06/April/2018
| MINISTRY OF CORPORATE AFFAIRS |
| UNSTARRED |
QUESTION NO: |
6643 |
| Delayed Enforcement of Companies Act |
| SHASHI THAROOR |
Will the Minister of
|
CORPORATE AFFAIRS |
be pleased to state:-
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(a) whether the three-year period of non-compliance under Section 164 of the Companies Act, 2013 came into effect from November, 2017;
(b) if so, the reasons for having taken action against shell companies and directors non-compliant with Section 164 in September, 2017, instead of November, 2017;
(c) whether the Government has taken steps to ensure that the aforesaid process of cancellation of company registrations and the disqualification of directors, would not be susceptible to a challenge on the grounds of retrospective application of law; and
(d) if so, the details thereof and if not, the reasons therefor? |
| ANSWER |
THE MINISTER OF CORPORATE AFFAIRS (SHRI ARUN JAITLEY)
(a): Section 164 of the Companies Act, 2013 come to the effect from 01.04.2014.
(b) to (d): The term ‘Shell Company’ is not defined under the Companies Act, 2013. However, the Government has taken serious note of those companies which are non-compliant in filing their statutory returns as per provisions of the Companies Act, 2013 (the ‘Act’). Section 248(1)(c) of the Act, provides for removal of name of company from the register of companies if it is not carrying on any business or operation for a period of 2(two) immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under Section 455 of the Companies Act, 2013. Based on the above mentioned provision, 2.97 lakh companies were identified under this category as on 31.03.2017 and after following due process, names of 2,26,166 companies were struck off from the register of companies as of now.
Further, 3,09,619 Directors were disqualified under Section 164(2)(a) read with Section 167 of the Companies Act, 2013 for non-filing of Financial Statements or Annual Returns for a continuous period of immediately preceding 3(three) financial years (2013-14, 2014-15 & 2015-16). Out of the above mentioned disqualified directors, 2,10,116 number of disqualified directors were directors on the Board of Struck off companies.
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Relevance
In September, 2017, the Ministry of Corporate Affairs cancelled the registration of 2.10 lakh Companies and identified 1,06,578 Directors for disqualification under Section 164(2)(a) of the Companies Act, 2013 as on September 12, 2017. Section 164 (2) (a) of the Companies Act, 2013, provides the grounds for disqualifying directors if the company has not filed financial statements or annual returns for a continuous period of three fiscal years.
However, Section 164 came into force from 1st April, 2014, through the MCA notification dated 26th March, 2014. Thus, it covers fiscal years from the FY 2014-2015. The 2013 Act allows companies to hold their annual general meetings within six months from the closing date of the financial year. Thereafter, companies have another 60 days to file annual returns.Therefore, 30th November, 2017 would be the final date for the filing of the Annual Returns, to avoid the ambit under Section 164, while calculating the three-year non-compliance period. However, the MCA started the process of cancelling the registration of the Companies and disqualification of Directors in September, 2017, rather than waiting to take action after November, 2017. Therefore, the action of the Ministry is liable to challenge before the Courts as the action of the MCA may be considered as retrospective application of law. It also gives the disqualified Companies additional opportunity to cover up their defects by taking advantage of the lack of legal backing for the action of the MCA. Companies which were actually front companies or shell companies as of September, 2017, may have immediately cured the procedural defects and filed their Annual Returns by November, 2017 and then such Companies can claim in Court that their actions are well within the bounds of the law, since the period of non-compliance would come into effect only from 30th November, 2017. If the MCA had waited till November, 2017 before starting the process of cancellation of registration of Companies, then that additional window to escape the arms of the law would have been lost for shell companies.
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