Private limited companies and LLP are registered under very fixed timelines on an annual basis with the Registrar of Companies of India and the filing of these statements/notes is quite inflexible. Not showing up for an AGM does not just result in a fine, it does not just result in a slap on the wrist, a missed date for the AOC-4, or missing the late date for the MGT-7. It creates a cost spiral that continues to escalate on a daily basis with no end. Being aware of what exactly happens when a deadline is missed is the first step towards paying attention to these dates.
The Daily Penalty Structure
There is no limit to the amount of additional fee that will be charged for the late filing of Form AOC-4 & Form MGT-7 from July 01, 2018, the additional fee to be paid being at one hundred rupees per day and per form. This goes far beyond the older graduated-fee system, which had graduated fees based on the number of months elapsed. Now on the day of the “due date,” the penalty clock begins and will not stop until the form is indeed filed.
For the purposes of comparison, a company that delays its AOC-4 filing by 2 months will incur approximately Rs. 6,000 in additional fees on just AOC-4. A similar delay in MGT-7 provides an equal cost. Most companies which miss one fall into default will miss both as they are both expected to be filed within a few weeks of the AGM, adding to the daily cost. These non-compliances are difficult to cross thirty-six thousand rupees per form and the multi-year non-compliance can easily become lakhs before a company realise the magnitude of it.
Beyond AOC-4 and MGT-7
The daily penalty applies to virtually all of the ROC forms, with some having unique consequences. Every director has to complete the yearly filing of DIR-3 KYC, which imposes a flat penalty amount of five thousand rupees in case of non-completion and attracts immediate deactivation of the DIR No of the director. Once a DIN is deactivated, the director is no longer allowed to sign any other MCA form, causing one KYC to go without filing and thus silently blocking the compliance pathway of the company until cleared.
Two separate statutory fines are also provided as per Section 92(5) of the Companies Act for the non-filing of the annual return, one for the company and one for the respective officers upwards of fifty thousand rupees per day. These are not normal or automatic charges like the daily charge, but real exposure if a company’s non-compliance attracts formal scrutiny.
Director Disqualification
One of the more serious implications of ongoing non-compliance isn’t on the business, but on the directors themselves. If a director of a company does not make a filament financial statement or annual return for 3 financial years, he/she becomes disqualified for 5 years from being appointed or serving as a director in any company under Section 164(2) of the companies act. This is not just for defaulting company. It will cover all directorships the individual has, which means that if he or she fails one company it could wipe him or her off all board rooms.
Company Status and Strike Off
If he continues this non-filing, it’s not only the other people who will suffer, it’s the company’s own life. The Registrar can make a company ‘inactive’ and at a later date can pursue a ‘strike off’ process under Section 248, deleting the company from the Companies Register. If the company has been struck off, the process will be considerably more expensive, time consuming and uncertain than simply adhering to the original deadline for the incorporation.Restoring a struck-off company will be much more expensive, time consuming and uncertain than simply meeting the original incorporation deadline.
Is There Any Relief Available?
However, there are instances in which companies with substantial outstanding filings are granted Government assistance to settle the unpaid additional fees at a reduced rate, and condonation of the delay provisions in Section 460 for certain situations. When these schemes exist, they are time sensitive and the companies must act within a set timeframe. They provide a true route to compliance but are not an alternative to timely filing, and if they are relied upon, they could result in greater costs in the long term if the scheme is not done.
The Real Cost Is Compounding, Not Just Financial
The Rupee figure is just one of the aspects. A delay in ROC filing can create problems for the company as investors and lenders are always mindful of the compliance record of a company before investing. Larger clients and vendors may perform similar checks before entering into contracts. What may seem like a missed deadline can quietly restrict the growth potential of a business before the fact of the actual penalty is even a concern.
Staying Ahead of the Deadline
The best advice to avoid all this is to draw up a compliance calendar for the company, based on its individual AGM date, company financial year and company director information, that is followed consistently, but not remembered or personally tracked. We handle the compliances of private limited companies and LLPs in Bangalore with complete ROC filing scheduling, and we have the expertise to handle the over-due compliances as well.
How Badami & Kamath Can Help
Whether you are preparing for upcoming ROC filing or simply want to make sure you do not miss filing deadlines in the future, contact our Badami & Kamath team to get a consultation.