MCA Bowls Out Hurdles in Ease of Doing Business in India
By Smriti Wadehra(email@example.com)
The Ministry of Corporate Affairs (“MCA”) has recently amended the Companies (Incorporation) Rules along with other related Rules to simply the procedure of incorporation. The move comes in after a lot of planning and which had been reflecting on the website of MCA for over last one month. Needless to say, that the Ministry has well planned the events this time to give the corporate world a perfect bundle of happiness on the auspicious day of Republic Day of India i.e. on 26th January, 2018.
MCA vide Companies (Incorporation) Fourth Amendment Rules, 2016 dated 1st October, 2016 revamped the company incorporation process with the introduction of single window filing procedure through a SPICE (Simplified Proforma for Incorporating Company electronically) for which a new e-form INC-32 was also released. In furtherance to this Amendment, the release of Companies (Incorporation) Fifth Amendment Rules, 2016 dated December 29, 2016 provided the much awaited clarity on the subject with complete dissemination of information to the stakeholders regarding filing of SPICe, thereby removing all practical difficulties. Though the existing SPICe form made incorporation process very easy and gave boost to the Ease of doing Business, there were some practical difficulties being faced by the stakeholders such as:
- Lack of integration of DIN allotment application in this Form, due to which Form DIR-3 (DIN allotment application) had to be filed separately;
- Difficulties in form INC-1- Due to resubmission on the grounds of non-availability of name, the entire Form was marked for resubmission and all the documents had to be re-drafted for such changed name;
- Several issues with e-MOA (INC-33) and e-AOA (INC-34) separate uploading;
- Issues pertaining to submission of separate PAN-TAN forms (Form 49 & 49B) within 24 hours;
This write up is focused on the “changes in incorporation process” which are made enforceable by the Amendments to the following Rules under Companies Act, 2013:
- Companies Incorporation (Amendment) Rules, 2018
- Companies Appointment and Qualification of Directors (Amendment) Rules, 2018
- Companies (Registration Offices and Fees) Rules, 2018
Simplification of Incorporation Process
To cope up with such difficulties, MCA has now amended the Rules under Companies Act, 2013 to further streamline the process of incorporation to make it even more simple and fast.
A major issue of name availability was coming to surface time and again and consequently in order to avoid resubmission hassles due to non-availability of name, filing form INC-1 (for name reservation) had become the industry practice. Reason for such action was that if the incorporation form (INC-32) goes for resubmission on the grounds of non-availability of name, all the documents had to be re-drafted for such changed name.
Hence, to streamline the process of name reservation or any change in name of existing companies, the Ministry as per Companies (Incorporation) Amendment Rules, 2018 has proactively designed a front office service for automating the process of name reservation by replacing e-form INC-1 with a Web-Form “RUN” which has been made active from 26th January, 2018 on the portal of the Ministry under the head “MCA Services”. RUN aims to capture only those information which is absolutely necessary for reservation of name thereby eliminating all unnecessary filing requirement as stated in INC-1. The major changes brought about by the web-form RUN are as follows:
|Pertains to||E-form “INC-1”||Web-form “RUN”|
|Name Proposal||Companies can propose 6 names in case of new company and also for change in name of existing company subject to SR and approval of Central Government||Companies can apply for only one name in RUN.|
|Resemblance||While proposing name the applicant had to be cautious that such name is not undesirable as per the provisions of the Act.||RUN application has brought in a new feature of “Auto Check” in the form i.e. on entering the proposed name the form autochecks whether the name resembles name of any other company or trademark. Further in this regard the Ministry has provided link two websites where the companies can cross check whether their proposed names are desirable as per law. For name search – http://www.mca.gov.in/mcafoportal/showCheckCompanyName.do
For Trademark search – http://www.ipindia.nic.in/index.htm
Note – The responsibility however, still vests upon the Applicant to ensure such name is in accordance with the provisions for Name Availability as stipulated in Companies (Incorporation) Rules, 2014. The particulars which were earlier there in Form INC-1 have been removed from RUN and have been incorporated in SPICe (INC-32). The “AutoCheck” feature just gives a relief with the prelim search and name availability.
|Reservation period||As per INC-1 name will be reserved for a maximum of 60 days from the date of application||An approved name is valid for a period of
(i) 20 days from the date of approval (in case name is being reserved for a new company);or
(ii) 60 days from the date of approval (in case of change of name of an existing company)
|Re-submission||In INC-1 one resubmission opportunity was provided to the applicant.
The fee for INC-1 was Rs.1000/-
|No re-submission of the application will be allowed in the case of reservation of a name through web service – “RUN” if name is rejected the applicant has to apply afresh.
