In shell firm clean-up 2.0, MCA tells Registrars to physically verify companies’ registered address

Taking its campaign to take shell companies and dormant businesses to the second stage in the second phase, the Ministry of Corporate Affairs (MCA) has brought in rules to tighten the verification process after incorporation.

In the first phase of weeding out shell and closed companies, MCA has, in the last five years, removed over four lakh companies from its company register due to several lapses including non-compliance in filing of financial statements and annual returns.

The latest rules describe the procedure to be followed by the Registrar of Companies (ROC) for physical verification of the registered office of companies that do not exist or conduct business, even if incorporation has taken place and the company concerned has informed MCA21 about its registered office address.

In fact, the new rule supersedes a provision in the law, which allows physical verification of registered offices by RoC for dormant companies, where the office concerned is not able to receive government communications. The Companies Act was amended in July 2019 to allow RoCs to conduct physical verification of registered offices of companies where the registrar has reasonable cause to believe that the company may become dormant after incorporation. This physical verification of the registered office is essentially a post incorporation activity.

Operation Clean-up 2-0

Company law experts see the latest MCA move to schedule the process of physical verification of the registered office as the second round of “Operation Clean Up” of dormant and dormant companies.

The aim of the latest MCA move could be manifold, including tracking of shell companies, missing companies and investigation of Chinese companies, many of which were found to have separate registered offices and some did not even have a registered office. . added.

G Ramaswamy, former president of CA Institute, said that this latest step of MCA is right to start operation clean-up of all shell and fake companies. “Good move as part of real entity identification. It will also help in identification of genuine directors. Dormant companies can be identified by RoCs through this process before deletion,” he said.

Meanwhile, official sources said the new rules will not be used indiscriminately and there are adequate “security measures” including recorded reasons for physical verification, which will be done in the presence of two independent witnesses. There will be no harassment of genuine companies, he added.

The help of local police can also be taken by the ROC for physical verification. The Registrar will have to take the photograph of the registered office of the company while doing the physical verification of the same.

Asim Chawla, Managing Partner, ASC Legal said that the current MCA move will go a long way in the filtration exercise to identify dormant entities.

“Also, it will facilitate the elimination of shell companies and companies controlled by benami names. The physical verification exercise of the RoC should not fall prey to any nepotism, and the fact-finding effort should be done in a non-intrusive manner,” Chawla said.

Published on

20 August 2022


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