The ministry of corporate affairs (MCA) has amended the Companies (Appointment and Qualification of Directors) Rules, wherein if a firm fails to file the e-form ACTIVE, its directors will be tagged as ‘director of ACTIVE non-compliant company,’ a move to check shell corporations and fly by night operators as well as to keep a tab on dormant entities.
The amendment, earlier this month, stipulates that “Where a company governed by Rule 25A of the Companies (Incorporation) Rules, 2014, fails to file the e-form ACTIVE within the period specified therein, the Director Identification Number (DIN) allotted to its existing directors, shall be marked as ‘Director of ACTIVE non-compliant company’”.
It further states that when DIN of a director has been marked like this, such a director shall take all necessary steps to ensure that the company is governed by rule 25A (e-form ACTIVE). The concept of ACTIVE (Active Company Tagging Identities and Verification) provides for geo-tagging a company’s registered office. Firms, which were incorporated on or before December 31, 2017, had to file particulars in e-Form ACTIVE by April 25, 2019.
Government sources said the step in a series of policy decisions aimed at checking the growth of shell companies and identifying fly by night operators. Putting compliance on directors is an effective measure to ensure that companies provide their details and tag their registered office locations.
Gaurav Mohan, CEO of AMRG & Associates, noted that this would push the corporate governance to next level and would hold all directors directly responsible for non-compliance by a company in filing ACTIVE forms.
“Director identification number (DIN) would be red flagged as ‘Director of ACTIVE non-compliant company’ in case of a delay by even a single company on the board of which such director serves, due to this compliant companies would be maligning their corporate image in case of a common director with a non-complaint entity,” he added.
Partner at Shardul Amarchand Mangaldas, Inder Mohan Singh welcomed the move explaining that it would keep a check on “dormant companies, shell companies or fly by night operators”.
“However, relevance of the same to existing operating companies, large and multi-national companies is debatable. Further shifting of onus on the directors will have repercussions on non-executive directors/independent directors as well,” he added.