The fee for RUN has been kept same as INC-1 i.e. Rs.1000/-
|Filing Authority||The e-Form INC-1 was under CRC Manesar’s jurisdiction.||CRC shall continue to handle applications for name reservation under RUN.|
|Details of the form||INC-1 is a detailed form containing:
a) Details of the applicant who is applying for reservation of name.
b) Details of the of the proposed company
c) Details of promoter(s)
d) The illustrative list of names(max 6) based on the type of company
e) Significance of key or coined word in the proposed name
f) Change in name details with change in objects if any
g) Details w.r.t. name not being against any registered trademark or contradictory to section 3 of the Emblems and Names (Prevention and Improper Use) Act, 1950 and other such points
|Web-form RUN is a simplified half page form which requires only
a) Proposed type of the entity (in case of incorporation)
· New company (others)
· Part I companies
· Producer companies
· Unlimited Company
· One Person Company
· IFSC company
· Section 8 company
· Nidhi company
b) CIN of the Company (In case of name change)
c) Proposed new name
d) Comments (where objects of the company is to be provided)
|Attachments to the form||Attachments to e-form INC-1 includes:
a) In case of change of name of an existing company, a copy of Board resolution
b) If change of name is due to direction received from the Central Government, then copy of such direction
c) In case the proposed name(s) are based on a registered trademark or is a subject matter of an application pending for registration under the Trade Marks Act, 1999, the approval of the owner of the trademark or the applicant of such application for registration of Trademark;
d) Copy of Central Government’s approval In case the proposed name contains such word(s) or expression(s) for which the approval of Central Government is required,;
e) In principle approval from the concerned regulator
f) Copy of affidavit, in case proposed name including phrase ‘Electoral Trust
g) Resolution of unregistered companies in case of Chapter XXI (Part I) companies
|There is no mandatory attachment in the web-form except in the case where the company has to attach relevant documents and No Objection Certificates (NOCs) in the case where name requires the approval of a Sectoral Regulator or NoC etc. Further, note that only one file is allowed to be uploaded as an attachment and the size of the file should not exceed 6MB. In case of multiple attachments, scan of all documents into a single file has to be uploaded not exceeding 6MB in size.|
|DSC for INC-1||Earlier in INC-1, DSC of applicant was mandatory.||DSC is not required now for RUN.|
Through introduction of this new web-form, the reservation of name will become smooth and will help in speeding the incorporation process. Also, with the introduction of “AutoCheck” feature in RUN, the Ministry has reduced the probability of rejection of form due to non-availability of name as the Company will be able to check the availability of proposed name at the time of application itself. However, the portal shall only state the prima facie availability or non-availability of the proposed name and onus to comply with the name guidelines shall still vest on the applicant. Further, RUN suffers a major drawback in comparison to INC-1, reason being, under RUN only 1 name can be filed for whereas under INC-1 the applicant had options to file 6 proposed names in order or preference. Making it worse, INC-1 was allowed to be re-submitted with another 6 names in case of non-availability of first 6 but under RUN there is no resubmission as this is an accept or reject form.
2. Application for DIN
The whole process of application and allotment of DIN has been revamped by the Companies (Appointment and Qualification of Directors) Amendment Rules, 2018. These rules have brought a three-folded change in the DIN application process and comprises of:
a. DIN Application- As per Rule 9(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014 one of the pre-requisite for appointment of any individual as director on the Board of the Company is that the individual must have Director Identification Number, which was obtained through application in form DIR-3. Evidently, the said provisions were applicable to both, new and an existing company. However the Companies (Appointment and Qualification of Directors) Amendment Rules, 2018 has substituted the provisions on the grounds that henceforth the rules will be applicable only to an existing company. Previously there was only one form of obtaining DIN by a proposed director i.e. application in E-form DIR-3 but now, the DIN allotment will be in two ways; for existing companies, through Form DIR- 3 and for new companies, through Form INC- 32 (SPICe) for a maximum of 3 directors.
As per the earlier incorporation process, the first and the foremost step for registering a Company was to obtain DIN for the proposed directors of the company through form DIR-3 only after which a Company can move forward with application for reservation of Name in INC-1. But with the changes made through the above Amendments, the procedure of obtaining DIN has been combined with SPICe form i.e. allotment of DIN and incorporation of company has been clubbed. It must be noted that allotment of DIN through Form INC-32 is restricted for allotment to maximum of three directors.
b. Certification of Form DIR-3– The Rules has been changed to the effect that the certification will have to be done by a company secretary in full time employment of the company or by the managing director or director or CEO or CFO of the company in which the person is proposed to be appointed as director in an existing company. Accordingly, as provided in the erstwhile rules, there will be no role of a Practicing CS/ CA/CWA in certification of the said Form. Further, CEO and CFO are two more categories of persons newly authorized for the verification purpose.
c. Attachment in Form DIR-3 – For existing companies, the changes proposed have now made it mandatory for any person not having DIN and willing to be appointed as Director, to have a Board Resolution passed for his/her appointment in the Company and such Board Resolution shall be attached to Form DIR-3 as mandatory attachment for obtaining DIN. Therefore, unless there is an actual appointment (by passing a board resolution by the company), a person cannot make a random application for DIN allotment for the sake of holding one. However this will bring inflexibility for companies as they have to pre-determine the propose director and henceforth cannot change their opinion.
