This article is written by Amarnath Simha, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here he discusses “What is the Straight Through Process (STP) Adopted By MCA and What are the consequences in case of Incorrect Submission?”.

Definition of STP in Different Contexts

Straight through processing can be defined to be a process wherein a transaction, in a particular context, is processed to its logical conclusion without the intervention of a human effort.  STP is adopted in various businesses and government offices including by Securities and Exchange Board of India. Each industry defines STP in their context in a different manner.  

The Bank for International Settlements (BIS) defines STP as the automated end-to-end processing of trades and/or payment transfers, including the automated completion of confirmation, matching, generation, clearing and settlement of instructions, without the need for re-keying or reformatting data. (https://www.bis.org/cpmi/publ/d00b.htm?&selection=149&scope=CPMI&c=a&base=term)

Straight-through Processing (“STP”) is defined by Securities and Exchange Board of India as a mechanism that automates the end-to-end processing of transactions of the financial instruments. It involves use of a single system to process or control all elements of the work-flow of a financial transaction, including what is commonly known as the Front, Middle, and Back office, and General Ledger. In other words, STP can be defined as electronically capturing and processing transactions in one pass, from the point of first ‘deal’ to final settlement. (https://www.sebi.gov.in/sebi_data/faqfiles/jan-2017/1485846723481.pdf)

However for the purpose of Companies Act, the Straight Through Processing is defined as follows in the Companies (Registration Offices and Fees) Rules, 2014 (hereinafter the rules).  Rule 2(l) states: “Straight Through Process” means the process in which an e-form is approved through the system without manual interruption. (http://www.mca.gov.in/Ministry/pdf/NCARules_Chapter24.pdf)

So basically, it is more about automated processing of transactions without the intervention of human efforts.

MCA-21 PROJECT

The MCA-21 project is one of the mission mode projects of the Government of India under the National e-Governance Plan to provide easy and secure online services through the use of information technology to various stakeholders with the corporate sector in the country.  By a notification dated 26.10.2006, the project made it mandatory for all filings mentioned in that notification to be done in electronic mode. (http://www.mca.gov.in/Ministry/notification/pdf/SO_1844(E)_26oct2006.pdf)

While providing for the electronic mode filing, the notification also states for allowing the changes in the process and one such process at paragraph 19© of the notification.  It is stated therein that where the filing does not require any immediately processing or approval, it may be taken on record through the ‘Straight Through Process’ STP to be implemented through amendment of the relevant regulation.

Companies (Registration Offices and Fees Rules, 2014)

Subsequent to the enactment of the Companies Act, 2013, the above rules were formulated.  Rule 7 thereof is very clear and the same is reproduced herein

“7. Manner and conditions of filing.-Every application, financial statement, prospectus, return, declaration, memorandum, articles, particulars of charges, or any other particulars or document or any notice, or any communication or intimation required to be filed or delivered or served under the Act and rules made thereunder, shall be filed or delivered or served in computer readable electronic form, in portable document format (pdf) or in such other format as has been specified in any rule or form in respect of such application or form or document or declaration to the Registrar through the portal maintained by the Central Government on its website or through any other website notified by the Central Government”.

This rule has four provisos which, amongst others, give room for filing in physical form wherein the non-judicial stamp paper is necessary.

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Hence, it is very clear that all filings to the Registrar of Companies under the Companies Act, 2013 has to be in electronic form and in the portal maintained by the Central Government. (mca.gov.in).  Once this was provided for, the treatment of those filings were also provided subsequently in the rules.

Rule 10 deals with the procedure on receipt of any application or form or document electronically.  Sub-rule (1) thereof mandates the Registrar to either examine or cause to be examined every document or e-form or application filed for the approval, registration, taking on record or rectification by the registrar.  Hence, no application can go unexamined.

A proviso to the sub-rule (1) is provided in the cases of e-form or documents filed under STP.

STP in the Companies (Registration Offices and Fees) Rules, 2014

E-forms or documents filed through STP is provided as an exception to the mandatory duty of the Registrar to examine or cause to be examined every application, e-form or document.  It is relevant to note that in the proviso to the sub-rule (1) dealing with the STP, only e-forms or documents are allowed and it does not refer to ‘applications’. Hence ‘applications’ are not allowed the STP.  The proviso is reproduced herein for greater clarity.  

