In this article, Animesh Tiwary, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on non-filing of Annual Returns and Financial Statement with RoC.
Introduction
The Companies Act, 2013 lays down provisions containing certain rules and regulations which a ‘company’ whether public or private limited has to abide by, right from the initial stage of ‘incorporation’ to the final stage of ‘dissolution’. This has been done in order to encourage transparency and high standards of corporate governance. The directors of the company need to inform the ‘Registrar of Companies’ (hereafter referred as “ROC”) of any material change in the financial, legal or managerial status of the company since the further directions of the ROC depends on this information. Section 92 and Section 137 of the Act mentions the mandatory filing of the annual return and financial statement of the company before the ROC within a stipulated time as has been prescribed under the Act.
Provisions Relating to the Annual Filings made to RoC under the Act
Section 92
This section talks about the filing of the annual return to ROC. According to this, it is mandatory for every company to file a copy of the annual return within 60 (sixty) days from the date on which Annual General Meeting (AGM) or 60 (sixty) days within the date on which the AGM was scheduled to be held or should have been held in cases where the company failed to conduct an AGM along with the statement specifying the reason for the same accompanied with the fine imposed under Section 403 of the Act. (Ministry of Corporate Affairs, 2013)
(1) The ‘annual return’ of the company must contain information in the Form MGT-7 (e-form) as has been prescribed under the Act. This information includes following as they are at the close of the financial year such as: –
- The registered office of the company, information about its holding, subsidiary and associate companies and principal business activities;
- The pattern of its shareholding and shares, debentures and other securities;
- the indebtedness of the company;
- members and debenture-holders of the company accompanied with changes made from the close of the previous financial year;
- promoters, directors, key managerial personnel of the company accompanied with changes made from the close of the previous financial year;
- meetings of the members, Board and its different committees accompanied with their attendance details;
- remuneration of directors of the company and its key managerial personnel;
- penalty or punishment imposed on the company, its directors or officers of the company and details of compounding i.e. settlement of offences and the appeals made against such penalty or punishment;
- information regarding shares held by or on behalf of the foreign investors along with their names, addresses, countries of incorporation, registration and percentage of shares held by them;
- such other matters related to the company as may be mentioned and must be signed by a director and the company secretary, or by a company secretary in practice;
(2) In case when the annual return is filed by a listed company or, by a company having paid-up capital and turnover as may be allowed under the Act, that company shall obtain certification by a company secretary who is currently practicing, in the mentioned form under the Act, declaring that the annual return mentions the facts correctly and ensure that the company has followed all the provisions of this Act.
Section 137
It deals with the filing of the financial statement by the company. According to this, a copy of financial statement which may include consolidated financial statement approved and adopted at AGM of the company, with all the other documents required to be attached with such statement, must be filed before the office of ROC within 30 (thirty) days of date of the AGM held by the company. This filing must be done through Form AOC-4 (e-form). (Ministry of Corporate Affairs, 2013)
In case, there is no AGM held by the company, then it may file the financial statement with such additional fees within the time prescribed under Section 403 of the Act.
Section 403
This section of the Act is concerned with the fees required for filing of the annual return or financial statement u/s 92 and 137 before the office of ROC. This section also specifies the time period within which any document, fact or piece of information is required to be submitted, filed, recorded or registered before the ROC under the Act. The time period specified is 270 days from the date by which it should have been submitted, filed or registered. (Ministry of Corporate Affairs, 2013)
Non-compliance with Section 92 and Section 137 by the Company
Section 403(2) of the Act states that where a company commits any default or fails to submit, register or file the document within expiry of time along with the prescribed additional fee, the company and its officers who are responsible for such default will be held liable for the penalty or punishment for such failure.
Therefore, if a company or its officers does not comply with above-mentioned provisions, then penalty or prosecution under Section 92 (5) and Section 137 (3) shall be initiated against them.
Section 92 (5) deals with penal provision for companies. It suggests that if a company fails to file its annual return under sub-section (4), before the expiry of the period specified u/s 403 with additional fee, the company shall be punishable with fine which shall not be less than ₹50,000/- but which may extend to ₹5,00,000/- and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than ₹50,000/- but which may extend to ₹5,00,000/-, or may be both.
Similarly, Section 92(6) deals with the penal provisions listed for the officer who is in default. It states that if the company secretary in practice with the company certifies the annual return and advices against the provisions mentioned under the act, he shall be punishable with fine which shall not be less than ₹50,000/- but which may extend to ₹5,00,000/-. (Goyal, Implication of Non-filing of Company Annual return, 2016)
Suggestions Of J. J Irani Committee
However, after the enactment of the new Companies Act in 2013, certain concerns were raised by various stakeholders that such penalties and punishment prescribed under the new Act is ‘disproportionate’ due to various reasons. Therefore, in order to look after these concerns, a committee under J. J Irani was formed. Their report suggested that “the Companies Act may lay down the maximum as well as minimum quantum of penalty for a particular offence, however the Act should also contain provisions for the levying authority while imposing any penalty taking into consideration the size of company, nature of business, injury to public interest, nature and gravity of default, repetition of default, etc.”
Moreover, the Standing Committee on the Companies Bill, 2009 in its 21st report had also stated that “transgressions, purely procedural or technical in nature, should be viewed in a broader perspective, while serious non-compliance or violations including fraudulent conduct should invite provisions like imprisonment which is hard and may at as a deterrent for others.” There have been cases internationally, where companies which are of a smaller size in terms of their business undergo a separate and more liberal penalty and compliance regime whereas companies with a relatively larger size.
