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Know Your Customer – Know Your Compliance

Going by the current scenario, “Know Your Customer – Know your Compliance” seems to be the new mantra of the Ministry of Corporate Affairs (“MCA”) wherein its pivotal aim is to ensure compliance at all levels ranging from Companies to Directors. The MCA is leaving no stone unturned in blaring the conch shell of compliance with the sole motive to eradicate all the defaulting participants.

These defaulters could be directors who hold multiple DINs or companies which have failed to file any of their financial statements or annual returns since their inception, therefore clearly indicating that no business is being carried on and their purpose of existence is solely to route illicit/hidden funds and the income of their owners.

Further, this list of breach of non-compliance is also inclusive of defaulting directors who though hold a single DIN, and yet however have committed default under Section 164(2) of Companies Act, 2013 (“Act”) by either being on the board of such shell companies as stated above which have:

  • either defaulted in filing any of its financials and annual return for a continuous period of three financial years; or
  • have failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more.

Thus, to provide a clarion call to all such defaulting parties, the Registrar of Companies (“ROC”) very recently has struck off innumerable companies because of default in annual filing either since incorporation or for the preceding financial years. This move to strike off such companies further culminates in the automatic disqualification of directors who happen to be on the board of such companies.

Therefore, one breach gives room to the other.

Unlike the past, endeavour is being made by the higher authorities to impose penalties/restrictions on any default committed, and the MCA is also simultaneously elevating the level of compliance by introducing measures such as Filing of DIR-3 KYC as launched by MCA wef 10.07.2018, wherein for all the Directors who have been allotted DIN on or before 31/03/2018 are mandatorily required to file the aforesaid form with the ROC (free of any cost).

This form is designed in such a manner that all the personal details, identity and address proofs of a director can be tracked down owing to the OTP verification linked to the personal mobile number and e-mail address of the concerned directors. This is adopted to foresee the authentication of individuals possessing DIN so that the various cases of an individual holding multiple DINs is done away with and simultaneously, his current signatory details with respect to his/her residential status is restored on the portal.

Thus, to conclude that for ensuring better compliance and simultaneously streamlining the working and operations of the company in due adherence with the governing bye-laws and rules, these stringent measures taken by the MCA (whether in the form of striking off of defunct/shell companies’ names, disqualifying directors on the board of such shell companies’ or to mandating KYC authentication of all Directors) are a one step forward in the attainment of the arduous goal of encouraging business alongside the lines of compliance.

Written By Shatakshi Pandey

Shatakshi is associated with the Corporate Secretarial Services team at Coinmen Consultants LLP.

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