Government Amends Rules for Physical Verification of Companies

The government has amended rules to ensure a transparent process for physical verification of addresses of the registered offices of companies, including by way of having independent witnesses at the time of the verification.

The steps listed out in the new rules will help do away with the discretion of authorities as well as put in place a transparent system with respect to the physical verification process.

Under the Companies Act, 2013, a Registrar of Companies (RoC) can do a physical verification of a company’s registered office if he or she has a reasonable cause to believe that the company concerned is not carrying out business in a proper manner.

Now, the process for such physical verifications has been put in place under the Act.

Conference Room Photograph

The physical verification will be done in the presence of two independent witnesses of the locality in which the company’s registered office is situated. If required, the assistance of the local police will be also sought, according to the corporate affairs ministry.

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To check the documents’ authenticity, the same should be cross verified with the “copies of supporting documents of such address collected during the said physical verification, duly authenticated from the occupant of the property where the said registered office is situated”, the ministry said.

The registrar will also have to take a photograph of the company’s registered office during the physical verification.

Once the verification is done, a detailed report with various information, including location details and photographs, will be prepared.

Navin Kumar, Partner at Cyril Amarchand Mangaldas, said the objective steps required during physical verification as well as the format of the physical verification provided in the amendment is a welcome step and removes the discretion of authorities.

“This amendment also settles the debate around the primary legislation enabling the physical verification of registered address by RoC — the process for which is to be prescribed in the Rules — but the Companies (Incorporation) Rules not providing for it,” he said.

He also noted that the amendment is in furtherance of Section 12(9) of the Companies Act and provides the procedure of physical verification of the registered address of a company by RoC if it has reasonable cause to believe that the company is not carrying on any business or operations or is not capable of receiving and acknowledging communication.

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In case the company’s registered office is found to be not capable of receiving and acknowledging all communications and notices, the registrar concerned will send a notice to the company and all its directors seeking information.

Further action, including the decision on removing the name of the company concerned from the official records, will be initiated depending on the response from the company.

The ministry has amended the Companies (Incorporation) Rules, 2014.

On July 18, the ministry informed the Lok Sabha that a total of 1,12,509 companies have been struck off from official records in a little over three years.

These companies have been struck off under Section 248 (1) of the Companies Act during the period from April 1, 2019, to July 12, 2022. This section allows RoCs to strike off companies.

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