The objective of MCA’s initiative is to ease the process of incorporation and to merge all the forms related to name reservation, DIN allotment, incorporation form, PAN & TAN allotment, in one single form i.e. SPICe form INC-32. PAN-TAN Forms were recently before the Amendments merged into SPICe Form.
3. Companies (Incorporation) Amendment Rules, 2018
a) Incorporation Form
As per the erstwhile Companies (Incorporation) Rules, 2014 company incorporation was also permitted to be done through Form INC-7 (besides INC-32) when the proposed company to be incorporated had more than seven subscribers. Under the Companies (Incorporation) Amendment Rules, 2018 Form INC-7 has been omitted. Therefore, with the Amendment Rules 2018 coming into force, incorporation for all types of company shall be allowed to be done through SPICe only. In this regard the companies have to attach Memorandum of Association and Articles of Association with the incorporation form which has to be attached in following form:
This change is indeed a clarificatory note as people filing incorporation forms always faced ambiguity as to when to file INC-7 and when to file INC-32 resulting in two incorporation forms. However now there is clarity there is only one incorporation form and while filing MOA & AOA, the Company has to keep in mind its number of subscribers. At a glance the major changes brought in force with the amended rules are:
- A very significant change brought in force with the revised SPICe INC-32 form is that now incorporation of unregistered companies in case of Chapter XXI (Part I) companies under section 366 of the Companies Act, 2013 will be done under Form INC-32.
- The revised form INC-32 now compulsorily require PAN details of professional certifying such form if such person is Practicing Advocate.
b) Incorporation Fees
Ministry through Companies (Incorporation) Amendment Rules, 2018 and Companies (Registration Offices and Fees) Amendment Rules, 2018 has reduced the fees for incorporation of companies having nominal share capital of less than or equal to Rs. 10 Lakh to Rs. 0/- (zero). This shall also be applicable to incorporation of company not having share capital and having maximum 20 members.
This has been done to motivate more and more people to incorporate companies in India with zero incorporation fees so as to transform the unorganized sector to more organized form.
4. Companies (Registration Offices and Fees) Amendment Rules, 2018
The Ministry of Corporate Affairs has amended the provisions of Companies (Registration Offices and Fees) Rules, 2014 with Companies (Registration Offices and Fees) Amendment Rules, 2018 which has substituted the table of fees for filings as per section 403 of the Companies Act, 2013 and following relevant changes in the said rules are as under:
- No re-submission of the application will be allowed in the case of reservation of a name through web service – “RUN”;
- Zero incorporation fees for registration of OPC and small companies whose nominal share capital is less than or equal to Rs.10,00,000/-
- Zero incorporation fees for registration of a company (other than OPC and small companies) whose nominal share capital is less than or equal to Rs. 10,00,000/- at the time of incorporation;
- For registration of any existing company, except such companies as are by this Act exempted from payment of fees in respect of registration under this Act, the same fee will be charged as required for registering a new company;
- Zero fees for registration of company which does have share capital and whose number of members as stated in the articles of association, does not exceed 20;
- There was no fees for increase in nominal capital of a company whose nominal share capital does not exceed Rs. 1,00,000 but now the same has been increased to Rs. 5000
- Companies to be incorporated with effect from 26.01.2018 with a nominal capital which does not exceed Rs.10 lakhs fee shall not be payable.
- For registration of any increase in the number of members made after the registration of the company, the same fees as would have been payable in respect of such increase, if such increase had been stated in the articles of association at the time of registration. Further, that no company shall be liable to pay on the whole a greater fee than Rs. 10,000 in respect of its number of members, taking into account the fee paid on the first registration of the company.
Further, the table of fee shall be applicable for any such intimation to be furnished to the Registrar or any other officer or authority under section 159 of the Act, filing of notice of appointment of auditors or Secretarial Auditor or Cost Auditor and will be applicable from 26th January 2018. Companies are eagerly waiting to see the amendment that relates to additional filing fee applicable for delays in filing of the forms other than for increase in Nominal Share Capital.
To conclude we can say the Ministry is continuously addressing the stakeholder grievances and bringing more developed and automated processes for the companies to take a step ahead towards ease of doing business in India initiative. The proposed change in e-form is expected to speed up the process of name availability and remove the drawback of SPICE incorporation process. The new initiative of Central Government is “Starting a Business Easier” as provided in the MCA portal which in a nutshell describes the changes brought about by the Ministry in incorporation process.
We are of a view that changes will significantly contribute towards improvement of ranking in ease of doing business in the country, but there is a lot more scope to further improve, especially with respect to starting a business in India.
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