In shell firm clean-up 2.0, MCA tells registrars to physically verify companies’ registered address

Stepping up its drive to weed out shell companies and inoperative businesses, the Ministry of Corporate Affairs (MCA) has brought in rules to tighten the verification process post-incorporation.

In the first stage of extinguishing shell and defunct companies, the MCA has, in the last five years, removed over four lakh corporates from its Register of Companies owing to several defaults, including non-compliance on filing of financial statements and annual returns.

The latest rule spells out the process to be followed by the Registrar of Companies (RoCs) for physical verification of the registered offices of companies that are suspected not to be in existence or not having business operations though they have been incorporated and have intimated MCA21 about their registered office address.

In effect, the new rule operationalises a provision in law that allowed physical verification of registered offices by RoCs for inoperative companies where the office concerned is not able to receive government communications. The company law was amended in July 2019 to allow RoCs to physically verify the registered offices of companies where the Registrar has reasonable cause to believe that the business — after incorporation — may be inoperative. This physical verification of the registered office is essentially a post-incorporation activity.

Company law experts see the latest MCA move as a second round of “operation clean up” of defunct and inoperative companies.