We have been witnessing tremendous improvements in technology and as everybody knows e-governance has brought far reaching changes and governance now really appears to be citizen centric.
Corporate sector is also benefited so much with technological advancements and with the projects like e-governance. Earlier, corporate filing or filing the documents with the Registrar of Companies (ROC) was really a tedious affair. With the introduction of MCA scheme or online filing facility, regulating the company affairs has become much easier and it is certainly a boon for corporate sector. Incorporating a Company is not a difficult affair and filing the necessary documents with the ROC and getting permissions from Central Government have become so easy. With compliance requirements becoming so easy, the participation in corporate sector has become more and more. We can access many company documents on-line and without much risk. A shareholder need not worry at the developments in the Company as he will be updated with all the major events in the Company. It’s true that there exist certain limitations. For example, it is very difficult to find-out the commercial viability of a charge created by the Company over its assets and we can only see the e-form on-line from the official web-site of Registrar of Company. There bound to be limitations on many things. Share transfers have become so easy now though there always tend to be some difficulties when it comes to transfer of shares of a private limited company or when the shares are not dematerialized. We yet achieve complete e-governance and the government is expanding the network day-by-day. Soon, the office of official liquidator will also be brought under MCA on-line network.
While there are many advantages with e-filing facility, I want to focus on disadvantages or the complications to be handled in the course.
Finding the procedure for filing documents or returns with the Registrar of Companies is not a difficult task at all now-a-days and even the MCA official website provides the instruction kit and even laymen can understand the e-filing process with the ROC on his own if he goes through the instructions kit.
But, every company and especially private companies, closely held companies or the unlisted public companies should be very careful at the internal filing mechanism. As otherwise, what happens is that every director will be filing forms as per his whims and fancies and battle among the groups in the Company starts with filing fictitious forms leading to un-ending litigation. It blocs the progress of the company even at times. It happens and it is happening.
The business deals in private limited companies or the closely held companies will be very very interesting and at times, will be very very complicated. The motive in most cases will be raising finance in order to expand the business. A substantial investor may be inducted into the Company as a director and with certain powers, creating an impression that he commands some authority in the Company. Relations among the managerial personnel will be very very complicated.
But, the promoters or the majority in the Company should be very very careful at the internal filing mechanism or the mechanism pertaining filing documents with the Registrar of Companies. Otherwise, what happens is that, a director who is having grievance with other group, may file some fictitious forms or may file forms continually and it becomes a big problem for the majority in the Company and even the Company will get collapsed with these things.
What I feel is that it is not possible to withdraw a duly filed e-form and only thing for removal of an illegally filed form is by way of a court order and we know the time consumption before the courts or Company Law Board and it is inevitable in most of the cases. It is true that corrections can be done in e-forms and the scope of changes to be made on-line is very less.
If a director who represents a minority in a Company wants to harm the Company or the majority, then, he may misuse his authority at times and may file charge form with ROC as if the entire company’s properties are mortgaged to somebody. Some may contend that all illegal actions can be challenged before the appropriate forum. But, What about the time factor? It is not possible in many cases to get an order from the Court or the Company Law Board undoing an illegal action.
If a fictitious e-form is to be challenged before the Company Law Board or the Company Court, then, there is lot of procedure and it can not be overlooked. There must be an enquiry by the Company Law Board or the Company Court for coming to a conclusion on a particular issue or dispute.
I wanted to emphasize the importance of having a strong and standard filing mechanism in every Company and the issue of filing and the authority of filing forms with Registrar of Companies is to be carefully looked into.
When it comes to corporate filing, normally the Company Secretaries will be advising the Company though at times, Chartered Accountants and Company Lawyers will also be advising the Company. All professions who are involved in secretarial practice or who advise the management in a Company, should lay due emphasize on the filing mechanism and the Company or the majority should accordingly be advised.
If once this fictitious filing of forms is allowed, it leads to many complications ignoring the ground realities. I have recently seen a Company Matter and the brief about company dispute as referred to is as follows:
“A” is a technocrat and want to use his technology in his own Company and with the same intention and solely based on the technology, he has incorporated a Private Limited Company called “B”. “A” has accepted an investment proposal by one “C”. There were typical share purchase agreements between “B” and “C” and the company is promoted and is managed only by “A”. “C” has been inducted as an Additional Director in the Company as per the understanding. “C” could not comply with the conditions in the share purchase agreements. However, as “C” has seen the inside and future of the Company, “C” don’t want to come out of the company at any cost and wanted to trouble “A”. “C” could manage to file many fictitious forms with ROC including a charge over all the movable and immovable assets of the Company. He has fabricated all the documents and filed with ROC. As the fictitious documents have been filed with ROC, neither “A” nor “B” could raise any funds from outside or the financial institutions and it has become stumbling bloc in the way of company’s expansion. “A” has challenged the illegal forms with the Company Law Board by filing an application under section 397/398 of Companies Act. Company Law Board may not be able to set-aside all the illegal forms instantly and it wants a full enquiry into all the issues. Notice is to be ordered to the Respondents in the matter and it consumes some 2 to 3 months time. Notice could not be served on the Respondents and then, a fresh notice can be ordered and it will take another 2 months. If notice in the normal mode can not be served, then, an alternative notice like paper publication will be ordered. At the last moment, the Respondents may enter appearance before the Board and may say a big story for their non-appearance in the matter. Even during the pendency of the matter before the Company Law Board “C” has committed various illegalities and it will create many technical difficulties to the Petition filed by “A” before Board. The dispute is still pending and “A” has to suffer with the attitude of “B”. The Company’s progress and expansion plans are stalled literally.
The above is a case I have seen personally. Theoretically, it may be very easy to say that a fictitious form can be set-aside with an order of Court. But, it consumes lot of time and there will be lot of difficulties in the course. In view of many complications of Company Law and the stakes involved, it is not easy to get instant orders from the Company Law Board or the forum dealing with Company matters.
I just want to focus on one of the very complicated areas of Corporate Sector or the complications in filing forms with the statutory authorities like ROC.
We need to focus so much on this issue and a Company or the majority in the Company should be able to think all possible misuse before conferring power on somebody or before conferring managerial responsibilities.
1. My intention is to focus on very complicated and important issue in corporate filing.
2. I have not detailed about the filing procedure with ROC as it is a simple thing.
3. I will be focusing on ways to prevent the illegal filings and the other legal issues in my next article.