CONSEQUENCES OF NON FILING OF ANNUAL RETURN UNDER COMPANIES ACT, 2013

[Mr. M. GOVINDARAJAN]

Annual Return

All the companies incorporated under the Companies Act, 1956 of the Companies Act, 2013 (‘Act’ for short) are required to file the Annual return every year.  section 92(1) of the Act provides that every company shall prepare a annual return in MGT - 7 form containing the particulars as they stood on the close of the financial year regarding-

•  its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
• its shares, debentures and other securities and shareholding pattern;
•  its members and debenture-holders along with changes therein since the close of the previous financial year;
• its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
•  meetings of members or a class thereof, Board and its various committees along with attendance details;
•  remuneration of directors and key managerial personnel;
• penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
• matters relating to certification of compliances, disclosures as may be prescribed;
• details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors; and
• such other matters as may be prescribed.

The Annual Return of a company shall be signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice.

OPC and small company

The One Person Company or a small company shall file its Annual Return in Form MGT - 7A from the financial year 2020-21 onwards.  The annual return for such companies shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

Certificate by Practising Company Secretary

The annual return, filed by a listed company or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.

Filing of return

Every company shall file with the Registrar a copy of the annual return, within 60 days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within 60 days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed.

Foreign company

Section 384(2) of the Act provides that the provisions of section 92 shall, subject to such exceptions, modifications and adaptations as may be made therein by rules made under this Act, apply to a foreign company as they apply to a company incorporated in India.  Accordingly a foreign company shall file its Annual return in Form FC-4.

Object of filing return

The object of filing Annual Return by a company is in public interest.  This Annual Return will enable the investors, public and whosoever interested in the said company can access the fundamental information about the company and its management.  Non filing of Annual Return will result in denial of information of the company to the public.

Consequences

The following are the consequences to be met by a company which fails to file its Annual Return-

Penalty

section 92(5) of the Act provides that in case if a company fails to file its annual return within the prescribed time limit the company and its officers who are in default are liable for a penalty of Rs.10,000/-.  In case of continuing offence further penalty of Rs.100/- for each day after the first during which such failure continues.  This penalty is subject to a maximum of-

• Rs. 2 lakhs in case of company; and
• Rs.50,000/- in case of officers in default.

Section 446(B) of the Act provides that if the annual return is not filed by companies such as One Person Company, Small Company, Producer Company or Startup Company or any of its officers in default or any other person shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of Rs. 2 lakhs  in case of a company and Rs. 1 lakh  in case of an officer who is in default or any other person.

Winding up

Section 271 of the Act provides the circumstances in which company may be wound up.  Section 271 (d) of the Act provides that a company may, on a petition under section 272, be wound up by the Tribunal if the company has made a default in filing with the Registrar its financial statements or annual returns for immediately preceding 5 consecutive financial years.

Inactive status/dormant status

Explanation 1 to Section 455 (1) defines the expression ‘inactive company’ as company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last 2 financial years, or has not filed financial statements and annual returns during the last two financial years.

Section 455(4) of the Act provides that in case of a company which has not filed financial statements or annual returns for 2 financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company   in the register maintained for dormant companies.

Disqualification of directors

If a company does not file annual returns for any continuous period of 3 financial years, then such directors shall become disqualified for a period of 5 years.  Such directors would not be eligible to be re-appointed as directors in other company.

Conclusion

Now-a-day the Ministry of Corporate Affairs, through its Adjudicating Officers is issuing show cause notice for failure to comply with the provisions of Companies Act to many companies and imposes penalties according to the provisions of the Companies Act.  It is, therefore, pertinent to note that the Companies shall file all the returns, including Annual return, in time in order to face any consequences of non filing of Annual Return.