India: Article On Topic - Will MCA's Latest Amendment To The Companies Incorporation Rules To Provide Additional Physical Verification Of Registered Offices Leads To Further Crackdown On Shell Companies?

The Ministry of Corporate Affairs (MCA) in its initiative to tackle 'mailbox companies' vide its notification dated 18.08.2022 has published the Companies (Incorporation) Third Amendment Rules, 2022 thereby amending the Companies (Incorporation) Rules, 2014 by introducing Rule 25B "Physical verification of Registered Office of Company" setting out the process to be followed by Registrar of Companies (RoC) to carry out physical verification of a registered office of a Company and report thereon, followed by requisite notice and name removal action, where the same is found incapable of receiving and acknowledging all communications.

The MCA has propelled a persistent campaign in the last four years against curbing the black money and crackdown on shell companies leading to several bold steps including the struck-off of around 2.26 lakh shell companies in the financial year 2018 that had failed to file their financial statements or annual returns over two or more successive financial years. Likewise, in another curb, the MCA identified around 2.25 lakh more companies for similar action. Further, more than 3 lakh directors were disqualified for non-filing of annual returns by their companies for three years.

Subsequently, MCA declared Director KYC norms compelling more than 33 Lakh active Director Identification Number (DIN) holders to provide details such as personal mobile number, E-Mail address, PAN, Aadhar, Passport, et al. Pursuant to the introduction of DIR-3 KYC norms, MCA made it mandatory to upload a 30- second video clip presenting themselves to obtain a Digital Signature Certificate (DSC), which is a requisite to file DIR-3 KYC on the MCA Portal. Furthermore, MCA made it mandatory for around 13 lakh companies incorporated on or before 31.12.2017 to file e-form INC-22A (ACTIVE – Active Company Tagging Identities and Verification) form on or before 25.04.2019 which required providing photographs of the registered office of the Company showing the external building, inside office showing at least One Director/KMP signing form including details of Longitude & Latitude of the address of the registered office of the Company.

Now, commensurate with its initiatives to curb and wipe out shell companies from the system, the MCA in accordance with provisions of Section 12 (9) of the Companies Act, 2013 has inserted Rule 25B under Companies (Incorporation) Rules, 2014

The said Rule has been inserted to give power in the hands of the RoC to track down the shell companies who are incapable of receiving and acknowledging all communications sent to them at their registered office. The recent amendment also provides jurisdiction to the RoC under subrule (5) of Rule 25B to issue notice to such companies and their directors and eliminate them from the corporate ecosystem by removal of the name of such companies from the register, if they are in default.

The said amendment will facilitate the stakeholders, regulatory authorities, and other government authorities, etc. to timely send the communication/notice to the Company at the legitimate registered office or correspondence address of the Company and restraint the practice of giving fake addresses or nonoperational office addresses and diminish the possibilities of excuses relating to non-receipt of notice or documents, etc. by the Companies.

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