Freezing of Folios of physical shareholders... Last date for KYC is 30th September 2023... Act now Ref: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37


The MCA Gets Serious: Time to Step Up Corporate Compliance

  • Home
  • Blog
  • Others
  • The MCA Gets Serious: Time to Step Up Corporate Compliance
The MCA Gets Serious: Time to Step Up Corporate Compliance

The Ministry of Corporate Affairs (MCA) has established several new centralized processing centers for corporate filings and compliance. With routine tasks now streamlined, Registrars of Companies (ROC) can focus enforcement efforts on errant companies. Directors and officers need to step up governance and compliance measures to avoid attracting scrutiny and penalties.

Centralized Processing Relieves Jurisdictional ROCs

The MCA has set up the following central units to handle various corporate filing and compliance functions:

Central Registration Centre (CRC) 

The CRC offers faster incorporation and name availability services. Key functions include:

1. Company name reservations

2. Issuing certificates of incorporation

3. Allotment of corporate identity numbers (CIN)

Relieving ROCs of these routine registrations allows them to redirect resources towards identifying non-compliant companies in their jurisdictions.

Central Processing Centre (CPC)

The CPC handles processing and approvals for e-forms filed by companies. This includes forms for:

– Incorporation

– Change of name

– Change to registered office 

– Change in directors/charges

– Increase in authorized capital

– Annual filings 

Centralized form scrutinizing and approvals again reduces the burden on jurisdictional ROCs.

Central Scrutinising Centre (CSC) 

The CSC scrutinizes and processes Straight Through Process (STP) forms filed with MCA. STP allows seamless e-form filing without procedural delays.


C-PACE (Center- Preparation Application Certificate Expiry) focuses on the closure of companies who have not commenced business or operations. This dedicated center relieves ROCs from having to track and force winding up of non-functional companies.

ROC Enforcement Capabilities Strengthened

With these routine responsibilities centralized, jurisdictional ROCs can now prioritize enforcement of company law compliance within their regions. 

Some implications of this shift in ROC orientation:

– Site visits to companies to inspect compliance

– Scrutiny of filings and annual returns

– Identifying and prosecuting law violations

In particular, ROCs will be tracking indicators such as:

Statutory Filings

* Late filing

* Incomplete or inaccurate disclosures

* Discrepancies between filings and actual conduct

Compliance Failures

* Missed deadlines

* Unauthorized actions

* Procedural non-compliance

Governance Lapses  

* Non-disclosures  

* Conflicts of interest

* Director disqualifications

* Misuse of authority

The specialized courts set up to fast-track corporate offenses will likely see their hands full as errant directors and officers are prosecuted.

Tightening Compliance Critical

With ROC energies now redirected towards enforcement, it is critical that companies and their boards shore up compliance measures and governance safeguards.

Some best practices to consider:

Conduct Compliance Audits

Undertake detailed audits to identify potential compliance failures or gaps. Review past filing and disclosures as well for inaccuracies.

Streamline Documentation

Maintain complete records and minutes for meetings, contracts, resolutions, etc. Ensure documentation aligns with regulatory filings.

Review Director Obligations 

Ensure directors are aware of and fulfilling all duties. Check for disqualifications or violations. Maintain declarations of interest.

Disclose with Transparency

Make disclosures in filings truthfully and without omitting material violations or fines. Err on the side of caution.

Meet Deadlines Rigorously 

Prioritize schedules for filings, submissions, annual returns etc. Automate reminders for renewals and recurring actions.

Formalize Governance Procedures  

Follow protocol for matters like contracts, related party deals, authorizations etc. Review controls and risk frameworks.

The Crackdown in Action: Recent ROC Enforcement Cases

To understand the implications of heightened ROC scrutiny, let’s examine some recent enforcement actions against non-compliant companies and directors:

XYZ Ltd Forklifts Forks Directors 

ROC inspection of XYZ’s factory floor detected 6 forklifts missing mandatory wheel chocks to prevent accidental movement. 3 directors were prosecuted under safety violation charges. All pleaded ignorance, but paid individual penalty fines of Rs.30,000 each. 

CyberStore Data Theft Costs Millions

CyberStore suffered a data breach with lack of encryption controls, exposing customer information. With no cyber-incident disclosure, ROC prosecuted under IT Act sections. The MD and independent director fined Rs.15 lakhs each for the oversight.

Rubber Ball CEO’s Catch Drops Directors  

3 independent directors resigned when Rubber Ball’s MD got arrested for bribing municipal officials. With no prior red flags or risk reviews, their failure as board overseers will likely attract ROC action for governance lapses. 

Clearly even routine violations trigger hefty fines for corporates and officers alike thanks to enhanced ROC vigilance. Such precedent will compel boards towards proactive compliance.

4 Director Types Most Vulnerable to Prosecutions

ROCs won’t hesitate to make examples of non-compliant personnel. Based on recent case patterns, the following directors face higher regulatory action risks:

The Uninformed

Relying on hearsay without personal comprehension of compliance needs often backfires for ignorant directors when lapses surface.

The Disinterested 

Staying disengaged from company oversight regardless of designation leaves little defense when violations occur. 

The Trusting

Taking operational transparency for granted without validating independently lands trusting directors in trouble.

The Complacent

 Past filings escaping scrutiny is no guarantee of future luck once ROCs dig deeper.

The underlying threat for such directors is enhanced civil and criminal liability given their fiduciary duties mandating governance diligence. No more hiding behind collective board decisions – personal accountability gets underscored now.

In summary, the MCA’s firm measures should leave no room for doubting the need for stringent governance and compliance adherence from a company law perspective going forward. Stay informed, stay engaged and stay compliant – three mantras for directors to avoid ROC knocks at their doors!

Conclusion: Compliance No Longer Optional

The MCA’s firm measures to enable ROCs shift focus towards enforcing company law compliance makes one thing clear – compliance is no longer optional or amenable to overlooking minor lapses. 

With policy priority on creating a responsible governance environment for businesses, directors and executives have no choice but to plug any gaps that exist in compliance, disclosures, controls and formalities.

Introduce mechanisms for self-audits, train board members and company secretaries extensively on duties and liabilities, and track adherence rigorously. An ounce of prevention will certainly be worth a pound of cure as far as avoiding ROC prosecutions go! Tighten up now before getting a nasty surprise later.

Previous Post
Newer Post