Streamlining the working of Registrars of Companies -Report of the Review Committee - Companies Law - CIRCULAR NO. 1/95,

CIRCULAR NO. 1/95, DATED 16-2-1995, ISSUED BY THE DEPARTMENT OF COMPANY AFFAIRS, MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS Subject:- Streamlining the working of Registrars of Companies -Report of the Review Committee 1. I am directed to say that this Department has recently constituted a Review Committee to study the working of Offices of the Registrars of Companies with a view to streamline their working and to suggest changes for simplification of procedures involved in dealing with documents and for reduction in the number of documents filed by the companies. The Committee in its Report has observed that the Office of ROC is basically a Registry and an Office of Record and the efficiency in the functioning of such an office depends largely on taking documents on record without delay and making such documents available for public inspection. The demand on ROC Offices from the public and corporate sector is mainly for availability of names, incorporation of new companies, providing certified copies thereof etc. However, it is a matter of common knowledge that a host of these services are not being provided as promptly as desirable. The registration of documents including the charges is not getting adequate attention, with the result a large number of documents are pending for registration. The very purpose of public inspection and establishment of Registries is, therefore, not being served adequately. The Committee has made a number of recommendations for implementation either by issue of administrative instruction or by amending the Rules/provisions of the Companies Act, 1956. The report of the Committee has been considered by the Government and steps are being taken separately to amend the rules and the law. In the meantime, you are hereby directed to implement the following recommendations of the Committee, with immediate effect : Availability of names : (i) The Government has increased the application fee from Rs. 100 to Rs. 500 with effect from 1-11-1994. In view of computerisation in this area in most of the offices, you are advised to make arrangements for a computer terminal being available in your office for few hours on all working days to the promoters or their representatives with a view to ascertain the availability of proposed names. ROC, Bangalore has already implemented this procedure w.e.f. 1-11-1994. This will ensure that the names applied for would be made available promptly when an application for this purpose is made subsequently by the promoters. (ii) The Department vide Circular No. 27/1/89/CL. III dated 17-2-1989 advised the ROCs to ensure that at the time of registration of a new company, the subscribers to the Memorandum of Association should tally with the list of promoters/first directors stated in the application for availability of name, and in case one or more of the promoters are not interested in participating in the promotion of a new company at a later stage, a "no objection" letter from such promoter(s) is made available to ROC. This circular was amended on 5-1-1990 (No. 1/90) to the effect that ROCs should register the company only in case where the promoters, as per the availability of name application, are also subscribers to the Memorandum. On reconsideration, it has now been decided, in partial modification of the above circular, that so long as there is at least one promoter common, both in the name availability application and the subscription clause of the Memorandum and Articles of Association, and others have no objection, the company may be registered. (iii) Presently, there is a restriction on use of abbreviated names (like ITC Limited) in case of existing Companies requiring approval of the Regional Director concerned. No such approval of Regional Director will now be necessary and ROCs may take a final decision on such applications in the light of existing guidelines. (iv) Rules are being separately amended to extend the validity period of availability of names from three to six months and to make availability of names within seven days, instead of fourteen days as per existing rules. However, the ROCs where computer facility is available may endeavour that name availability applications are disposed of within three working days after their receipt. New Registration : (v) There are divergent practices in the offices of ROCs as to the number of clauses/objects that can be allowed under "Main Objects" to be pursued by the company on its incorporation vide section 13(1)(d)(i) of the Companies Act. ROCs are advised to follow the general principle that in case of object oriented names like Hindustan Sugar Limited, the main object should constitute only that object (like sugar in case of Hindustan Sugar Ltd.), while in case of non-object oriented names (like Tata Sons Limited) there should be no restriction as to the number of main objects. Similar should be the approach in case of companies having names with general expressions like "Industries/Enterprises", etc., without prefixing the nature of industry or enterprise. In either case, it may be ensured that objects specified in the Memorandum of