Government starts crackdown on dummy firms

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New Delhi | Published: June 20, 2019 2:34:21 AM

MCA initiates action against firms failing to provide details of registered office, officials.

As on April 2019, there are a total of 18.84 lakh companies registered in India, of which a little over 61% or roughly 11.57 lakh firms are active.

The ministry of corporate affairs (MCA) has started a crackdown on companies that have not filed the e-form ACTIVE by June 15. The form allows geo-tagging of a firm’s registered office location and includes photographs of office, directors as well as details of CEO and other key officials.

According to sources, firms which haven’t filed ACTIVE form will be tagged as “ACTIVE non-compliant” and their directors as “director of ACTIVE non-compliant company”. The companies that are found to be non-compliant would be red flagged and could face action from government agencies like IT department, ED, Sebi, etc.

In February this year, the MCA issued Companies (Incorporation) Amendment Rules, 2019 and Companies (Registration offices and Fees) Amendment Rules, 2019 under which a company incorporated on or before December 31, 2017 has to file its particulars and that of its registered office in the e-form ACTIVE. The last date for this compliance was April 25, which was later extended till June 15.

As on April 2019, there are a total of 18.84 lakh companies registered in India, of which a little over 61% or roughly 11.57 lakh firms are active.

A senior government official said, “This was started three months back to track bogus firms and shell corporations. There have been instances where several companies were found to be operating from a single registered address or where the office showed no signs of any operations.”

Besides, putting compliance responsibility on directors is an effective measure to ensure that companies provide their details and tag their registered office locations, he added.

AMRG & Associates Partner Rajat Mohan said, “Public tagging of non-compliant corporates may also be red flagged by IT systems of various stakeholders like RBI, Sebi, BSE, NSE, Income Tax authorities, GST authorities, investors and vendors, forcing them to be vigilant while having business transactions with all such companies,” he added.

Another government official explained that with geo-tagging rules, the requirement of putting data of exact location such as latitude and longitude, photographs of registered office and other details would help identify cases where one building houses multiple shell companies or whether the said company is really operational or has been created for illegal purposes.

“Now tagging of companies and directors who did not file e-Form Active (INC-22A) is in progress and till the time this is being done e-filing of this form has been suspended. The filing of e-Form (ACTIVE) will again start post the completion of this cleansing exercise,” he added.

After a company and its directors are tagged with non-compliance, the ministry will give a showcause notice to the company to explain its position. If the entity does not give a sound reply or fails to reply, its details will be shared with investigating agencies like the Enforcement Directorate (ED). Details of listed non-compliant firms which fail to reply will be shared with the capital markets regulator Sebi. Such companies will be eventually deactivated, if found guilty, the official revealed.

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