The newly incorporated company, having a share capital, has not commenced its business or exercised its borrowing powers without complying the provisions of Section 10A of the Companies Act, 2013 and Rule 23A of the Companies (Incorporation) Rules, 2014.
1. Historical Background
The concept of the Certificate of Commencement of Business (COB) was initially introduced under Section 149 of the Companies Act, 1956 (the “Erstwhile Act”). It applied exclusively to newly incorporated public companies having share capital.
Later, the concept reappeared in the Companies Act, 2013 (the “Principal Act”) under Section 11, applicable to both private and public companies. This section mandated a declaration of COB and regulated the exercise of borrowing powers by newly incorporated companies.
Notably, unlike the Erstwhile Act—where the Registrar of Companies (ROC) issued a formal certificate—in the 2013 Act, no physical certificate was provided. Instead, the ROC simply recorded the filed documents.
2. Omission of Section 11.
To promote ease of doing business, the Government of India (GOI) received numerous representations from stakeholders seeking reform. Consequently, via Notification dated 26.05.2015, the Companies (Amendment) Act, 2015 (“Amendment Act”) was enacted.
- Section 11 of the Principal Act was omitted effective 29 May 2015.
- Rule 24 of the Companies (Incorporation) Rules, 2014 was also omitted by the Companies (Incorporation) Second Amendment Rules, 2015 on the same date.
Prior to its omission section 11, as enforced w.e.f. 01.04.2014, read as under-
“11. Commencement of business etc., (1) A company having a share capital shall not commence any business or exercise any borrowing powers unless-
(a) a declaration is filed by a director 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 and the paid-up share capital of the company is not less than five lakh rupees in case of a public company and not less than one lakh rupees in case of private company on the date of making of this 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 which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.
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.
3. Reintroduction via Section 10A.
The requirement for COB was reintroduced through the Companies (Amendment) Ordinance, 2018, notified on 02 November 2018, by inserting a new Section 10A in the Principal Act.
The text of Section 10A of the Principal Act are as follow;
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.
4. Omission of Rule 24 of Companies (Incorporation) Rules, 2014.
Rule 24 was omitted by the Companies (Incorporation) Second Amendment Rules, 2015, w.e.f. 29-05-2015. Prior to its omission, Rule 24 read as under-
“24. Declaration at the time of commencement of business – The declaration filed by a director shall be in Form No. INC-21 along with the fee and the contents of the form shall be verified by a company Secretary in practice or a chartered Accountant or a cost Accountant in practice:
Provided that in the case of a company requiring registration from sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc. the approval from such regulator shall be required.”.
5. Reintroduction via Rule 23A of Companies (Incorporation) Rules, 2014.
Pursuant to the Ordinance i.e, Companies (Amendment) Ordinance, 2018, the Companies (Incorporation) Fourth Amendment Rules, 2018 introduced Rule 23A, effective 18 December 2018, which provides:
“23A’ Declaration at the time of commencement of business – The declaration under section 10A by a director shall be in Form No. INC-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 India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.”.
According to the provisions of section 10A of the Principal Act, as inserted by the Ordinance, the companies having share capital, which have been incorporated on after the date of commencement of the Ordinance, for the purpose of commencement of their businesses and exercise borrowing powers, are required to file a declaration within the period of 180 days from the date of incorporation by any of their director with regard to acceptance of subscription money from their subscribers.
The ordinance was come into force on 2nd November, 2018, therefore all the provisions of this section become applicable from 2nd November, 2018. Now, every company having share capital incorporated after 2nd November, 2018 had to file Form INC 20A with 180 days i.e. before 1st May 2019.
Further, the companies are also required to ensure about the compliance of provisions of section 12(2) of the Principal Act, which talks about filing of a verification of their registered offices. In case the Company fails to file the declaration within the prescribed time, the Company shall be liable to penalty of Rs. 50,000/- and every officer in default shall be liable to a penalty of Rs. 1000/- for each defaulting day subject to maximum amount of Rs. 1 lac.
In addition to this, ROC may remove of name of the company from the ROC, if he has a reasonable cause to believe that the Company is not carrying on any business and operation.
Crux of the Provisions of Commencement of Business: –
1. The following Companies are not required to file Form INC 20A:
- Companies incorporated before 2nd November, 2018 (i.e. before the commencement of the Companies (Amendment) Ordinance, 2018).
- Companies incorporated after 2nd November, 2018 without share capital.
2. Every company required to file Form INC 20A and shall file the same within 180 days of its incorporation.
3. Non filling of form INC 20A allows ROC one additional ground to strike off the name of your Company from its Register.
4. The penalties for non-compliance are very high which has been done intentionally so as to curb out the number of shell companies incorporated. Following are the penalties for non-compliance:
- Penalty to be levied on the company: A penalty of Rs 50,000 will be levied on the company if it fails to comply with the mentioned requirement.
- Penalty to be levied on the officers: Every such officer in default shall be liable to a penalty of Rs 1,000 per day for each day during which the default continues subject to a maximum of Rs 1,00,000.
- Company strike-off: If ROC has reasonable grounds to believe that the company is not carrying on any business or operations even after 180 days of incorporation, ROC may remove the name of the company from the Register of companies.
____________
[Annexure-1]
BOARD RESOLUTION FOR FILING DECLARATION FOR COMMENCEMENT OF BUSINESS
[Under Section 10A of the Companies Act, 2013]
CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF [COMPANY NAME], HELD ON [DATE] AT [TIME] AT THE REGISTERED OFFICE OF THE COMPANY SITUATED AT [ADDRESS].
“RESOLVED THAT pursuant to Section 10A of the Companies Act, 2013 and Rule 23A of the Companies (Incorporation) Rules, 2014, and other applicable provisions, if any, the consent of the Board be and is hereby accorded to file the declaration of commencement of business with the Registrar of Companies in Form INC-20A, stating that every subscriber to the Memorandum of Association has paid the value of shares agreed to be taken by him/her on the date of such declaration.
RESOLVED FURTHER THAT Mr./Ms. [Name of Director], Director of the Company, be and is hereby authorized to sign and file Form INC-20A with the Registrar of Companies and to take such steps and do all such acts, deeds, matters, and things as may be necessary to give effect to this resolution.”
For and on behalf of
[Company Name]
[CIN]
____________
[Name of Director]
Director
DIN: [DIN]
Address: [Address of Director]
Place: [City]
Date: [Date of Resolution]
[Annexure-2]
DECLARATION FOR COMMENCEMENT OF BUSINESS
[Pursuant to Section 10A(1)(a) of the Companies Act, 2013 and Rule 23A of the Companies (Incorporation) Rules, 2014]
To
The Registrar of Companies
[State of ROC]
Dear Sir/Madam,
Subject: Declaration for Commencement of Business
I, [Name of Director], being a director of [Company Name], a company incorporated on [Date of Incorporation] under the Companies Act, 2013 with CIN [CIN], having its registered office at [Registered Office Address], do hereby declare as follows:
1. That the paid-up share capital of the Company as per the subscribers to the Memorandum of Association has been duly received from all the subscribers.
2. That the Company has filed the details of its registered office in Form INC-22 (if applicable).
3. That the Company has not yet commenced any business or operations.
4. That this declaration is being made in compliance with the provisions of Section 10A of the Companies Act, 2013 read with Rule 23A of the Companies (Incorporation) Rules, 2014.
A copy of the bank statement/receipts evidencing the receipt of subscription money from the subscribers to the memorandum is attached herewith.
For and on behalf of
[Company Name]
[CIN]
____________
[Name of Director]
Director
DIN: [DIN]
Address: [Address of Director]
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