The Hindu Business Line : MCA-21: Is it lacking in legal backing?

Is MCA-21 on the right legal track? This is the question being raised by some professionals. For starters, MCA-21 is the e-governance project of the Ministry of Company Affairs (MCA) to enable electronic filing of forms by companies.

"The project is named MCA-21 as it aims at repositioning MCA as an organisation capable of fulfilling the aspirations of its stakeholders in the 21st century," says the Ministry's site, www.mca.gov.in.

For this purpose, the Ministry amended the Companies (Central Government) General Rules and Forms 1956 and notified the same on February 10, 2006. About a month ago, the Prime Minister, Dr Manmohan Singh, launched the MCA-21 in New Delhi.

The work had begun in March 2005 and a pilot project kicked off at the Coimbatore RoC (Registrar of Companies) office in February. However, the Companies (Amendment) Bill, 2006 dated February 25 was introduced in the Rajya Sabha on March 6. And the Bill is yet to be passed.

Legalities

What legal experts are worried about is the ushering in of MCA-21 through notification well ahead of the law taking shape. For instance, veteran company secretary Mr N.R. Moorthy of Pune points out that the e-initiative has no legal backing since the Companies (Amendment) Bill, 2006 laid before the Rajya Sabha is yet to become law. "Lacking in authority, the notification is not binding on companies till such time the Bill takes the form of an Act," he says.A Chennai-based company law professional draws attention to paragraph 3 of `Press Note 2/2006' on the Ministry's site. It says, "Relevant filings would need to be done mandatorily in every RoC office in the format prescribed under the new e-forms from the date of their publication in the Official Gazette, i.e., Fbruary 10, 2006."

According to the provisions of the Companies Act, a person is entitled to file in the physical form also, he explains. "Manual filing is, therefore, a legally available option. You can't insist on e-filing alone, unless the Section in the Act is amended."More than forms, the new Rules also mandate that the director of the company obtain a DIN (Director Identification Number) and digital signature.

"The Rules have certain limitations and cannot be enforced without educating the rank and file, and company directors," argues Mr Moorthy. And he is of the view that implementing the notification could tantamount to a breach of privilege of Parliament, by pre-empting the due process of enactment.

Paragraph 4 of the `Statement of Objects and Reasons' in the Companies (Amendment) Bill, 2006 explains that the proposed new sections 610B, 610C, 610D, and 610E in the Companies Act, 1956 are essential for the successful implementation of the MCA-21 project.

And that "after the proposed amendments to the Companies Act, 1956 have been enacted, the documents in electronic form duly authenticated with digital signatures shall be accepted under the provisions of that Act."

Another view

Chennai-based company law expert Mr N.R. Sridharan, however, holds a different view. He says that the Government has notified, by amending the Rules, new forms in the place of old forms. He says that Section 610A already authorises e-filing. "MCA-21 is in tune with the trends where people look for convenience of filing. Also, the Department has the power to amend the Rules without waiting for the Bill to become Act."

Mumbai-based advocate Mr Ameet Hariani of Hariani & Co has this to say: "Can the Ministry of Company Affairs implement parts of the Bill, without the Bill having been given the force of law? The answer, clearly, is that this cannot be done."

Mr Hariani explains that a Bill, when pending, is subject to any amendments or modifications as deemed fit and proper by the Legislature. "Thereafter, it must go to the President for his approval. In these circumstances, the attempt of the Ministry of Company Affairs is premature, and cannot be sustained if it is challenged. This is clearly an example of the cart before the horse."