File KYC or will consider you inactive, govt tells firms

About 44% of the country's over 11 lakh active companies have so far complied with the new know-your-company (KYC) norms mandated by the Ministry of Corporate Affairs (MCA). The companies which don't comply with the KYC norms by June 15 will be presumed to be inactive and tagged as 'non-complaint' on the MCA 21 portal.

The latest move is the second in the series of steps taken by the MCA to check the creation of shell or bogus companies. "First we struck off 3.5 lakh inactive shell companies. To further clean up the system, we introduced the KYC for companies. Nearly five lakh companies have re-evaluated their addresses along with photograph," MCA secretary Injeti Srinivas told DNA Money.

The ministry expects about 8.5 lakh companies to come forward to comply with the latest norm for companies out of a total of around about 11.50 lakh registered firms.

Reacting on a National Sample Survey Office (NSSO) report, which said that38% of the companies on the MCA 21 portal used to calculate GDP data are untraceable, Srinivas said, "MCA 21 portal is an electronic repository where the companies file their disclosures. We don't verify and evaluate it. But the steps taken by us over the last couple of years have had far-reaching impact and have raised the reliability of the database tremendously."

"We will get a complete picture of companies, including those functioning under service sector by June 15. We will know that out of about 11.5 lakh companies, how many are doing business," he further said. As per the NSSO report, about 21% companies were not functioning in the services sector as opposed to their disclosures.

"The active companies will be segregated from inactive ones, just as we have segregated dummy directors from the real ones. The companies which don't fill up the new form will be tagged as KYC non-compliant. No genuine bona fide company can afford this tag," Srinivas said, adding that banks will be wary of lending money to such companies.

On February 25, MCA introduced the KYC norms to help it track down bogus or shell companies as well as to ensure timely compliance by firms. The companies registered till December 2017 have to file the new KYC e-form ACTIVE (Active Company Tagging Identities & Verification), also known as INC 22. The form requires the firms to upload photographs of the registered office and that of a director. As many as 11.35 lakh companies were active in the country as on December 31, 2017, according to the government data.

To fill the form the company has to be 100% compliant with all other mandatory filings such as financial statement, annual returns as well as information on Board of directors, auditors and companies secretaries. The form will not be available for the companies which haven't filed their financial statements or annual returns or the ones which have been struck off.

In case a company fails to file the form with the stipulated time, it will be allowed to complete the KYC process even after the expiry of the deadline upon payment of Rs 10,000 in order to become compliant with the new rule.

Though such companies will not be deactivated, they will be barred from carrying out regular compliance functions. This includes changing their authorised capital, paid-up capital, registered office or their directors. Such 'ACTIVE-non-compliant' companies will also not be allowed to undergo amalgamation and de-merger. The action will be taken under sub-section (9) of Section 12 of the Companies Act, 2013.

To be compliant with the latest rule, the photograph of the registered office showing external building and the office interior has to be uploaded with the four-page form. The picture should also show at least one director or key management personnel, who has affixed a digital signature to this form. The company has to also provide details of its directors, chief executive officer, chief financial officer, auditor, cost auditor and company secretary.

The new norms requiring them to upload location pictures of the offices along with the form will help the government verify the existence of such companies.

In a crackdown against shell or bogus companies, as many as 3.5 lakh shell companies have been deactivated after they failed to file annual returns for a period of two years in a row.

The companies will have to do the KYC compliance every year.

MCA had launched a similar exercise for non-compliant directors in October. About 17 lakh directors out of a total of 34 lakh filed 'DIR-3 KYC' form for directors before the cut-off date for filing the form. The ministry subsequently deactivated around 17 lakh Director Activation Numbers (DINs) of the directors.

THE ACTION

• The active companies will be segregated from inactive ones, just as we have segregated dummy directors from the real ones
   
• The companies which don't fill up the new form will be tagged as KYC non-compliant