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In ministry's clean-up exercise, onus for verification to be on CAs

Source : BUSINESS_STANDARD
Last Updated: Sun, Dec 30, 2012 20:21 hrs

In a massive clean-up exercise to address the age-old problem of shell companies and directors with questionable credentials, the ministry of corporate affairs (MCA) has tightened the rules governing the registration of addresses and appointment of directors. The exercise has been set off through a series of notifications amending key rules, released last week and followed up with newspaper advertisements.

The ministry has amended Form 18, the standard filing for details of the registered office or any change in it. Under the new form, the onus will be on the chartered accountant (CA), cost accountant or company secretary (CS) to physically verify the filing and check the existence of a firm.

Under the old form, the verifying professionals had to give a certificate that they had verified the address from the “books of account and records” of a company. A new clause has been added where the CA/CS has to declare: “I further certify I have personally visited the new address, verified it and I am of the opinion the premises are indeed at the disposal of the applicant company.”

Further, both the company official filing the form (managing director, manager or the company secretary) and the CA/CS verifying it are required to give identification details such as PAN number/Director Identification number (DIN) or membership numbers.

In addition to the complete address of the registered office and the address of the police station under which it falls (the original requirements), companies will also have to produce the proof of address, mandatory under the new Form 18.

The practice of using hundreds of shell firms with the same addresses, some fictitious, as holding company and subsidiaries has lately become common in the corporate sector. Many promoters also follow the dubious practice of appointing distant relatives or personal staff as directors, thereby keeping control without taking responsibility. Recent instances of such companies being used to route political payments and other corporate favours seem to have triggered the latest reforms, say experts.

Saurabh Agarwal, director, Kennis Consultancy, which specialises in compliance matters, says: “The registrar of companies did not have a formal framework for verification of addresses. It is good such a structure has been put in place. The instances of companies with bogus addresses were increasing. There will be lot of documentation work to be done by several companies.”

Agarwal says his firm is also studying the documentation required for firms still under formation. “A company still under formation may not own leases in its name. We are trying to understand what kind of certification would be necessary in such cases. Physical verification can be done. But we have to certify based on vetting of documentary evidence.”

If a firm does not own the premises or has taken it on lease, it has to produce further documentary evidence. If the registered office premises is owned by one of the directors of the company, a no-objection certificate from the director is required to be attached. If the premises are owned by any other entity, a proof that the company is permitted to use such an address needs to be filed, the amended Form 18 says.

Also, the Ministry has given firms six months to rectify any error or mistake in the key forms like Form 1 (for incorporation), Form 1A (for name) and Form 44 (registration form for a foreign company).

Further, through a separate notification, the ministry has also amended the form for DIN application. In addition to proof of identity and residence proof, persons appointed as directors will also need to be verified and certified, along with their photographs.



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