Therefore, in view of the above, the committee observed that small businesses need encouragement which can be provided to them by laying down a more liberal regulatory regime and reducing punishments wherever they are found unreasonable. Further, the Committee felt that “the procedural and technical non-compliances due to reasons such as lack of professional guidance should attract less stringent punishments as compared with violations for substantive requirements.” The Committee also observed that as per the scheme of the Act, most of the offences which are punishable with fine or imprisonment or both are technical/procedural in nature, and thus, for the ease in administration and regulation of the Act, the old provisions of the previous Act relating to compounding may be reinstated. Therefore, under sub-section (1), the Tribunal should have the power to compound offences punishable with fine as well as offences punishable with imprisonment or fine or both. (Tax Management India, 2016)
Exemptions for certain provisions under Section 92 and Section 137
The Ministry of Corporate Affairs has introduced certain exemptions/relaxation/adaptations to some of the provisions of the Companies Act, 2013 through its notifications dated 5 June 2015. The exemption has been provided for following a class of companies- Private companies, Companies formed with charitable objects, Government companies. The exemptions related to Section 92 and Section 137 has been stressed here. Exemptions made for companies under Section 92(1)(g) and the proviso to Section 92(1)–
Every company is, currently, required to prepare an annual return which contains information as they stood at the end of the financial year, which includes remuneration of directors and key managerial personnel of the company.
Moreover, in cases of a one-person company (OPC) and small company, such annual return must be signed by the company secretary or by the director of the company.
Now, few amendments have been brought which provide for a private company that are small companies which are required to provide the details of the aggregate i.e. amount of remuneration drawn by the directors instead of providing details of remuneration of directors and key managerial personnel of the company.
Compounding of Offence under Sections 92 And 137
ROC has the power to issue show cause notice to the companies which fail to file the return within 270 days. He can ask the company to file the forms and compound the offence under the sections through Section 441 and ask the company to provide the reason for the same.
In these circumstances, companies have a remedy for escaping penalties and prosecution i.e. compounding of offences. Compounding is a compromise or arrangement between the regulator of the enactment and person committing an offence. Since for a compounded offence, no penalties and prosecution can be charged. (P P Varkey v. STO, 1999)
According to Section 441(1) of Companies Act, Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only, may, either before or after the institution of any prosecution, be compounded by the Tribunal; or where the maximum amount of fine which may be imposed for such offence does not exceed ₹5,00,000/-, by the Regional Director or any officer authorized by the Central Government.
However, a company can apply for compounding only if it has not defaulted on the filing. Therefore, in case of late filing, the company needs to file both the e-forms i.e. AOC-4 and MGT-7 before the office of ROC with additional fees u/s 403. Once the default stops, the company need to go for compounding of offence starting from 31st or 61st day from the date of AGM till the date of filing of forms with ROC as the case may be. (Goyal, 2016)
It has been further reiterated by the court in a similar case that once compounding of an offence is done, neither the assesses nor the department can challenge such compounding order. (S Viswanathan V. State of Kerala, 1993)
Amendments Introduced as per Companies (Amendment) Act, 2017
In regards to the concerns raised by various stakeholders including company representatives and regulating authorities, certain amendments have been proposed in the Companies Act, 2013 in the form of Companies (Amendment) Act, 2017. The Companies (Amendment) Bill, 2017 was passed by both the Houses of Parliament before receiving the assent of President to become an Act on 3rd January 2018. Few amendments introduced with respect to non-filing of the annual return and financial statement have been mentioned below:
Section 92
The new Act has omitted the subclause (c) of Section 92(1) which is related to ‘indebtedness’ of the company. It has also modified subclause (j) which held that details of foreign institutional investor holding shares of the company must be mentioned. Now, details like their name, address, country, registration, etc. have been omitted.
Moreover, a proviso is added for a one-person company (OPC), small company or any other such company which has provision to introduce an abridged form of annual return.
Also, now the companies have to give a web-link of annual return in Board’s report and publish the same in their websites.
Section 137
The new Act proposes that references of within the time specified u/s 403 of the Act is omitted from this section. Now, there will be no mention of Section 403 anywhere in this section.
In this section, there is a proviso after the fourth proviso, an exemption is provided to holding company from attaching the audited financials of its foreign subsidiary company, in case if the foreign subsidiary company is not required to prepare the audited financials as per rules of the country of incorporation. Now, attachment of unaudited financials will be treated as sufficient compliance. However, it must be in the English language.
Section 403
An increase in the late fee has been proposed in the new Act for the delay in filing the annual return and financial statement before the office of ROC (u/s 92 and 137 respectively). The additional fee will be not less than ₹100 per day, however, will differ from a class of companies.
The company will file the documents such as annual return and financial statement with an additional late fee, without prejudice, in cases of delay in such filing before ROC and such company and its officers responsible for the same must be held liable for penalties and prosecution, without any prejudice.
Conclusion
We can conclude from the above that there are several provisions which regulate the conduct of the company in matters of filing of information such as annual return and financial statement under Sections 92 and 137 respectively, mentions the guidelines for filing and lays down the impact of non-compliance of the same in the form of penalties and prosecution. However, a company can be absolved from such penalties and prosecution through compounding of offence under Section 441(1) provided it is notwithstanding anything contained in CrPC, 1973. Therefore, it is suggested that a company failing to make filings before ROC within 300 days must go for compounding of the offence i.e. a compromise or settlement with the regulating authorities in order to save itself from future prosecutions. The Government has also tried to provide some relief to the companies and reduce some complexities of the former Act by introducing amendments in the form of Companies (Amendment) Act, 2017.
