This article is written by Chandana Lakshman, pursuing a Diploma in Companies Act, Corporate Governance and SEBI Regulations from LawSikho.com. Here she discusses “What is a Straight Through Process adopted by MCA and what are the consequences in case of incorrect submission?”.

Introduction

With the advancement of science and technology, we find everything becoming automate without interruption of man. Prior days it was difficult for a man to do everything manually which is a tiresome job and time-consuming. Straight through processing was first introduced in India on a voluntary basis on November 30, 2002. Issues like lack of interoperability between all the STP service providers, technological issues, absence of common agreements among STP service providers and bearing of the additional cost of developing and maintaining such interfaces at the initial stages STP couldn’t perform well.

Straight Through Process (STP)- Meaning

In simple terms straight through process is in which an e-form is approved through a system without human intervention.

It can also be meant where a single system is used to process all the elements of the workflow of financial transactions and it also includes what’s is called as the front, middle, back office and General ledger.

Straight Through Process-Definition

Under Securities Exchange Board Of India (SEBI) straight through “is a mechanism that automates the end to end processing of transactions of the financial instruments”. Where a single system is sufficient to control all the elements of work-flow of financial transactions, including what is commonly known as the Front, and Back office, and General ledger.

 It can also be defined as “electronically capturing and processing transactions in one go from the point of the first deal to the final conclusion”

The Bank for International Settlement (BIS) defines as”the automated end to end processing of trades or payment transfer, including the automated completion of confirmation, matching, generation, clearing and settlement of instructions, without the need for re-keying or reforming data”.

Why do companies follow a straight-through process rather than traditional payment?

Below are some of the reasons why companies go for straight-through the process rather than traditional payment:

• In Straight-through process, the payment speedily whereas if one goes by traditional payment to transfer the payment from one side and to receive the payment by the other side would take a couple of days.
•  In Straight-through processing is automated electronic processing, instructions needn’t be entered each time, whereas in traditional payment one has to enter all the instructions manually to process the payment.
• Since in traditional payment the payment is processed manually it is prone to errors often and it’s an error-free process when it comes to Straight-through processing.

Benefits of adopting Straight Through Process (STP)

• Facilities shortening of the settlement cycle.
• It increases transparency.
• It avoids costly duplication of work and manual intervention.
• Since there is an absence of human intervention there is a reduction in risks and errors.
• It has faster data capturing, processing and report generation.
• It increases overall efficiencies.
• It has a better regulation by systematic audit trail.
• It makes the market cost-effective.

Disadvantages of adopting Straight Through Process

• As we already know we use a single system to process all the elements but when firms adopt to use multiple systems there arises valuation discrepancies.
• When one system prices more products than the other. For example, a front office application may value an interest rate swap but the legacy back-office may be unable to value the swap as a single product.
• There will be a need for so much capital in maintaining multiple systems.
• There might also be issues like lower speed in processing, flow and quality.

One of the barriers in following STP

Automation Deficit and Increase In Manual Intervention

At the time of installation of this software that is straight through the process, the initial cost is very high. Only a few instances the chances of reaping the profits are higher than the amount which is invested in STP and in other times when investment industries follow Straight through process method the rates are low as 15%. Sometimes when there is continuous disruption while in the trade process, circumstances may arise like taking the trade flow out and processed manually by increasing the risk of human error.

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E-forms which to be filed by Companies while adopting straight-through processing?

It was back in May 23, 2011, Ministry of Corporate Affairs has taken an initiative in order to save trees and environment by cutting down the consumption of costly paper habits and by allowing paperless compliance by the companies under the provision of the companies act 1956, automatic approval of certain forms through straight-through processing mode was brought up.

All the below forms shall not be presented to the Registrar of Companies to get the approval and are automatically taken into the record without any intervention.

• Form 2 and Form 3 which are filed for return of allotment of shares.
• Form 18 which is used at the time when there is a change in the registered office by an existing company.
• 32 is used when there is a change in directors and details of the company.
• Form 1A is used for a name availability by a new company 

Penalties of Incorrect submission for Straight Through Processing E forms

1. Section 39(5) of Companies Act 2013, states in case a company fails to submit the form on Return of Allotment then the directors and the officers in default will be fined with INR 1000 per day or one lakh whichever is lesser.
2. Section 92(5) of Companies Act 2013, whenever there is late submission or incorrect filing of forms related to annual returns then the company will be liable to pay of INR 50,000 and which may extend to 5 lakhs and every officer shall pay INR 50,00 and which may extend to 5 lakhs or imprisonment of 6 months.
3. Section 64(2) of Companies Act 2013, states when a company fails to intimate alteration of capital within the prescribed period then the company and every officer in default will be held liable to pay a penalty of INR 1000 for each day during which such default continues or 5 lakhs whichever is lesser.
4. Section 117(2) of Companies Act 2013,  where a company has filed resolution after time limit it has to pay a penalty of INR 5 lakh which may extend to 25 lakhs and every officer in default has to pay a penalty of INR 1 lakh to 5 lakh.
5. Section 157(2) of Companies Act 2013, if there is a late submission of form relating to Intimation of DIN it would be liable to pay INR 25,000 and which may extend to INR 1 lakh and every officer has to pay INR 25,00 and which may extend to INR 1 lakh.

Straight Through Process under Companies Act, 2013

Section 398 of Companies Act 2013 states that the central government makes rules relating to that:

•  such applications, balance sheets, prospectus, return, declaration, memorandum, articles, particular of charges of documents as required to filed or delivered shall be filed in an electronic manner and authenticated in such a manner.
• And Registrar shall maintain all the above documents filed in electronic form.
• Any person who is interested in the above documents which are filed in an electronic manner shall be inspected at any time.
• And the required fees shall be paid.

Rule 8 of Companies (Registration offices and fees) Rules, 2014 states all the documents filed in electronic form shall be authenticated by authorised signatories using digital signature and the concerned authorities shall be liable for the correctness of the contents of E-forms and all the enclosures attached with the electronic form.

All the E-forms shall be authenticated by the Managing director or director or secretary of the company or any other key managerial person.

In the case at the time of filing of documents which contain any false or misleading information or omission shall be made punishable under section 448 and 449 of Companies Act, 2013.

Rule 9 of Companies (Registration offices and fees) rules 2013 states central government shall set up and maintain a secure centralised electronic registry in which all the applications, financial statements, prospectus, return, register, memorandum, articles, particulars of charges or return shall or any other documents shall be filed and stored electronically and such document shall be registered or authenticated by the Registrar or officer of the central government. 

Consequences of incorrect submission of E forms

Rule 10(6) of Companies (Registration offices and fees)  Rules, 2014 states: 

• when the register finds any e-forms or document filed under a straight-through process as defective or incomplete.
• the registrar may at any time either by suo-motu or in receipt of information or complaint from any source at any time treat the e-form or document as defective in the electronic registry.
• And also issue a notice pointing out the defects or incompleteness in the e-form or document along with the fees and additional fee as applicable at the time of actual re-filing after rectifying the defects or incompleteness within a period of thirty days from the date of the notice.

Conclusion

The traditional method is costly, time-consuming, requires a lot of human labour and it is also proved to be inefficient for today’s global market due to a lot of technicalities arising in the systems.STP reduces complexity and saves money for any organization of any size.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.