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`Forms' of impracticalities in Companies Act
April, 05th 2007
There are various anomalies and inconsistencies between the Companies Act and the Rules that make compliance difficult.

The Companies (Central Government's) General Rules and Forms, 1956 were changed substantially by amendment rules in 2006 chiefly to implement the MCA 21 project which aimed at electronic mode of communication and filing of documents. However, the Ministry of Company Affairs has overlooked the legal consequences of amending the rules without proper authority being delegated by the legislature.

The Rules were notified on February 10, 2006, whereas the Companies (Amendment) Act, 2006 was passed by Parliament and given the President's assent on May 29, 2006 thereby leaving it open for the Rules being challenged in a court of law. Subordinate legislation cannot have legal force unless the mother legislation is in place.

This article brings out various anomalies and inconsistencies between the Rules and the Act and the impracticability of compliance. Instead of commenting on each form or each amendment, the critique is confined to areas where the regulator has introduced forms in excess of the power of delegation and the futility of introduction of new requirements.

Form 1

In devising Form 1 practical aspects of compliance have not been considered. Form 1 is to be submitted at the time of incorporation of a company. It calls for details of the proposed directors, subscribers of memorandum accompanied by From 32. In a number of cases, the Articles of Association, which is also filed along with the Memorandum of Association, names first directors. Section 252 of the Act says that in default of and subject to any regulations in Articles of Association of a company, subscribers to the Memorandum of Association who are individuals shall be deemed to be directors of the company unless the directors are appointed in accordance with Section 255 of the Act. There is no provision in the Act as to the period within which directors are to be appointed unlike in the case of auditors who are appointed within one month of incorporation to satisfy the provision of Section 224.

The revised Form 32 seeks elaborate details including the photograph of the proposed director or director as the case may be.

Form 5

Form 5 (Notice of consolidation, division etc. Or increase in share capital increase in number of member)

This form has been modified to correlate declaration made in another form, which is a step in the right direction.

The default is that the form does not call for information of date of redemption of preference shares in the absence of which the Registrar of Companies will not be able to ensure compliance in due time.

Form 20B

Form 20B (Form for filing annual return by a company having a share capital with the Registrar)

This is a form required to be filed containing particulars as required under Section 159. Section 159 clearly mandates every company having share capital shall within 60 days from date of annual general meeting give details as required under Part I of Schedule V. This return is to be certified by two directorsand the secretary.

This requirement has not been done away with. The detailed requirement under Form 20B are identical as under Part I of Schedule V. This is merely a duplication instead of amending Schedule V to suit electronic mode of filing.

Form 23AC

Form 23AC (Form for filing balance-sheet, profit and loss account and other documents with the Registrar) Before the introduction of new set of rules there was no prescribed form for filing the balance-sheet. Form 23AC is now being introduced for this purpose though the Act does not prescribe any form.

The form requires certain disclosures and among them is requirement on turnover, income, expenditure etc.. Unnecessary work is being burdened on the companies.

Form 32

Form 32 (Particulars of appointment of managing director, director, manager and secretary and the changes among them or consent of candidate to act as a managing director or director or manager and secretary of a company and/ or undertaking to take and pay for qualification shares)

Particulars of directors: Form 32 has been substantially revised; elaborate information is being sought to track down fly-by-night companies. This is a good move. However it will be beyond the competence of the company to fully comply with this Form. For example, there is no compulsion on the part of a director to provide a photograph and evidence of cessation etc.

Section 305 is the only section that casts an obligation on director to furnish certain information of directors beyond which directors cannot be compelled.

Form 32 also is required to disclose evidence of cessation; cessation can be caused by resignation, death, removal, disqualification or vacation of office or by order of court. From this it is clear that cessation may occur in course of processes of law. The company becomes privy to such information only when the director furnishes such information. This form also requires a consent letter. Under Section 264 a consent letter is to be filed by director only in case of public company whereas Form 32 applies to all companies.

Form 29

Form 29 (Consent of director to be file with ROC)

This has been deleted. The Department seems to have overlooked the requirement under Section 264, which mandates every director upon appointment to file the consent with the Registrar of Companies within 30 days of his appointment. Merely because the Form is deleted, this requirement cannot remain unfulfilled unless the Act is amended.

Forms 23AAA, 23AAB, 23 AAC, 24 AB and 25A have been introduced for administrative purpose as guidelines to enable expeditious disposal of application for getting approval and are therefore welcome.

N. R. Moorthy
(The author is a Pune-based company secretary.)

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