Do companies need to worry about the latest amendment with regard to Physical Verification of Registered office by the Registrar of Companies
Central Government has notified Companies (Incorporation) Third Amendment Rules, 2022 on August 18 2022, this amendment was much awaited since the prior amendment made in Section 12(9) of Companies Act, 2013 on July, 2019. By the insertion of new enabling rule 25B- Physical verification of Registered office of the Company, MCA has bought completion to the process of physical verification of registered office by ROC which was due from the regulator’s side. As per the provisions of Rule 25B “ROC may visit the Registered office of the Company and conduct physical verification of Registered Office.”
The core issue Government trying to tackle here is the malpractices associated with the very existence of registered offices declared by the Companies in their filings with the ROC. Often a fictious address would be provided at the time of incorporation or falsified documents being attached as proof of address, also as per Section 128(1), every company must prepare and keep its books of accounts and other relevant books, financial statements, and papers at its registered office, which is often not adhered by Companies.
The new amendment raise questions regarding the nature, and timing of exercise of its powers by the ROC. Would it be applicable only to newly incorporated Companies, or would it be extended to existing companies as well? From the plain reading of the provisions, one can opine that the physical verification of registered office will be conducted by the ROC based on its discretion. It is not a standard verification exercise which would be conducted on all existing or proposed companies.
INSTANCES WHERE ROC MAY EXERCISE ITS POWER
1. The ROC upon receipt of complaints from any stakeholder of the Company, if it has reasons to believe that the Company does not have a proper registered office may initiate the physical verification process
2. When ROC/ RD send any notice or communication to the Company in the address mentioned in the MCA database and such document returns as undelivered/address not known etc
3. If Company has not filed Annual Forms like AOC-4, MGT-7 etc. continue 2 years or more. In such situation as per provisions of Section 12(9) of Companies Act, 2013 ROC can take a view that Company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company, similarly in the case of newly incorporated Companies, non-filing of Form INC20A for commencement of business can also cause a physical verification of Registered office from the ROC
4. At the time of Incorporation of Company, the promoters have the option to register the Company with a temporary address which should be changed to registered office address within 30 days of incorporation, if the Company fails to file INC 22 within 30 days of incorporation and thus failing to communicate its Registered office to the ROC, the ROC may exercise its power to verify the Registered office of the Company.
CONSEQUENCES
The ROC shall follow due procedure in the event of physical verification of a Company, where it could cross- verify the premise of registered office with the documents as filed on MCA 21 portal in support of address of registered office and to take photographs of the registered office etc, further the ROC could seek the aid of local police under whose jurisdiction the Company’s Registered office is situated. After verification where the ROC determines that the registered office of the company is not capable of receiving and acknowledging all communications and notices, the Registrar shall send a notice to the company and all the directors of the company under section 248 of the Companies Act intimating them of his intention to remove the name of the company from the register of companies.
The introduction of Rule 25B to Companies (Incorporation) Third Amendment Rules, 2022 speaks volumes about the regulator’s determination to curb the malpractices of corporates and to weed out shell and vanishing companies. Hence those charged with governance of a Company as well as professional should exercise caution while submitting and certifying documents with the MCA, and such a step would definitely be a game changer in the governance behaviour of our nation.
