Compounding of Non-Filing of AOC-4/ MGT-7

Compounding of Non-Filing of AOC-4/ MGT-7


BACKGROUND:

As per Companies Act, 2013 every Company have to file e-form MGT-7 within 60 from the date of Annual General Meeting ‘AGM’ and AOC-4 required filing with ROC within 30 from the date of AGM.  Below we will discuss the consequences of non filing or delay in filing of e-form MGT-7 (Annual Return) and e-form AOC-4 (Filing of Financial statement).

Situation:
Many professional have raised question, what are the consequences if Company fail to file such forms AOC-4/ MGT-7 with in 30 or 60 days from the date of Annual General Meeting.

Whether Company will be liable for penalty or Prosecution for non-filing of AOC-4 & MGT-7 within 30/60 days from the date of Annual General Meeting or Company can file it with late fees.

Let’s first discuss the questions:
Whether Company will be liable for penalty or Prosecution for non-filing of AOC-4 & MGT-7 within 30/60 days from the date of Annual General Meeting or Company can file it with late fees? Some people have confusion in such situation that company can file with additional fees or prosecution will be initiated against the Company:-

Statutory Provisions Contained Under the Act:
As per Section 92 Every company shall file with the Registrar a copy of the annual return (MGT-7), within 60 days from the date on which the annual general meeting is held

As per Section 137 A copy of the financial statements, including consolidated financial statement, if any, along with all the documents which are required to be or attached to such financial statements under this Act, duly adopted at the annual general meeting of the company, shall be filed (AOC-4) with the Registrar within 30 days of the date of annual general meeting

As per Section 403 As we know as per section 403 of Companies Act, 2013: Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorized to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:

Provided that any document, fact or information may be submitted, filed, registered or recorded, after the time specified in relevant provision for such submission, filing, registering or recording, within a period of two hundred and seventy days from the date by which it should have been submitted, filed, registered or recorded, as the case may be, on payment of such additional fee as may be prescribed:

Interpretation Note:

If a Company is not complied with the above provision and has made delay of more than 300 days for filing of above mentioned forms. In such situation penalty or prosecution of section 92/137 will be levy on the Company.

Registrar of Companies has power to issue show cause notice to Companies, if Company fails to file the same within 300 days. By issue of notice to Company ROC can instruct the Company to file the forms and compound the offence u/s 92 and 137 through section 441 and ask to the Company why action should not been taken for prosecution under section 92 and 137 for contravention of section 92, and 137 of the Act respectively.

But there is a situation in which company can save itself from the prosecution u/s 92/137. I.e. compounding of the offence.

As per the decided case, In P P Varkey V. STO (1999) 114 STC 224 (Bom HC DB), it was held that once an offence is compounded, penalty or prosecution proceeding cannot be taken for same offence.

As per Section 441(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof) with fine only, may, either before or after the institution of any prosecution, be compounded by the Tribunal; or where the maximum amount of fine which may be imposed for such offence does not exceed five lakh rupees, by the Regional Director or any officer authorized by the Central Government



Let’s discuss the situation:
Many persons have been raising question that, e-form MGT-7 and AOC-4 are in STP (Straight through process) mode. If Company files it after 300 days MCA system accept the form without any error and because of STP mode form also get approved. Then whether Company should go for the compounding of the offence or approval status of the form itself means that no prosecution will be initiated against the Company.

Interpretation Note:

As we discussed the statutory provisions above, if Company fails to file the form within time period provides under section 92/137 then company have time to file the same with additional fees u/s 403. But if Company fails to file the same within the additional period provide in 403 then as per section 403(2) be liable for the penalty or punishment provided under this Act for such failure or default i.e. section 92 and 137.

But Company have an option to save itself from the penalty and punishment by compounding of such offence. Compounding is essentially a compromise or arrangement between administrator of the enactment and person committing an offence. Compounding crime consists of receipt of some consideration (termed as compounding fees) in return for an agreement not to prosecute one who has committed an offence.

A Company can apply for the compounding of offence only after making of default good. Therefore, before applying for the compounding Company have to file the both e- forms with ROC with additional fees as u/s 403. Once company will file the form, it will be compliance of provisions of section 92/137 and default will be stop on that date. Then Company have to go for the compounding of offence start from the 31/61 days from the date of AGM till date of filing of forms with ROC.

Further, In S Viswanathan V. State of Kerala (1993) 113 STC 182 (Ker HC DB), it was held that once the matter is compounded, neither department nor assessee can challenge the compounding order. Department cannot reopen the matter on the reason that actual suppression was much higher.

CONCLUSION:

Hence, considering the provisions of Section 403 and 441 one can opine that for non filing of MGT-7/ AOC-4 within 300 days from the date of Annual General Meeting, Company can go for compounding to save itself from the future prosecutions and penalties.

Thus, here one can opine that instead of MGT-7/AOC-4 are in STP mode company should go for the compounding of offence if fails to file such form within period of 300 days.

Any other opinion is also welcome for further clarity of the provision of the Companies Act.


(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. This is only a knowledge sharing initiative and author do not intend to solicit any business or profession.

Comments

  1. Hi, What if Company filed MGT-7 and Aoc-4 after 300 days but nothing further has been initiated. Also is it Compulsory to to go Compounding ??

    ReplyDelete
  2. HI , CAN COMPANY BE CLOSED AFTER ISSUE OF NOTICE

    ReplyDelete
  3. Hi Sir

    I am filling AOC 4 of company now after delay of 21 days. but the late penalty shows is 4 times instead of 2 times.

    Is it ok or not. If not then how to clear it.

    ReplyDelete
  4. Sir Please help I did form company but did not done busnss and I have recvd notice NOTICE FOR DEFAULT UNDER SECTION 137/92/96 OF THE COMPANIES ACT, 2013.

    ReplyDelete
    Replies
    1. mail me the copy of notice on csdiveshgoyal@gmail.com

      Delete
    2. I have sent you mail.
      Please help in this matter

      Regards
      Hitesh

      Delete
    3. I have sent you mail. It is from Hitesh Desai pls look into it and reply

      Delete
    4. Is there way to convert to dormant company as there was no financial transaction in this case.

      REgards
      Hitesh Desai

      Delete
    5. You have to go to NCLT for making good the default and have to pay the requisite penalty (both by company and responsible officers)

      Delete
  5. Sir

    Is there way to convert to dormant company as there was no financial transaction in this case.

    REgards
    Hitesh Desai

    ReplyDelete
  6. Sir
    If whatever you have said is the sure cure (i.e. rectifying the default) by filing accounts and returns even after 300/330 days, then why will the companies file the same within the time period for next three years, where there is disqualification of directors provision? I have seen and read a number of judgements of various NCLTs compounding the offence committed by the companies, where a heavy penalty is levied not only on defaulting companies but the directors of such companies also where the directors of defaulting companies are compulsorily required to pay their penalty from their own pockets and it can not be debited to accounts of the company. IF SUCH COMPOUNDING IS ALLOWED WITHOUT SUCH PENALTY, WHAT ABOUT THE COMPANIES, WHICH HAVE DEFAULTED BUT NOT PROSECUTED AND HAVE GONE TO NCLT and paid heavy fees and penalties as ordered by NCLT and also confirmed NCLAT?

    ReplyDelete
  7. The provision is "the company and directors shall be liable for a particular penalty" and they cannot escape from the same even if there is no notice from ROC. If it be so, the very purpose of the penalty provision is marred.

    ReplyDelete

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