Govt to take on bogus firms; three lakh companies to be scrutinised

In a bid to tighten the noose around shell and dormant companies, the Ministry of Corporate Affairs (MCA) is expected to soon launch a fresh crack down on as many as three lakh firms.

"The MCA is preparing to thoroughly scrutinise around three lakh companies based on red flag indicators set by the government," A senior government official told CNBCTV18. These companies, which are currently under scanner, have been identified on the basis of non-compliance of mandatory KYC norms notified by the ministry.

The MCA introduced the mandatory KYC norms to help it track down bogus companies as well as to ensure timely compliance through the Active Company Tagging Identities and Verification (ACTIVE) or INC 22 form. The compliance deadline ended on June 15.

​"Seven lakh out of 11.35 lakh companies have complied with MCA KYC norms so far. We expect another 1.5 lakh firms to comply with KYC norms in a month's time," said the official, who did not want to be named.

The government intends to weed out these companies which have not complied with the norms to hide their identity. The effort is to keep the genuine ones away from the mischievous which are exploiting the system, the official added.

ACTIVE has serious non-compliance implications. It empowers the government to change the status of such companies to ‘ACTIVE non-compliant’ on the MCA 21 portal, leading to removal of the name by the registrar of companies. Banks will be wary of lending money to these firms and they also will not be allowed to undergo amalgamation and de-merger. They will be charged a late filing fee of Rs 10,000 among others. The action will be taken under sub-section (9) of Section 12 of the Companies Act, 2013.

The MCA initially had proposed April 25, 2019 as the deadline for filing the ACTIVE form. However, after receiving representations, it had extended the deadline to June 15, 2019.