Summary: The current mandatory registration process for new companies under the Ministry of Corporate Affairs (MCA) through the AGILE form has imposed significant compliance burdens on firms, regardless of their applicability under the Employees’ State Insurance (ESI) Act. This has led to unnecessary strain on thousands of companies, requiring them to manage compliance requirements even if they are not eligible for ESI coverage. Recent system changes allow companies to set their registration status to dormant for up to six months if they are not immediately coverable under the ESI Act. However, if the dormant status is not renewed, the registration reactivates, necessitating compliance with ESI returns and risking defaulter action. The Employees’ State Insurance Corporation (ESIC) has now mandated that companies with zero employees or those below the ESI threshold as of October 31, 2022, apply for dormant status. Failure to do so may result in enforcement actions. This forced compliance process is criticized for being impractical and inefficient, leading to a waste of resources and poor governance. The letter urges the Ministry of Labour and Employment to advocate for optional ESI registration to prevent undue burdens and improve the registration process, suggesting that the current approach does not account for practical realities and imposes unnecessary compliance requirements.
Dr. Mansukh Mandaviya
Cabinet Minister
&
Shobha Karandlaje
Minister of State
Ministry of Labour & Employment
Government of India
New Delhi
Subject: Unjustified Registration by Default and Unwarranted Compliance to Claim Dormant Registration Every Six Months
Dear Sir/Madam,
I am writing to bring to your immediate attention the mandatory registration process for new companies under the Ministry of Corporate Affairs (MCA) through the AGILE form, which occurs irrespective of whether these companies are coverable under the Employees’ State Insurance (ESI) Act or not. This unchecked exercise has resulted in substantial inconvenience and unnecessary burden on thousands of companies, causing a significant waste of human hours in fulfilling compliance requirements, despite these companies not being eligible to register with your ministry. This is too harsh for the companies.
In response to widespread concerns regarding this default registration by the MCA, certain changes have been introduced in the system, notably:
1. The registration is initially in ‘active’ mode, enabling companies to commence compliance immediately.
2. Companies that are not immediately coverable under the ESI Act can make their registration number dormant by logging into the system. This dormant status can be applied for a maximum period of six months.
3. Upon the expiry of the six-month period, companies must log in to the ESIC website to extend the dormant status further.
4. If the company does not extend the dormant mode, the registration automatically becomes active again, necessitating the filing of returns under the ESI Act and potentially leading to defaulter action.
Moreover, the Employees’ State Insurance Corporation (ESIC) has notified that companies which have obtained an ESI number through the MCA portal and have employees below the threshold limit or zero employees as of 31.10.2022, are now required to apply for dormant status. Failure to comply with this requirement may result in necessary actions being taken against defaulting units under the existing provisions of the ESI Act.
It is with great regret that your Ministry of Labour and Employment is inadvertently responsible for the wastage of thousands of human hours due to these unnecessary compliance requirements. It is equally disheartening to observe that if an employer fails to apply for dormant status, there is no available window to rectify this situation. Your Ministry’s directive to pursue compliance from companies with zero employees is not only impractical but also reflects poorly on governance standards. Thousands of such notices have already been sent to the companies.
I urge you to address this issue with the MCA, advocating for an optional registration process with your department. Without such a provision, both the public and your department will continue to face numerous non-compliant companies. The current forced registration process is legally flawed, as it mandates ESI registration upon company incorporation without considering its applicability.
The government must take decisive action to rectify this forced compliance. Issuing notices based on unauthorized registrations is contrary to the principles of good governance. I request that you address this issue promptly and consider retrospective provisions to alleviate the undue burden on employers.
Sincerely,
CA. Amresh Vashisht
Chartered Accountant.
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