INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
Provisions of the Companies Act, 2013:
Section 11: Commencement of Business, etc.
Rule 2.21 of the Companies Rules, 2013
[Section 11 is not yet brought to force and the Companies Rules, 2013 is not yet brought to force]
Corresponding provisions of the Companies Act, 1956:
Corresponding provisions of the English Companies Act, 2006
Sections 761 and 762
This provision is applicable to all companies having a share capital. It does not apply to companies not having a share capital.
A company having a share capital shall commence its business or exercise any borrowing powers only after a declaration is filed by a director with the Registrar of Companies (‘ROC’) stating that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him (five lakh rupees in case of public company and one lakh rupees in case of private company) as on the date of declaration. [Section 11(1)(a)]. Such declaration shall be filed (by implication due to provisions of section 11(3)) within 180 days from the date of its incorporation.
The company can take steps to commence business before obtaining certificate under this provision, like opening of bank account, taking office premise on rent, obtaining necessary registrations with authorities, appointing staff etc.
Further, a company shall also file with the ROC a verification of its registered office as referred to in section 12. [Section 11(1)(b)].
Rule 2.21 prescribes form no. 2.24 as a format of declaration under Section 11(1)(1). Such declaration shall be verified by either Company Secretary in practice or Chartered Accountant or Cost Accountant.
Further, the Rule 2.21 requires that where a company requiring registration and/or approval from other regulators or professional body which regulates such professional activity, the declaration referred above shall also be accompanied with a certificate of registration/Approval issued to it by the concerned regulator, or professional body, as the case may be.
For violation of the requirements of this section, the company shall be liable to a penalty upto Rs. 5,000/-. Further, every officer of the company shall be liable to a penalty upto Rs. 1,000/- for every day during which the default continues.[Section 11(2)].
In case declaration as referred above has not been filed within 180 days from the date of incorporation of the company and the ROC has reasonable cause to believe that the company is not carrying on any business or operations, he may initiate action for removal of the name of the company from the register of companies under Chapter XVIII. [Section 11(3)]. Section 11(3) suggests that where the Company having a share capital, has a minimum paid-up share capital, subscribers have paid for the shares subscribed by them, the company has its registered office and the company has commenced its operations, however it has failed to file the required declaration under Section 11(1)(a) in Form no. 2.24 then the ROC cannot exercise its power under sub-section 3 of section 11. In such situation, the company having commenced business without filing the required declaration under Section 11(1)(a) will attract penalty under section 11(2).
It may be noted that for second or subsequent contravention of the provision of this section, if made within a period of three years, then the company as well as its officer who is in default shall be punishable under section 451 with twice the amount of fine in addition to any imprisonment provided for the offence.
Under Section 454, the officer appointed by the Central Government, not below the rank of Registrar of Companies, may adjudicate and impose monetary penalty for violation of this section. However, before imposing penalty, an opportunity of hearing shall be given to the Company and its officers.
It may be noted that under section 441, where offence is punishable with fine only, the same may be compounded by the National Company Law Tribunal or where the fine does not exceed Rs.5,00,000/- by the Regional Director or any other officer authorised by the Central Government.
Both company and its officers who is in default may avail compounding mechanism to settle the contravention.
Summary of forms and records:
Form No. 2.24 for declaration under section 11(1)(a).