MGT 7 – Difficulty of Reporting Compliance in India
The principle, “when the regulator is not clear what it wants, give the regulator what you want”, applies to the annual filing of 2015.
MGT 7 is the Annual Return for all companies to be filled, signed and filed with the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has changed the annual filing e-forms for filing annual return as per Section 92 of the Act which is now changed from form 20B to e-form MGT 7. The Ministry had issued circular on July 13, 2015 stating that the electronic versions of forms were being developed and will be made available latest by September 30, 2015. The Circular further provided relaxation of filing above stated forms without additional fee up to October 31, 2015.
MGT 7 was made available to the public on September 28, 2015 and the version of form is being changed/updated by the Ministry very often. It is getting difficult for professionals to file the form, as every time the version changes it is required to fill in fresh form. Ministry has not clarified on certain mandatory attachments as to what exactly the attachment should include.
The mail from the Ministry:
The Ministry is sending a standard mail to all the Companies, requesting the companies to file the annual filing forms to avoid last minute rush. Before sending this mail to the perturbed directors, the Ministry should have released final version of forms.
Annual return –Form MGT 7:
The form MGT 7 i.e., annual return for the period commencing form April 1, 2014 to March 31, 2015 is pretty elaborative. The details to be given in the form go beyond the Companies Act i.e., the details under other Enactments/ Legislations is also to be given in the form. Please read point 11 & 12 of the e-form MGT 7 that deals with compliance in general. There is absolutely no clarity from the regulators on what are the details to be filled in the form. Are these details only for Companies Act 2013 or for all laws that are applicable to the Company? This interpretation is on account of details required under Point 12 which states “Name of the act and section under which penalised/ punished”.
Professional Be Aware
The details in the Annual return regarding points XI & XII
Point XI – Matters related to certification of compliances and disclosures
A. Certification of compliances
Whether company has made all compliances and disclosures during the year If no, give details along with the reasons and supporting documents
The regulator is not clear, companies are confused on details of compliance & disclosures in this column:
i) What are these compliances & disclosures?
ii) Which are the legislations?
iii) Why is this clause finding a place in annual return?
Point XII – Penalty & Punishment – details thereof
A. Details of penalties/ punishments imposed on Company / Directors/ Officers
The further details are:
i) Name of the Company/ Directors/ Officers
ii) Name of the court/ concerned authority
iii) Date of Order
iv) Name of the act and section under which penalised/ punished
v) Details of penalty/ punishment
vi) Details of appeal (if any) including present status
B. Details of Compounding of Offences:
The meaning of penalty includes a fine, sentence and punishment among other things. How can a professional in a company track all the penalty. In India a penalty can start with Rs.100 (rupees one hundred) or even less and punishment can be for any offence and for any act that is not legal.
CASE 1: If the Company owns a car and the car jumps the signal a challan is generated to pay a fine of Rs.100/-. This penalty has to be paid by the Company as the car is in the name of the company.
CASE 2: The director of the same company in the same car is caught speaking on a phone while driving and he has to pay a fine, which is personal.
Both the offence is committed under the Motor vehicles Act and as per Clause XII point A of MGT 7 the following is the reporting that is required to be made:
|CASE 1||CASE 2|
|Name of the Company/ Directors/ Officers||XYZ Enterprises Limited||Mr. X|
|Name of the court/ concerned authority||Traffic Police||Traffic Police|
|Date of Order||15.10.2015||15.10.2015|
|Name of the act and section under which penalised/ punished||Section 177 of the Motor Vehicle Act, 1988||Section 177 of the Motor Vehicle Act, 1988|
|Details of penalty/ punishment||Rs. 100 for stopping in Zebra Crossing||Rs.100 for speaking on phone|
|Details of appeal (if any) including present status||NIL||NIL|
Interpretation by Professionals
Many professionals seem to be taking a stand that only Compounding orders are required to be disclosed in point A as the word “order” is mentioned in column 3 of point XII(A). If that was the intention of the regulator, point B again requires the Company to state the details of compounding, which allows for an interpretation that any offence committed by the Company or the Director has to be reported irrespective of the amount of penalty, which seems the intent based on the details sought for in all other columns of point XII(A). Professional is playing the role of opinion provider to Company as the regulators have left the interpretation to professionals in consultation with the Company to provide these details.
Difficulty of Reporting Compliance in India:
If this is what the regulator requires the Company to report, imagine the annexure that the Company is required to attach to MGT 7. Is this what regulators are looking for? Why are the regulators making a mockery of governance and compliance in this country? On one hand we are marketing this country to do business and on the other the regulator is introducing pathetic format that have no semblance to the initiatives of a country.
Tags :Corporate Law