Maintaining the Registered office is very crucial aspect under the Companies Act, 2013 (“the Act”). It determines the territorial jurisdiction of regulators, and they are using the same for correspondence with the Company. The ministry has observed an increase in the number of companies formed with non-operational addresses. Additionally, it has become more common practice for companies to simply exist in the records of the Registrar of Companies (“the ROC”). It has also been noted by the regulators that fabricated address proof and a fictitious address were given at the time of incorporation. Many a times these were noticed when a Regulator including Goods and Service (GST) Department / Lender/ Court tried to serve notices/ summons to the Companies at such registered office addresses.
Necessitated by these, the Government of India has brought some changes to the existing regulations with focus on having a functional registered office for the use of the address for correspondence with stakeholders and for the maintenance of the statutory records and books of account as required by the Act. It has also been repeatedly highlighted at various fora that records are not kept by many companies at the registered office, which is another non-compliance and a point of concern in this regard.
The Ministry of Corporate Affairs (“the MCA”) has now amended the Companies Incorporation Rules wherein it has been mandated that existing companies shall submit their geographical coordinates (latitude and longitude), as well as a photograph of the actual operational registered office of the company. This requirement led to the elimination of many shell companies that were having incomplete/ fake address and were not traceable by the authorities or the stakeholders.
As a step towards ease of doing business, multiple registrations with various government departments have now been integrated with the Company Incorporation form Spice+ which has made it all the more important for the Ministry to adopt a uniform practice for physical verification of Registered office. Accordingly, Section 12 of the Act and the Companies (Incorporation) has Rules, 2014, were amended empowering the ROC to physically verify the registered office address of the Company, where the ROC has a reasonable cause to believe that the concerned Company is not carrying out business in a proper manner.
The new Rule 25B of the Companies (Incorporation) Third amendment Rules, 2022 sets out the transparent process to be followed by the ROC to carry out physical verification of a registered office of a company. This process for physical verification is outlined below:
Details required during the physical verification. The companies should be prepared with following documents for the physical verification of the registered office of the Company:
Despite the fact that Section 12(9) of the Companies Act, 2013 granted authority to the Registrar of Companies to physically verify address of the Company, there was no established process for doing so prior to the insertion of Rule 25B. The uncertainty surrounding the entire verification procedure has been eliminated by the introduction of new rule in the existing provision. This process will assist in eliminating discretion of authority and establishing a transparent system with regard to physical verification process. The companies can now prepare themselves to comply with the requirements set out in the process of the registered office verification.
This amendment is a significant step and the foreign entities that have subsidiary entities in India need to carefully evaluate when using third parties providing registered office services in India.
Further, the Ministry is strongly emphasizing on its compliance in letter and spirit. The Companies will be required to maintain physical office as by this amendment the ROC has been conferred the power to remove the name of the Company in case of non-compliance of section 12 of the Act.
The amendment stipulates that the ROC may carry out physical verification” if there is reasonable cause to believe that the company is not carrying out its business in a proper manner.” Till date, we have not come across any incident of Suo-moto physical verification of Registered office by the ROC, but on the basis of recent adjudication orders by various ROCs for non-compliance of section 12 of the Act, it is observed that actions have been initiated in cases where the Companies have failed to maintain their registered office, or where any notice issued to a Company could not be delivered. Thus, non-delivery of any official correspondence marked to the company may be interpreted as a reasonable cause to believe that the business of the company is not being carried out in a proper manner. Nonetheless, we believe that this amendment has given absolute and non-conditional powers to ROC to conduct the physical verification of registered office. ROC may do so on a complaint or there may be instances wherein investigating agencies such as ED or SFIO, may ask the ROC to carry out such inspection.
Now the Companies must ensure that a functional registered office is maintained and passes the test of physical verification, in accordance with the Companies Act, 2013. However, at this stage there is not much clarity on the usage of virtual registered office address by the coworking spaces where no physical space is allocated to the company but the only identification of the Registered office is through Lobby-listing. After verification, if the ROC determines that the address is not capable of receiving and acknowledging all communications and notices, the ROC shall initiate action for strike off. This means that shared address or coworking spaces where there is a system in place to receive and acknowledge all such communications and notices and carrying out its business in a fair and proper manner (not as a shell / vanishing company), may continue to act as registered office for the companies.
This positive development is in alignment with the initiative of MCA to identify illegal business operations in India and prevent money laundering. Furthermore, the adoption of Rule 25B gives the government another tool in its arsenal for conducting scrutiny and cracking down on shell firms in light of its ongoing efforts and heightened inspection through the Enforcement Directorate in fight against money laundering and terrorism. This will also help the stakeholders such as banks, financial institutions, or other creditors to reach the authenticated registered address of the company in case of defaults.
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