Desperate Company Secretaries, Corporates & Professionals Seek Extension for Compliance Dates; Calls Problematic MCA e-Filing Portal as 'Major Cause of Concern'
In a bizarre situation, company secretaries (CS') and chartered accountants (CAs) from around the country have been desperately seeking an extension of time and some relief from filing compliance reports with the MCA21 portal of the ministry of corporate affairs (MCA), as the portal has been malfunctioning since 30 December 2020. While businesses have been penalised with draconian penalties, the pleas from professionals as well as a storm on social media has been steadfastly ignored by the government. The problem is at a pan-India level and professionals as well as their local chapters have been sending us photographs and representations shared with the government from all over.
Fighting hard to keep up with the COVID-19 pandemic situation and deadlines for compliance in the face of the problematic e-filing portal of the MCA, associations of company secretaries, corporates, including the micro, small and medium enterprises (MSMEs) and the limited liability partnerships (LLPs), and individual professionals such CS and lawyers, have urged the finance minister Nirmala Sitharaman to extend the deadline by three months till 31 March 2021 and relieve them of the endless pains caused by MCA portal. Also, for the first time, several practising CSs came out openly on Twitter and made #Extend_CFSS a trending hashtag for quite some time to grab the attention of the finance ministry.
Two main issues these entities have raised are related with extension for deadlines for filing as mandated under registrar of companies (ROC), where for a NIL return, the fee charged is Rs150, but the filer has to pay additional fee of about Rs35,000. This includes Rs10,000 for verifying know-you-customer (KYC), Rs18,000 for filing shareholding pattern and Rs7,000 for filing of income tax returns (ITR), for a limited liability partnership (LLP) firm for filing NIL returns.
Second and continuous issue the professionals and corporates have been raising is their struggle with the MCA portal while filing returns and submitting documents. "Most professionals are struggling with e-filing website of ministry of corporate affairs (MCA) due to time taken for uploading, irrelevant errors, non-generation of SRN, and multiple payments. The finance ministry may please investigate the whole process of filing and the time wasted of professionals. Quality time is wasted behind unproductive work," says a recent memorandum submitted by company secretaries to the ROC. But more about it later.
The MCA had introduced companies fresh settlement scheme (CFSS) and LLP settlement scheme vide general circular no.12/2020 and general circular no.13/2020 with an opportunity to complete and regularise the pending compliance for companies and LLPs without any additional fees and penalties, and also providing immunities from prosecution. These schemes were extended till 31 December 2020. But there is no further extension given by the MCA.
Here is what a CS from Madhya Pradesh has been going through while using the MCA's e-filing portal. She says, "As per reply received from MCA for a complaint on 8 January 2021, the receipt for form filed on 31 December 2020 will be generated within 48 hours of receiving the response from MCA. I have been trying continuously to generate the receipt and the status of the SRN is still showing to wait for 30 minutes (since 31 December 2020,12.00pm). Please note that we are not able to file other pending forms due to non-generation of receipt by MCA system and penalty is increasing at a rate of Rs200 per day. For these 11 days (inconvenience caused due to system issue), I am supposed to pay additional fee of Rs2,200 in addition to penalty of Rs79,100 already levied due to non-extension of CFSS and non-approval of form by MCA on 31 December 2020. You may appreciate that if the form had been approved by the MCA on 31 December 2020, the forms could have been uploaded by paying only Rs1,200. Can someone please answer, why this kind of draconian penalties being levied on small companies and that too only due to non-functioning of MCA site on 31 December 2020."
According to the representation, the MCA did not deem fit to extend these schemes by relaxing the due dates resulting in panic to the small businesses, all stakeholders in the chain of work flow who were struggling to be on track, as the penalties are running in lakhs per form which contradict the purpose of CFSS and government policies to further ease of doing business.
Non-extension of CFSS, according to the CSs will result in large number of companies, particularly from MSME segment, which are backbone of aatmanirbhar Bharat collapsing under the unbearable burden of compliance cost.
