Consequences of Non-Compliance: Impact under the Company Law

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In the world of business regulations, adherence to company law means a basis for make sure an ethical performances and legal compliance. Despite of best efforts, instances of non-compliances can increase, which leads to several consequences of non-compliance for enterprises and their shareholders. In this article, you will understand the process of filing consequences of non-compliance of the provisions of the Companies act in matters of incorporation and their effect is paramount for protecting the sustainability and integrity of companies.

Consequences of Non-Compliance: Impact under the Company Law

Table of Content

Consequences of not filing forms under Generic Mandatory Compliances

In case, there is a consequence of non-compliance of forms as per mentioned by Registrar of Companies then it will lead to penalties:

  • Form MGT-7: As per section 92(4) of the Companies Act, 2013, it is mandatory for companies to file a copy of Annual Returns by Form MGT-7 along with need to pay the nominal fees to RoC within sixty days from the Annual General Meeting date. In case companies are failed to file the Form MGT-7, they have sixty more days with an additional fee of Rs. 100 per day. 

However, non-filing of form, both the company and whole directors are liable to pay penalty of Rs 50,000. If subsequent failure, there will be additional penalty will be of Rs 100 each day as such failure continues, the penalty will go to maximum Rs. 5 Lakhs.

  • Form AOC-4: As per Section 129 the Companies Act, 2013 each company need to file financial statements copy, such as the consolidated financial statements, along with an attachment of required documents and pay fees within 30 days of the Annual General Meeting

Failing to file, a company with directors are required to pay penalty of Rs. 1000 per day to the maximum of Rs. 10,00,000. In case managing director or director who is responsible are not present, or no director, in such case all directors require to pay of Rs. 1,00,000. 

  • Form ADT-1: As per Section 139 of the Companies Act, 2013, it is for appointment of auditor and the form need to file within 30 days of incorporation. If non-compliance then the penalty will not be less than Rs 25,000 may extend to Rs 5 lakhs, and for officers not less than 10,000 for each defaulting officer. 
  • Form MBP-1: As per section 184 of the Companies Act, 2013, it is for disclosure of interest by Directors. It is a first meeting in that he involves as a director. The penalty will extend to Rs 1 lakh.
  • Form MGT-14: As per section 173 of the Companies Act, 2013, which is for board meeting, and form MST-14 file within 30 days of incorporation. If not then need to pay fine of Rs 25,000 for the Company and Rs 5,000 for each defaulting officer. 
  • Form MGT-14 for General meeting: As per section 96 of the Companies Act, 2013, MGT-14 file on or before 30th September. If not then penalty will be 25,000 in case of Company and Rs 5,000 per day for each defaulting officer.
  • Form INC-20 A for declaration of commencement of business: As per section 10A of the Companies Act, 2013, the need to file within 180 days of incorporation. In case of failure to do so, the penalty will be Rs 50,000 for company and Rs 1,000 per day for each defaulting officer. 
  • Form MGT-1 (members) and SH-7 (Shareholders): It is for the statutory registers and the penalty will be Rs 1 Lakh and may extend to Rs 10 Lakhs.
  • Maintain books of Accounts: As per section 128 of the Act, the penalty will be Rs 50,000 and may extend to Rs 5 Lakhs. 

Consequences of non-compliance with event based compliances

There are certain penal consequences for a company that has not filed its annual return. Generally, the government fee for filing or registering any document as per the Companies Act, 2013 needed to file with the Registrar is Rs. 200. In case of Private Limited Company will be in need to file form MGT-7 and Form AOC-4 each year. The required government fee on time will be Rs. 400. However, if there is non filing or delay in the financial statement, annual return, and balance sheets, the penalty must be applicable herein:

S. No. Particulars  Forms and Timelines Penalty Charges
Amendment in registered office under section 13(4) of the Act INC-22 within 15 days of such change Rs 1000 per day in case default continues but not exceeding of Rs 1 Lakh
Alteration in KMP or directors DIR-12 within 30 days of such amendment Rs. 50,000 and may extend to Rs 5 Lakhs
Section 61(1)- Increase in authorized share capital SH-7 within 30 days of passing ordinary resolution For companies and individual officer per day fine will be Rs 500; with a maximum limit of Rs 1 lakh for per officers and Rs 5 Lakhs for the company.
Issue of security (rise in paid up share capital) PAS-3 within 15 days of allotment Based on the number of days delayed and the company’s paid-up capital.
Application for director’s KYC DIR-3 – on or before 30th April of immediate next FY No penalty, however DIN will be treated as deactivated and Rs 5000 for delayed filing.
Section 13 and 14- Amendment of Memo or Articles of Association MST-14 within 30 days of passing the resolution Rs 1000 for each copy of memorandum or articles issued 
Section 77 – Alteration of Charge CHG-1/9 within 30 days of its creation Rs 1 Lakh and may extend to Rs 10 Lakhs
Section 16- Amendment in Companies Name INC-24 within thirty days of passing resolution or sixty days of approval from registrar  For non-compliance along with default fine will be Rs 1000, with officer’s penalties will be 5000 to 1 Lakh Rupees.
Section 128- Change in place of books AOC-5 in between 7 days of board resolution passed  In case the director, CFO, or designated person of the Company need to pay fine will be of Rs 50,000 to Rs 5 Lakhs.

The MCA is highly active and quickly come to notice about the non-compliances and companies are required to fill a fine of Rs 5 Lakhs to Rs 50 Lakhs and more. Thus, it is advisable to do your compliances on time. 

Consequences of non-compliance in default of Directors

The Company’s directors are obliged to make sure that the company complies with all applicable rules and regulations. When a company is in default of dues payable or compliances, the directors are responsible for default. There are certain penalties for company’s director, which has not filed its annual return. 

In case, the company has not filed even after 270 days from the date the company should have originally complied with a further penalty. The director will be punished along with in case the director is in defaulter for non-filing of the annual compliances of the company, then directors can also be penalized with imprisonment, which will be term extended of 6 months or with fine of an amount not less than Rs. 50,000, and it may extend up to Rs. 5 Lakhs, or punished with both fine and imprisonment.

Furthermore, in any information filed by a director or any other person in the compliance of annual return is false by any nature or fails to mention any material facts, which is true can be punished with imprisonment for a term not less than 6 months, which can be extend to 10 years. In addition, director can also be liable for payment of a fine that is not lesser than the amount subject to the fraud included, and it leads to extend to an amount three times the sum up with the fraud.

Strike-Off: The Company has not completed the compliance of annual return for last 2 financial year constantly, in such case, the company will be considered as an “inactive company”. In such circumstances, the company’s bank account shall be frozen. In addition, the Registrar shall also issue a notice to a company and begin a strike off of the company from the Ministry of Corporate Affairs

End Notes

Navigating the intracity of regulatory compliance under Company Law is a fundamental responsibility for businesses. Filing non-compliances is not generally a procedural task; it’s a significant aspect of upholding legality and integrity in corporate operations. As Legal Window team has provided the consequences of failing to meet regulatory standards can be severe, ranging from financial penalties to reputational damages and even may occurred legal consequences. However, if you further know about what are the consequences in the workplace in details, you are free to connect with the Legal Window professionals.

CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.

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