Certificate of commencement of Business under Companies Act, 2013

Ministry of Corporate affairs has finally get back a very well fine concept which was also available in the erstwhile Companies Act, 1956 i.e. Certificate of Commencement of Business.

Origin

The President of our Country i.e. Sh. Ram Nath Kovind Ji on 2^nd Day of November, 2018 passed an Ordinance called as, The Companies (Amendment) Ordinance, 2018 and a new Section 10A was introduced in such ordinance which is reproduced below for the reference:

“10A.

1. A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2018 and having a share capital shall not commence any business or exercise any borrowing powers unless—

a. a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and

b. the company has filed with the Registrar a verification of its registered office as provided in subsection (2) of section 12. 

2. If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.

3. Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

After the above amendment the Ministry of Corporate affairs has further amended the Companies (Incorporation) Rules, 2014 vides Companies (Incorporation) Fourth Amendment Rules, 2018 dated 18.12.2018.

According to Companies (Incorporation) Fourth Amendment Rules, 2018, a new Rule 23A shall be introduced by the Ministry which is also reproduced below:

“23A’ Declaration at the time of commencement of business –

The declaration under section 10A by a director shall be in Form No. lNC-20A and shall be filed as provided in the Companies [Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a company Secretary or a chartered Accountant or a cost Accountant in practice: 

Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of lndia, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.”.

Interpretation of the above Amendments

Before the introduction of Certificate of Commencement of Business, the government observed that the in most of the cases Members of the Company fails to transfer the subscription money in the Company Bank account which will be observed by them at later stage and sometimes fails to transfer the same.

So in order to curve this situation and to make the process streamline the Ministry has again reintroduced the concept of certificate of commencement of Business and pursuant to this a Director of the Company shall declare and certify in form INC – 20A that every subscriber to the Memorandum has paid the subscription money and in the form 20 A they have to attach the proof of remittance towards the Bank which was remitted by every subscriber into the Company Bank Account.

However in addition to above the Director of the Company shall also certify that Company is maintaining a Registered Office of the Company pursuant to Section 12 of the Companies Act, 2013 and all the particulars of the form shall also be certified by a practicing professional and the wrong certification shall move towards the consequences of Section 447 and Section 448 of the Companies Act, 2013.

Furthermore in cases of Company which requires any sectoral approval and the Company was incorporated with the declaration that sectoral approval shall be taken post the incorporation, now the time has been changed and they have to take fast step to get the approval within 180 days as the Certificate of approval from sectoral Regulator shall also be attached in Form INC-20A. In the previous scenario the situation was many Company incorporated with the declaration that sectoral approval shall be taken post incorporation but after incorporation in some cases the negligency was observed not to take any sectoral approval and continuing the business illegally or without taking any permission, Accordingly post introduction of Form INC 20A the approval of Sectoral Regulator shall also be taken within 180 days from the incorporation or the Company may attach the genuine reason for not getting the certificate within 180 days.

However as on date the form INC 20A has not been uploaded on the portal of Ministry of corporate affairs and the same shall be deployed shortly.

CONSEQUENCES FOR NOT FILING CERTIFICATE OF COMMENCEMENT OF BUSINESS

1. Non filling of form INC 20A allows Registrar of Companies one additional ground to strike off the name of your Company from its Register.

2. The company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.

3. On non filling of form INC 20A ROC may strike off your Company which shall adverse effect all the Sectoral Approval taken after the incorporation by the Company.

Accordingly the concept of certificate of commencement of business is an another welcome in ease of doing business and run the business in a more legally and a transparent manner.

In case of any query feel free to ask.

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