AMENDMENT FOR SHELL COMPANIES BY MINISTRY OF CORPORATE

AFFAIRS

The Ministry of Corporate Affairs (hereinafter referred to as "MCA"), by notification dated

August 18, 2022, notified the Companies (Incorporation) Third Amendment Rules, 2022,
which amended the Companies (Incorporation) Rules, 2014 (hereinafter referred to as the
"Companies Incorporation Rules") by introducing Rule 25B. The following amendment in
the Companies Incorporation Rules sets out the procedure for the Registrar of Companies to
be followed for carrying out the physical verification of a registered office of a company.

As per the provisions of the Section 7 of the Companies Act, 2013 (hereinafter referred to as
the “Act”), all companies which are registered under the Companies Act 2013 are legally
required to have a registered office in India from the date of commencement of business or
within thirty days from the date of incorporation. The registered office of a company is by
and large the principal place of business activities conducted by a company. Promoters of the
company decide the State in which the registered office shall be situated at the time of
incorporation of the company. By virtue of the above-mentioned Section 7 of the Act, all
types of companies (private, unlisted public companies, listed companies and one person
company) are mandatorily required to have the registered office and also to keep the
Registrar of Companies informed about the location of the registered office and changes, if
any thereafter.

By virtue of the above-mentioned amendment under Company Incorporation Rules, the

Registrar of Companies can now carry out physical verification of a registered office of a
company, although under Section 12(9) of the Act also, the Registrar of Companies is already
empowered to conduct a physical verification of a company’s registered office if he or she
has reasonable cause to believe that the company concerned is not carrying out business in a
proper manner.

The reason behind this specific amendment by MCA under Rule 25B was to make a specific
provision for the shell companies existing in India. Now, a days, on a continual basis it has
been observed that various corporate crimes are occurring by incorporating the shell
companies by the officers responsible for the company. To procure and prevent the corporate
crimes, the legislation has sustained efforts and increased scrutiny through the Enforcement
Directorate in tracking down shell companies, the insertion of Rule 25B is an additional
weapon in the hands of the government to undertake scrutiny and come down on shell
companies.

Process for physical verification of the registered office:

Rule 25B of the Companies Incorporation Rules sets out the process for physical verification
of the registered office of a company. It provides for the verification to be carried out in the
presence of two independent witnesses, cross verification of documents filed on MCA 21,
photograph of the office and mandates the submission of a report. The process is described in
detail below:

(i) Two independent witnesses from the locality and assistance from the local police: The
ROC may visit the registered office for physical verification in the presence of two
independent witnesses from the locality of the registered office and if needed, also seek
assistance of the local police.

(ii) Cross verification of documents as filed on MCA 21: The ROC may carry the documents
filed on MCA 21, supporting the address of the registered office and cross verify them with
the documents collected during the physical verification. These documents must be duly
authenticated from the occupant of the property where the registered office is situated. This is
to ensure the authenticity of the documents.

(iii) Photograph: Thereafter, the ROC is required to take a photograph of the registered
office.

(iv) Submission of the report: Finally, the ROC is required to prepare a report containing
various details such as the name, corporate identification number, latest address of the
registered office as per the MCA 21 record, date of authorisation letter, name of the ROC,
date and time of physical verification, location details with landmark, details of the person
available at the time of the visit, remarks along with the relevant documents. In this context,
the relevant documents are: (a) a copy of the agreement/ ownership/ rent agreement/ no
objection certificate of the registered office from the owner/ tenant/ lessor; (b) photograph of
the registered office; (c) self-attested ID-card of the person available; and (d) any other
documents.

Notice to Company and Directors

As per Rule 25B, if the Registrar of Companies is not satisfied with the registered office after
the physical verification, in that case, the Registrar of Companies will notify the Company
and all Directors of his intention to remove the company’s name from the official Register of
Companies (ROC) and request them to send their representation along with the relevant
documents within thirty days of receiving the notice by Registrar of Companies. The
Director(s) of the company need to send them their representation along with the necessary
documents within thirty days from the date of the MCA notice; otherwise, ROC will take
further action under section 248 of the Companies Act. (Power of Registrar to remove the
name of company from the register of companies).

Conclusion:

A powerful move to identify shell companies is being made with this amendment by the
Ministry of Corporate Affairs, which ensures that registered offices of companies are more
than just post offices. It also confers power on the ROC to remove the name of the company
in case of non-compliance leading to the prevention of the corporate crimes.