Association are those specified against Column No. 5 of Form 1A (vi) It is clarified that there cannot be any restriction for incorporation of a company where all the subscribers to the Memorandum Articles of Association/proposed directors are residing abroad, being either foreign nationals or NRIs subject to the approval of RBI, where necessary. Preservation of records and weeding out : (vii) There is huge backlog of documents pending for destruction with ROC Offices. This is an area which has been neglected by ROCs so far and has created many problems including availability of space for records. ROCs are advised to give their personal attention to this work and if necessary payment of honorarium to staff for attending to this work beyond working hours in consultation with the Regional Director concerned. Levy of additional fee : (viii) The Department had earlier issued instructions in June 1994 for streamlining and standardising the levy of additional fee in respect of companies with authorised share capital up to Rs. 1 crore in respect of delays upto six months. This liberalised procedure is working well and the standardisation is being extended to all companies, irrespective of their authorised capital and period of delay. Instructions in this regard will be issued separately. Prospectus : (ix) The draft prospectus is vetted by SEBI and the concerned Regional Stock Exchange. In view of this, it is not necessary for ROCs to make elaborate scrutiny of the contents of the prospectus. It is enough to ensure that the documentation in the form of consents, underwriting agreements, expert's report, material contracts, etc., accompany the prospectus; the prospectus is duly signed by all the directors and the fee is paid. It has been decided that the prospectus filed be taken on record preferably on the same day or by next working day. Registration of charges : (x) This is an area where companies and the lending banks/financial institutions are finding it extremely difficult to get the charges registered in time and getting necessary certificates. In most of the cases, objections are raised by ROCs regarding the contents in Form No. 8/13/17 and this delays the matter. It has now been decided that the procedure in this regard may be changed by amending the Rules/Forms so as to make the filing of charge documents a smooth operation. The proposed procedure envisages filing of prescribed form and instrument evidencing the charge, in triplicate, under the signature of both the company and the creditor. Once the document is filed, in triplicate, along with the requisite fee, ROC will endorse on all the three copies (including the accompanying instrument) by rubber stamp with the impression "Registered" and sign the same. The first copy be taken on ROCs record and the duplicate and triplicate copies be returned to company/creditor concerned. In this procedure, there would be no necessity of issuing any separate certificate of registration of charge, as endorsed document itself will constitute such a certification. The proposed simplified procedure specified above, will ensure that these documents are registered the same day and endorsed document be returned to the Company representative across the table. The Rules are being amended in this behalf and will be notified to ROCs shortly. Balance sheet and Annual return : (xi) These are recurring documents required to be filed every year by every company. These do not require elaborate scrutiny at filing stage except to ensure that the fee is paid, enclosures referred to therein are available along with the accounts of subsidiaries and other supporting documents like profit and loss account/director's report/auditors' report, etc., in the manner required. Compliance of these requirements be checked at the filing stage itself and the documents be straightway taken on record. Form relating to appointment/cessation of Directors : (xii) A large number of Form 32 are filed in the ROC offices. This relates to changes in the composition of the Board of Directors. This is a very simple document not requiring any examination except to ensure that it is signed and the fee is paid. Such documents should be taken on record on day-to-day basis. Oilier documents : (xiii) The maximum number of documents filed relates to Annual Return, Balance Sheet, Form 32 and charge documents, which account for about 75% of the total documents filed in the ROC Offices. Other documents are mostly event based and account for only 25% of the total intake. The procedure outlined above in respect of balance sheet/annual return/Form 32 be adopted mutatis mutandis for other documents also for their expeditious disposal. Ledgerisation/Placement of Documents : (xiv) In almost all ROC Offices, there are large number of documents which have been passed for registration, but have neither been ledgerised nor placed in the document files concerned. This is the last link in the process of registration. For non-completion of this process, all the efforts made are frustrated, inasmuch as the documents are not available for inspection to the members of the public. It is, therefore, necessary to devote particular attention to this work and remove the bottleneck at any cost. Since most of the ROC