“Provided further that the e-Forms or documents identified as informative in nature and filed under Straight Through Process may be examined by the Registrar at any time on suo-motu or on receipt of any information or complaint from any source at any time after its filing”.

There are only three references to ‘STP’ in the rules.  One is in the definition which is already reproduced earlier and the other is provided above.  The last one would be reproduced later. But the fact is the rules do not actually provide for applications under STP.  It is only e-form as provided in the definition or e-form and documents as provided in the proviso to sub-rule (1) of rule 10.  But the word ‘e-form’ defined in rule 2(i) means a form set forth in the annexures to these rules which shall be used for the matter to which it relates.   The Annexure refers to the fees that is payable under the filings under the Act and hence it can be stated that even if the usage of STP under the body of rules is not including the application, by virtue of the annexure, all filings can be brought under STP.

STP has been adopted in respect of many forms.  Some of them are Forms 2, 3, 18, 32 under the old Act etc., were made as STP forms.  (https://pib.gov.in/newsite/PrintRelease.aspx?relid=72266).  It is observed therein that the form is processed and taken on record without the intervention of ROC and it will save time for approving the form and immediately available for public inspection.   Form DIR-6, PAS-3, MSC-1, CHG-1, MGT-14 for certain purposes etc., are made as STP forms

While rule 10(1) states that every filing shall be examined or caused to be examined by the Registrar, the proviso states an exception to the STP forms.  In these cases, at any point of time, the Registrar either suo motu or on complaint or information by source after its filing may examine the forms filed under STP.  Hence, once a filing is done under STP, it does not mean for all times it is beyond the review by the authorities. The review is only postponed indefinitely and can be done at any point of time and for no reason also, as a suo-motu examination is allowed.  So an STP form is only indefinitely postponed examination and not an absolutely approved filing for all times to come.

Consequences in case of Incorrect Submission

Under Rule 10(6) of the Rules, the Registrar finds any e-form or document filed under STP as defective or incomplete, he is mandated to treat the same as defective in the electronic registry and to issue a notice pointing out the defects or incompleteness and call upon the company to file it afresh along with fee and additional fee after rectifying the defects or incompleteness within a period of thirty days from the date of notice.  The notice may be through e-mail or in the absence thereof, by post to the last intimated office address of the company.

The refunds paid wrongly under the STP forms are not refundable.  (https://pib.gov.in/newsite/PrintRelease.aspx?relid=72266).  Hence, the defects are curable in case of defects or incompleteness.  However, Rule 8 of the Rules also comes into play.

Rule 8: Authentication of Documents

Rule 8 provides for authentication of documents.  It states that electronic form shall be authenticated by the authorised signatories using a digital signature.  Sub-rule (3) states that the authorised signatory and the professionals who certify e-form shall be responsible for the correctness of the contents of e-form and enclosures attached thereto.   Sub-rule (9) states that where false or misleading information or omission of material fact is observed in such filing, action can be initiated under Sections 448 and 449 of the Companies Act.  Sub-rule (10) also provides for deactivation of the Digital Signature Certificate by the Central Government without prejudice to the other liabilities. Section 448 provides for punishment as per Section 447 for any statement made by a person in any return, report, certificate, other documents etc., which he knows to be false in any material particulars or omits any material fact knowing it to be material.   Section 449 provides punishment of three-seven years and for a fine up to Rs.10 lakhs for giving false evidence in an affidavit or solemn affirmation.

Hence, for the purpose of consequences, it may be stated as long as the wrongful submission is only in respect of incompleteness or defects by oversights, they can be corrected.  But if they are incompleteness or defects are deliberate and amount to actions liable under Sections 448 and 449, the authorised signatories can be punished under the law. This is also because, the inbuilt safeguards like pre-fill, check form, modify and pre-scrutiny are provided in the electronic mode filing.  Hence, the burden would be more on the authorised signatory to prove that the defects were unintentional.

Conclusion

It can be stated that the adoption of STP by MCA while resulting in many benefits has put the persons liable to file documents under that mode in a more precarious manner.

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