"Directors, key management persons (KMPs) and officers in default will be flooded with show cause notices (SCNs) and will face prosecution as compliance cost will be very exorbitant and beyond paying capacity of companies," the representation says.
Further, it says, Section 252 of the Companies Act will remain on the statute book only but will hardly be applied as companies will not afford to file back years forms due to high cost.
"Compliance of directions given in revival orders already passed by NCLT benches across country will become impossible to meet with leading to serious consequences," the CSs says.
A large number of companies have not yet been finalised accounts for FY19-20, due to long spell of COVID pandemic situation. "This will cause multiple violations of provisions of companies act unless the accounts are ante dated which will be unethical practice. However, this too will be possible only for a limited period," it says.
The CSs also express concern over acute mistrust between clients and practising company secretaries as revival applications were filed in anticipation of availing benefit of CFSS. It says, "This will have serious impact on their practice."
In addition, the company secretaries feel formation of new companies and LLPs will slow down as penalties for non-compliances are very stiff which will deter them from opting for the corporate structure. "This will severally impact practice of practising company secretaries (PCS), who are not doing specialised practice or do not have listed companies as their clients," they added.
Coming back to the MCA e-filing portal, Moneylife
have also been pointing out the issues being faced by profession ever since the management of this portal changed hands some seven years ago. Company secretaries and chartered accountants whose professional services require a functioning MCA professionals were desperately appealing for help in 2013 and continues to do so even in 2021. (Read: Why can’t Infosys get MCA, the e-filing system working?
For example, as on 10 January 2021, the MCA21 website was showing a message of maintenance activity.
"...the portal has not been working normally for whole of December 2020 with either SRN not getting generated despite amount getting debited or not going at all. If the expectation from compliance professional is to be on time then on the other side the service provider should ensure that system always works at 100% of the capacity. We should not be expected to generate the tickets even for SRN generation and unnecessary time wastage on unproductive work because of the failure of service provider," the representation from CSs says.
According to them, even on 31 December 2020, the system (at MCA21 portal) could not handle the additional load. They say, "There was notification on portal that MGT 7 will get updated from 1 January 2021 while at 9.45pm on 31 December 2020, the portal started giving a message that form being used is not the current version. How are we expected to take care of such unwarranted changes and why it could not wait till next morning? These questions remain unresolved and we are in a situation which remains unexplained as on date."
"The version of form MGT -7 was updated on 31 December 2020, which invalidated the already prepared Form MGT - 7 thereby nullifying all efforts taken by professional and clients for preparation and filing of MGT -7 trying to comply in the given time. This appears to be a purposeful harassment of professionals. The government can put on website at least 10 days prior to revision of forms. Again, quality time is wasted in non-productive work due to lack of transparency by the government," the CSs says.
Further, there is a delay in approval of LLP forms for updating of LLP agreements, which leads to non-uploading of subsequent forms 3 and 4. Currently, each form 3 and 4 takes around one-two months for approval and is a matter of concern.
"Even the CAs were unable to finalise financial statements where audit was applicable and due to their other due dates and non-availability of data from the clients, it has resulted in filing of e-form 8 with the MCA and now the penalty runs in Rs100 per day with retrospective effect of 1 November 2020," the representation points out.
In addition, the professional continues to face several issues while updating KYC for directors and KMPs. They say, "In many of the cases complying with the KYC norms was not possible as there were cases where the calls could not be made for the one-time passcode (OTP). Sometimes even the site did not respond after sending e-mail and sometimes on a particular mobile network. How this would have been possible to get the OTPs and get the KYC done. There are many cases which are pending and the time should have been given to comply with the filing."
"We request the ministry to please critically evaluate the need, frequency and penalties for DIR-3 KYC. Also limiting the filing of only 10 web-based KYC needs reconsideration. Fees for delay in filing form is Rs5,000 per director. This is a surprise element for each one to form a company. Please critically evaluate the whole process. Now with several disqualifications, the government may consider permanent relaxation in such compliances," the representation urges.