The lure of the lucre of many a Gujarati entrepreneur often cares less to look at the long arm of the law. Dhandho is the bottom line here, not the mandatory legal paperwork.
This explains why the Ministry of Corporate Affairs has issued a warning to as many as 1,552 companies in Gujarat for not commencing their business and filing a simple online form declaring so within one year of incorporation — both are mandatory. This is form INC-20A under Section 10A of the Companies Act, 2013.
This also explains why, according to a senior officer, “Cases of noncompliance are higher in Gujarat in comparison to other Indian states.”
The Indian Corporate Law Services (ICLS) officer from Gujarat Registrar of Companies (ROC), Naranpura, adds, “The reason is that businessmen here would happily pay to keep an extra sales person but they would not hire a company secretary. Mostly it’s only due to unawareness about compliance that people fail to meet the mandatory requirements. Gujaratis sometimes cut corners at the wrong places!” he adds.
According to the law, if the companies do not fill up this form, the MCA removes the names of the companies from the Registrar of Companies and dissolves them, unless a written explanation is given within 30 days of the notice for compliance.
The notices to these companies have been issued by Indian Corporate Law Services (ICLS) officer MK Sahu, who heads the Gujarat Registrar of Companies (ROC).
“In the past two years, forming a company has become easy. All thanks to our Prime Minister Narendra Modi that everything is online and therefore you can register a company and get it documented in just 10 days. Everything has a side-effect and here, the problem is many aren’t aware of the legal formalities once the company is registered,” said an Indian Corporate Law Services (ICLS) officer from Gujarat Registrar of Companies (ROC), Naranpura.
Another important reason that the ICLS officer points out is tax evasion. “Tax evasion in Gujarat is another important reason that companies are registered but no activity takes place within it,” he says.
He explained, “Businessmen who already have one established company would come up with one dummy company to either evade tax or get GST benefits. They eventually get caught.”
Some of the companies that failed to commence their business include Gold Rose Pvt Ltd, SRK International Hub Pvt Ltd, Mace Sports Pvt Ltd, Hinduja Trading Pvt Ltd, and Bhagwati Engitech Pvt Ltd, Bluebell Infrastructure Pvt Ltd etc.
Death of a business?
In April this year, Gujarat registered 124,261 new companies under the Ministry of Corporate Affairs while 43,180 shut down; while 2,611 companies are in the process of striking off.
And in February 2022, Gujarat registered 1,22,426 new companies while 41,614 closed down–2,910 companies were in the process of striking off.
(Source of data: Official Monthly Bulletin of Ministry of Corporate Affairs)
Ahmedabad-based Company Secretary Hitarth Shah, who runs his firm, says “One major reason for noncompliance is: Startups. Due to the entrepreneurial wave in Gujarat and the influence of Shark Tank, everyone wants to be a businessman. In enthusiasm, they start a company but in just six months or so they are either unable to raise funds or there is a difference of opinion among partners due to which the company dissolves.”
What is form INC-20A?
INC-20A is a mandatory form that is to be filed by a company incorporated on or after 02/11/2018 with MCA. It is also known as the Declaration of Commencement of Business. It should be filed by the directors within 180 days from the date of incorporation of a company that has a share capital.
Which companies are required to file INC 20A?
As per the Companies (Amendment) Ordinance 2018, there is a requirement for all the companies registered on or after 2 November 2018 to file a certificate of commencement of business. Form 20A is a declaration filed by the directors within 180 days of the date of incorporation of the company.