time return and a complete form is designed in a manner that most of the information are to be filled automatically through pre-fill options, but there are lots of practically difficulties while filing this form as stated above which need to be addressed by MCA at earliest so as to enable companies to comply with this new rule.
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