Consequences of Delay in Annual Filings and Their Remedies Under Companies Act, 2013
Introduction:
Pursuant to the provisions of Sections 137 and 92 of the Companies Act, 2013, every company is required to file the annual filing forms AOC-4/AOC-4 CFS/AOC-4 XBRL (filing of Financial Statements) and Form MGT-7/MGT-7A (Annual Return) within 30/60 days from the date of the Annual General Meeting.
Delay or non-filing of the annual filing forms is an offence and therefore it is always advisable for companies to file the annual filing forms within the due dates. However, there are many companies that fail to file the annual filing forms within the stipulated time.
The following are the consequences of delay/non-filing of the annual filing forms with the RoC:
1. Additional Fees: The Ministry of Corporate Affairs (MCA) imposes additional fees for late filings. These fees are Rs. 100 per day multiplied by the number of days the filing is delayed.
2. Penalties and Fines: Both the company and its officers can be subjected to financial penalties for delays in filing annual returns and financial statements. The amount of these penalties can increase with the length of the delay. (Refer to Sections 137(3) and 92(5) of the Companies Act for the quantum of penalties.)
3. Director Disqualification: Directors of companies that fail to file annual returns for three consecutive financial years can be disqualified from holding the position of director in any company for a period of five years.
4. Company Status: Persistent failure to file annual returns and financial statements can lead to the company’s status being marked as “defaulting” or “inactive.” In severe cases, the Registrar of Companies (RoC) can strike off the company’s name from the register of companies, effectively dissolving the company.
5. Legal Action: Continuous non-compliance can result in the RoC initiating legal proceedings against the company and its officers, which can lead to further penalties and legal costs.
6. Restriction on Loans and Investments: Companies that are not compliant with their filing requirements may find it difficult to obtain loans, investments, or other forms of financial support, as their non-compliant status can be a red flag for potential investors and lenders.
The following are the remedies available for companies in case of non-compliance:
1. Filing with Additional Fees: Companies can still file their annual returns and financial statements with the Registrar of Companies (RoC) by paying additional fees as prescribed under the Companies (Registration Offices and Fees) Rules, 2014. These fees are Rs. 100 per day multiplied by the number of days the filing is delayed.
2. Condonation of Delay (Section 460): If there are genuine reasons for the delay, companies can appeal to the NCLT for relief. The NCLT has the authority to condone delays and grant extensions for filing.
3. Condonation of Delay Scheme: The Ministry of Corporate Affairs (MCA) occasionally introduces schemes like the Condonation of Delay Scheme, which allows companies to file their overdue documents with reduced penalties. Companies should keep an eye on MCA notifications for such schemes.
4. Compounding of Offenses (Section 441): Companies and their officers can apply for compounding of offences under Section 441 of the Companies Act, 2013. Compounding allows for the settlement of offences by paying a specified fee instead of facing prosecution.
Conclusion
Timely and accurate annual filings are crucial for compliance under the Companies Act, 2013. Delays in filing can lead to significant penalties, legal actions, and other adverse consequences for both the company and its officers. However, several remedies are available to address non-compliance, including paying additional fees, seeking condonation of delay from the NCLT, utilizing special schemes introduced by the MCA, and applying for compounding of offences. Companies must prioritize compliance and take prompt action to rectify any delays to maintain their legal and financial standing.
Author Bio
