Govt turns the heat on directors in fight against shell companies

KR Srivats New Delhi | Updated on May 22, 2019 Published on May 21, 2019

Corporate Affairs Ministry makes directors responsible for filing of ‘e-form ACTIVE’

The government has beefed up its surveillance on dormant and shell companies. The Corporate Affairs Ministry (MCA) has now put the onus on directors of non-compliant companies — which have failed to file e-form ACTIVE — to set the compliance record straight, failing which they run the risk of not being eligible to be associated with compliant companies. E-form ACTIVE stands for Active Company Tagging Identities and Verification.

“Where a company…fails to file the e-form ACTIVE within the period specified, the Director Identification Number (DIN) allotted to its existing directors will be marked as ‘Director of ACTIVE non-compliant company’,” said an MCA order issued recently.

Such directors would have to take all necessary steps to ensure that the company concerned files e-form ACTIVE. After the form is filed, the DIN of such director would be marked as “Director of ACTIVE compliant company”.

What is e-form ACTIVE?

MCA’s main objective behind the introduction of e-form ACTIVE was to weed out ‘shell companies’, which allegedly were used as conduits for illicit fund flows.

Any company marked as ‘ACTIVE compliant’ means that it has completed all the regulatory formalities.

All the companies incorporated before December 31, 2017, were required to file e-form ACTIVE before April 25, 2019 and this deadline has since been extended to June 15 this year. If a company does not file its e-form ACTIVE, it runs the risk of its name getting removed from the register of companies.

Moin Ladha, Partner, Khaitan & Co, said that scores of companies remain as dormant/shell companies and are misused for carrying out fraudulent transactions. “This step has been undertaken to further strengthen surveillance and improve corporate governance.”

L Badri Narayan, Partner, Lakshmikumaran & Sridharan, a law firm, said the MCA move is yet another instance of increasing the extent of responsibility and accountability of the directors under the Companies Act, 2013.

Vaibhav Kakkar, Partner, L&L Partners, a law firm, said the government is cognisant of the whole issue of shell companies and it is now affixing the liability/accountability on the directors.

“They are moving from corporates to the individuals who are controlling the corporates and telling them we will label you as non-compliant until you as directors ensure compliances of the erring companies,” he said

“Directors have to now take necessary steps to make companies comply. Otherwise, no filing which requires a DIN can be made in the name of that person,” Kakkar said.

Published on May 21, 2019
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