offices have been computerised, a system may be devised so as to feed in the computer the passed documents as a substitute for ledgerisation, without the necessity of maintaining ledgers in the form of registers. Rules are being amended in this behalf, shortly. After ledgerisation/feeding in the computer, it is necessary to place the documents in the concerned document files through manual process. Application under section 108(1D) : (xv) A large number of applications are received by ROCs from the investors seeking extension of time in lodging the share transfer deeds with the company under the above provisions. It is seen that during the period from April 1993 to March 1994, 1,72,145 such applications were considered by ROCs including the cases brought forward from 1992-93, out of which 1,54,927 applications were disposed of and on 31 -3-1994,17,218 applications were still pending. In bigger offices, about 2,000 such applications are received in a month. In the past, the Department had advised ROCs to deal with these applications across the table. However, in view of the large intake, ROCs have not been able to deal with these applications expeditiously. Scrutiny of such applications do not take much time as the office has only to ensure payment of application fee and whether the applicant or the company concerned is within the jurisdiction of that office. As per the existing practice, a standard letter is issued to the transferee by registered post along with the impugned transfer deed, extending the time upto one month from the date of issue, and a copy of the letter is also endorsed to the company concerned. This itself is a time consuming process. It has now been decided that instead of issuing the letter, only an endorsement may be made by rubber stamp on the transfer deed itself. In view of this simplified procedure, it should be possible that the required endorsement be made by the Registrar/Assistant Registrar, the same day of receipt of application and returned to the investor concerned across the table. Delegation of powers to ROCs : (xvi) It has been decided to delegate powers under section 31 of the Act to ROCs, hitherto delegated to RDs. It has also been decided that the power of ROC be enhanced from Rs. 1,000 to Rs. 10,000 under section 555(7)(b) of the Act. It is also proposed to delegate the power to ROCs for change of name under section 572 of the Act. Necessary notifications in this behalf will be issued shortly. Harmonisation of practices : (xvii) It is noticed that various ROCs have developed certain practices in their working over the years which has resulted in dealing with the same issue differently by different ROCs. It is desirable that there should be a common approach to such practices followed by all offices. Some of these instances are given below: (a) Power of Attorney : Power of Attorney is required for correction in the documents at the time of incorporation of companies, filing of prospectus and other documents. While in case of correction of documents, Power of Attorney is required from the signatory concerned, in case of correction to be made in the Memorandum Articles of Association and prospectus, Power of Attorney is insisted upon from all the subscribers of the Memorandum and Articles of Association/directors who have signed the prospectus. At times, some ROCs insist for either separate power of attorney from each person or jointly executed with the stamp paper of the adequate value as if executed by the person individually. It is hereby clarified that only one power of attorney from all subscribers or directors is enough on usual value stamp in such cases. ROCs should accept the power of attorney in the manner as classified here and no objection be raised in this behalf. ROCs should also not insist for any authorisation from the Board of Directors for appointing a power of attorney or where the professionals or company's representative come over to ROC to make oral enquiry or submission on any matter. (b) Resignation by a Director : Some ROCs are insisting for a copy of the letter of resignation of a director and also require the company to produce minute book at the time of filing Form No. 32. It is clarified that there is no necessity of calling for letter of resignation/minute book. In fact, the documents filed should not be held up for want of such information and the same should be taken on record. Thereafter, if considered necessary, ROC may call for the desired information-explanation as per the provisions of section 234 of the Act. (c) Notice of Meeting : Some of the ROCs are calling for a copy of the notice of the general meeting in which special resolution is passed, at the time of filing Form No. 23. There is no such requirement under the law and such a notice need not be called, as a matter of course. However, a copy of the Explanatory statement should be insisted upon in view of the mandatory requirements of section 192(1) of the Act. Filling up of vacant posts : (xviii) ROCs are requested to ensure that the posts vacant and within their administrative powers are filled up promptly. Wherever direct recruitment is involved, steps be taken well in advance so that persons are available for posting as soon as the posts fall vacant.