Is non-filing of Annual Return and Financial Statements, a serious offence?
The Ministry of Corporate Affairs (‘MCA’) has in the recent past appointed Adjudicating officers for adjudicating the penalties for non-compliance with the provisions of the Companies Act, 2013. In this article, we shall be discussing the penal impositions for non-filing of Annual Returns in Form MGT-7 and for non-filing of Financial Statements in Form AOC-4.
The penalties-imposed range in lakhs covering the Company and directors who are in default for delay in Annual Filings after considering the number of days the delay and the number of officers who are in default.
You can click here to access the recent adjudication orders passed by the MCA.
Who imposes penalty and what is the manner of imposing the penalty
The Central Government may appoint adjudicating officer, who shall issue a notice to the Company and to the officers who are in default for not filing the Financial Statements (Form AOC-4) and for not filing Annual Return (Form MGT-7) (both forms hereinafter referred to as ‘Annual Filing forms’).
The Company and the officer who is in default shall be given minimum of 15 days and a maximum of 30 days to reply to the show cause notice as to why the penalty shouldn’t be imposed on them or such other extended period as approved by Adjudicating officer.
An order will be passed by the Adjudicating officer within 30 (thirty days) (without physical appearance) and within 90 (Ninety days) (with physical appearance) following the expiration of the above-mentioned period.
Now, let us understand the importance of Annual filings and consequences of not filing the same.
Importance of Annual Filings – Annual Return & Financial Statements
Annual Return is a document containing the annual information of the company such as details of the Company’s share capital, directors, shareholders, indebtedness, and corporate governance disclosure etc.,
Section 92 of the Companies Act, 2013 states that a Company must file Annual Return in such manner as may be prescribed i.e., within 60 days of the date of Annual General Meeting (AGM) of the Company held for respective year or within 60 days of the due date (if no AGM is held) together with the statements specifying the reasons for non-holding of AGM and place such copy on the Website of the Company, if any.
Financial Statements showcase the financial position of the Company duly audited by their statutory auditors.
Whereas Section 137 states that copy of the Financial Statements, including consolidated Financial Statements, if any, duly adopted at the Annual General Meeting of the Company, shall be filed with the Registrar within 30 days of the date of Annual General Meeting.
The intention behind filing such documents is to make the stakeholders understand the current financial position of the Company and public at large with regard to Management of affairs of the Company.
Consequences of not filing Annual Return and Financial Statements with the Registrar of Companies (‘ROC’)
As per the Companies Act, 2013 non-filing of Annual Return & Financial Statements is an offence and there are penalties imposed and other consequences for non-filing of these documents.
Who will be penalized and what’s the penalty?
- Directors associated with the company (i.e., officer who is in default)
Penalty on the Company:
One time penalty of Rs. 10,000/- will be imposed for violation under each of the Sections (Section 92 & Section 137)
if such failure continues, a penalty of Rs. 100/- for each day and subject to the maximum of Rupees Two Lakhs will be imposed for violation under each of the Sections (Section 92 & Section 137)
Penalty on officer who is in default:
One time penalty of Rs. 10,000/- will be imposed and for violation under each of the Sections (Section 92 & Section 137)
if such failure continues, a penalty of Rs. 100/- for each day and subject to the maximum of Rupees Fifty Thousand will be imposed for violation under each of the Sections (Section 92 & Section 137)
Other actions which can be taken by the authorities:
- Removal of the name of the Company
The Registrar has the discretion to remove the name of the Company from the Register of Companies.
A Company which is not carrying on any business or operation for a period of two immediately preceding Financial Years or has not made any significant accounting transaction during the last two Financial Years or has not filed Financial Statements and Annual Returns during the last two Financial Years is termed as inactive Company and an application to the Registrar shall be made by the Company for obtaining the status of dormant Company.
And if the Company has not applied for dormant status, then the ROC shall send a notice to the Company and to all the directors of the Company mentioning its intention to remove the name of the Company after giving the notice and requesting them to send their representations, if any.
- Order the Company to be wound up by the National Company Law Tribunal (NCLT)
If the Company has made a default in filing with the Registrar its Financial Statements or Annual Returns for immediately preceding five consecutive Financial Years, NCLT shall pass an order for winding up the Company after reasonable opportunity being provided to the Company for making representations, if any.
Suggestive action for Companies which are non- operational
If a Company has been incorporated by the founders and is not operational due to any reasons, it still needs to do the Annual Filings regularly.
In order to avoid the penal provisions under this act, if a Company is not carrying on any business or operations for a period of two Financial Years or has not made any significant accounting transaction during the last two financial years or has not filed Financial Statements and Annual Returns during the last two Financial Years it is suggested to make a Suo moto application to the Registrar to strike off the Company’s name from its Register of Companies.
Therefore, it is extremely important and inevitable for all the Companies to be compliant and to file the Annual Returns and Financial Statements within the due dates as specified above.
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The content of this document has been developed based on relevant information and are purely for private circulation. Though the authors have made utmost efforts to provide authentic information, however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document.