MCA Steps Up Enforcement Against Non-Compliant Companies in India

India’s Ministry of Corporate Affairs (MCA) has intensified its enforcement actions to ensure stricter adherence to regulations, despite efforts to reduce compliance burdens for Indian companies.

Various Registrars of Companies (RoCs) issued a total of 321 orders in the June quarter this year for alleged violations under the Companies Act. This represents a 25 percent increase compared to the previous quarter, which had also seen heightened enforcement activity.

Find Business Support

Simplify compliance with Corporate Secretarial Services

Between January and April 2024, 284 firms faced adjudication orders for suspected violations of the Companies Act, indicating that RoCs are maintaining the pace of enforcement action.

Increased regulatory orders

In 2023, the RoCs issued around 930 orders, a significant rise from the nearly 370 orders in 2022. As per a recent news report, enforcement actions may remain high in the coming quarters as the Indian government focuses on improving compliance. While the government has reduced compliance burdens, officials have reportedly tightened enforcement of norms adherence for companies.

Find Business Support

Manage Company Tax and Compliance across Multiple Jurisdictions

In 2021, the Department for Promotion of Industry and Internal Trade announced that over 22,000 compliance measures had been reduced and over 13,000 compliance obligations had been simplified. Additionally, 327 outdated laws and rules were repealed and 103 offenses had been decriminalized in India. 

The Ministry of Corporate Affairs (MCA) oversees the Registrars of Companies, who are appointed under Section 609 of the Companies Act. They are responsible for registering companies and limited liability partnerships (LLPs) in their respective States and Union Territories, ensuring adherence to statutory requirements. These offices also serve as registries for documents related to the businesses registered with them.

Currently, around 560 companies are reportedly under inquiry by the RoC, with approximately 270 companies’ books being inspected. Additionally, various regional directors of the ministry are investigating 73 cases.

RoCs expand range of compliance monitoring

The RoC orders cover a broad spectrum of corporate offenses, including:

• Non-filing of financial statements and annual returns on time
• Absence of independent directors
• Failure to report significant beneficial owners
• Extending loans and advances without board approval
• Not maintaining registered offices
• Failure to report board resolutions on time
• Violations of related party transaction rules

Find Business Support

De-Risk Your Business with Multi-disciplinary Review and Legal Advisory

An amendment to the Companies Act in 2019 decriminalized a number of technical and procedural infractions, such as failing to file annual returns and issuing shares at a discount, which were fair to evaluate and did not harm the public interest. However, with the liberalization of law infractions in 2019, RoCs have intensified their scrutiny, leading to a nearly five-fold increase in enforcement orders in a mere four years.

Concerns raised over stringent compliance and reporting requirements

Industry experts on compliance, however, have raised concern against the stringent compliance and reporting requirements. Others state that some companies are voluntarily approaching the RoCs for penalty adjudication.

Due to increased operational complexity, compliance, and reporting requirements, businesses today face more challenging tax functions. Tax experts have raised concerns that RoC enforcement proceedings are now targeting businesses using internet platforms to attract investments.

• Previous Article Investing in Bihar, India: A State Profile
• Next Article How Business Matchmaking Services Can Help Your India Market Strategy