In India, every company, whether public or private, is required to follow certain compliance guidelines to maintain its legal standing. These rules are designed to ensure transparency, accountability, and smooth functioning of the corporate sector. Missing these compliance deadlines can result in significant penalties, affecting the company’s reputation and financial stability. In this blog, we will explain the penalties for missing public company compliance, with a focus on the consequences of non-compliance.

Understanding Annual Compliance for Public Companies

Common Annual Compliance Requirements for Public Companies

To avoid penalties, public companies in India must adhere to the following common annual compliance obligations:

1. Filing Annual Returns (Form MGT-7): The annual return is a comprehensive document that details the company’s shareholders, directors, and other essential information.
2. Filing Financial Statements (Form AOC-4): Financial statements, including balance sheets, profit and loss accounts, and audit reports, must be filed annually with the MCA.
3. Annual General Meeting (AGM): Every public company must hold an AGM within six months from the end of the financial year, where shareholders discuss the company’s performance and future direction.
4. Appointment and Rotation of Auditors: Auditors must be appointed for a five-year term, and their appointment or rotation must be duly recorded in the filings.

Penalties for Missing Compliance Deadlines

Missing compliance deadlines can lead to a series of penalties under the Companies Act, 2013. These penalties can vary depending on the nature of the non-compliance, the duration of delay, and whether it is a first-time or repeated offense.

Late Filing Penalty

The most common penalty for missing compliance deadlines is a late filing fee. If a public company fails to file its annual return or financial statement within the prescribed timeline, it incurs a late fee of ₹100 per day until it completes the filing. The longer the delay, the higher the penalty. This daily fine applies to each delayed form, so multiple filings can result in significant financial strain.

Penalty for Not Holding an AGM

Failing to hold an AGM within the prescribed period can result in a fine for the company and its officers. According to the Companies Act, 2013, the penalty for not conducting an AGM on time can be up to ₹1 lakh for the company and ₹5,000 per day for each director if the default continues. This hefty penalty is meant to ensure that public companies maintain transparency with their shareholders.

Penalty for Non-Filing of Annual Returns

If a public company does not file its annual return (Form MGT-7) within the stipulated time, the penalty can range from ₹50,000 to ₹5 lakh for the company. Additionally, each officer in default (usually the directors) can face fines ranging from ₹50,000 to ₹5 lakh. Repeated offenses may lead to more severe consequences, including imprisonment of the officers involved for up to six months.

Consequences of Not Filing Financial Statements

Disqualification of Directors

Company Status Marked as ‘Dormant’

Public companies that consistently fail to meet compliance requirements may receive a ‘dormant’ status from the Registrar of Companies (ROC). This status indicates that the company is inactive and not fulfilling its legal obligations. If a company continues to be non-compliant, it may face legal action and get struck off the register, which means it would cease to exist as a legal entity

Legal Action and Imprisonment

In extreme cases, such as repeated non-compliance or fraudulent activities, legal action may be taken against the company’s officers. The Companies Act, 2013, provides for imprisonment of up to six months for officers involved in severe non-compliance cases. This typically occurs in instances where non-compliance is intentional or has caused significant harm to the public or shareholders.

How to Avoid Penalties?

1. Maintain a Compliance Calendar: One of the easiest ways to avoid penalties is by maintaining a compliance calendar that tracks important deadlines for filing returns, holding meetings, and other obligations. This ensures that your company stays on top of its responsibilities.
2. Hire a Professional: To engage a company secretary, compliance officer, or legal advisor who can help manage and file the required documents. Professionals can also assist in ensuring all other legal requirements are met.
3. Use Compliance Software: Several compliance management software solutions are available that provide reminders and automation for filing documents, helping you avoid delays and non-compliance.
4. Regular Internal Audits: Conduct regular internal audits to keep your company on top of financial records and ensure timely compliance with all requirements..

Conclusion

Failing to meet annual compliance deadlines can have serious consequences for public companies in India. Public companies need to prioritize compliance by adhering to all regulatory requirements and deadlines. Non-compliance not only affects the company’s financial health but also damages its reputation and can lead to disqualification of directors.

Ensuring timely compliance through proper planning and professional help is crucial for the smooth functioning of any public company. By staying vigilant, public companies can avoid hefty fines and maintain a good standing in the corporate world. Additionally, it’s important to note that compliances for private limited companies is also critical, with similar penalties for non-compliance, making it essential for both public and private entities to adhere to legal requirements.