MCA to ease paid-up capital norms for firms

The Ministry of Corporate Affairs (MCA) has decided to relax the norms for companies to maintain minimum paid-up capital. According to the Companies Act 1956, the minimum paid-up capital for a private company is Rs 1 lakh and for a listed company Rs 5 lakh. According to official sources, while a company can be set up with any amount, but within a time-frame of two years it should raise the capital to Rs 1 lakh and Rs 5 lakh for unlisted and listed companies, respectively.

If a company fails to do so in accordance with the existing provisions of Section 560 of the Companies Act, the company will be deregistered and declared defunct.

Now it may be a good news for the companies that such entities may not be declared defunct immediately as is done now. Under a scheme prepared by the ministry, such companies may opt for an option to exit business without attracting any penal provisions under the Act.

Alternatively, they may negotiate some more time with the regulator for raising the capital and continue with their business. In the process, earlier penal provisions may not apply.

Sources said that the scheme could be a big relief to the both listed or unlisted companies. “This is because once a company is declared defunct, the Registrar of Companies (RoC) can start criminal prosecution against the company,” said the source.

This relief may come as part of the comprehensive scheme being worked out by the ministry to avoid criminal prosecution for delay in filing one’s balance-sheet with RoC.

At present, any company which has prepared a balance sheet for a given financial year is bound to file it with RoC by October of that financial year. Not doing so attracts criminal proceedings under Section 610 of the Companies Act 1956, plus a structure of penalties.

The proposed scheme is being termed ‘Immunity from period of delay in filing returns and prosecution’ and meant for all companies, public and private, listed or unlisted, and even subsidiaries or Indian arms of foreign companies operating in India. It is aimed at companies who are functional but have failed to comply with the requirement of mandatory filing of these returns with RoC.

The idea is to do two things. First, make the present penalties more lenient. Second, remove the liability for criminal prosecution.

Another feature of the draft being discussed is that once a company opts for this scheme, the ministry is to advise RoC to withdraw legal suits filed against the company for prosecution.