Annual Filing Defaults: Legal Consequences and Possible Remedies

Annual Filing Defaults: Legal Consequences and Possible Remedies. In this article, we will take you through the mandatory annual filing requirements under Section 92 and Section 137 of the Companies Act, 2013, focusing on the implications of non-compliance and the penalties involved. Section 92(5) mandates that every company, including its directors, must file an annual return, while Section 137(3) requires the filing of the financial statement with the Registrar of Companies (ROC) within a specified time. Failure to comply with these provisions can result in penalties being levied against both the company and its directors, as demonstrated in the case of Mega Structures Realestate Limited. The company’s failure to timely file its financial statements and annual return led to the imposition of penalties by the ROC.
However, in the appeal process, the Regional Director (RD) considered the company’s mitigating circumstances and reduced the penalties, highlighting the importance of understanding the consequences of non-compliance and the opportunities for relief when justified reasons are presented.
Applicable Provisions
The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its annual return and financial statement for the Financial Year ended on 31.03.2018. The matter was brought before the Regional Director (WR), Mumbai, for consideration.
Facts of the Case with ROC and RD
Mega Structures Realestate Limited, a company registered under the Companies Act, 1956, with its registered office in Goa, was found to be in default of Section 92(5) and section 137 (3) of the Companies Act 2013. The ROC issued a show cause notice dated 28.01.2019 to the company and its directors, calling them to show cause for non-filling of such documents.
In response by the ROC to the SCN dated 05.03.2019 one of the MD, explained that the auditor of the company resigned due to personal difficulties and founding right person as a auditor was mountain moving task. Personal due to various personal & business problems, he suffered from claustrophobia and hence was not able to file such documents in time.
However, the Annual Return and Financial Statement for year 2017-18 were filled on 19/02/2019 with additional fee to regularize the default.
The Registrar of Companies (ROC) considering the facts and circumstances-imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, and contended that the:

That due to illness of MD and unavoidable circumstances the annual return and financial statements for the year 2017-18 cold is not filled in time.

The company is newly registered, and its financial position is not sound. Such high penalty imposed by AO will hit the very foundation of the company and bring down the company collapsing, hence penalty would be waived off.

Imposed Penalty
The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows:
For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs, 1,09,000

Director 1: Rs 1,10,900

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs 58,000

Director 1: Rs 58,000

Reduction in penalties
Considering the request made by the appellant company for reduction or waive off the penalty in appeal is hereby allowed by the RD. Accordingly, the appeal is allowed and it was directed to the representative of the appellant company that the revised penalty to be paid as under latest by 08.01.2021.
For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs18,000

Director 1: Rs 18,000

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs 7,000

Director 1: Rs 7,000

Any Benefit of Section 446B of Companies Act
Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, Concerned RD had after considering the fact and circumstances of  the appeal of appellant company reduce the quantum of penalty up to substantial amount.
Conclusion
The case of Mega Structures Realestate Limited highlights the critical importance of timely compliance with annual filing requirements under Sections 92 and 137 of the Companies Act, 2013. Non-compliance not only results in financial penalties but also exposes the company and its directors to regulatory scrutiny. However, as demonstrated in the appeal process, genuine mitigating circumstances—such as health issues of key personnel and financial constraints—can be considered for penalty reduction.
Download MCA Adjudication Order

In this article, we will take you through the mandatory annual filing requirements under Section 92 and Section 137 of the Companies Act, 2013, focusing on the implications of non-compliance and the penalties involved. Section 92(5) mandates that every company, including its directors, must file an annual return, while Section 137(3) requires the filing of the financial statement with the Registrar of Companies (ROC) within a specified time. Failure to comply with these provisions can result in penalties being levied against both the company and its directors, as demonstrated in the case of Mega Structures Realestate Limited. The company’s failure to timely file its financial statements and annual return led to the imposition of penalties by the ROC.

However, in the appeal process, the Regional Director (RD) considered the company’s mitigating circumstances and reduced the penalties, highlighting the importance of understanding the consequences of non-compliance and the opportunities for relief when justified reasons are presented.

Applicable Provisions

The case involves an appeal under Section 454(5) of the Companies Act, 2013, concerning the adjudication of penalties for defaulting in filling of its annual return and financial statement for the Financial Year ended on 31.03.2018. The matter was brought before the Regional Director (WR), Mumbai, for consideration.

Facts of the Case with ROC and RD

Mega Structures Realestate Limited, a company registered under the Companies Act, 1956, with its registered office in Goa, was found to be in default of Section 92(5) and section 137 (3) of the Companies Act 2013. The ROC issued a show cause notice dated 28.01.2019 to the company and its directors, calling them to show cause for non-filling of such documents.

In response by the ROC to the SCN dated 05.03.2019 one of the MD, explained that the auditor of the company resigned due to personal difficulties and founding right person as a auditor was mountain moving task. Personal due to various personal & business problems, he suffered from claustrophobia and hence was not able to file such documents in time.

However, the Annual Return and Financial Statement for year 2017-18 were filled on 19/02/2019 with additional fee to regularize the default.

The Registrar of Companies (ROC) considering the facts and circumstances-imposed penalties for non-compliance, leading the company to file an appeal before the Regional Director (RD). The hearing was attended by the company's representative, and contended that the:

That due to illness of MD and unavoidable circumstances the annual return and financial statements for the year 2017-18 cold is not filled in time.
The company is newly registered, and its financial position is not sound. Such high penalty imposed by AO will hit the very foundation of the company and bring down the company collapsing, hence penalty would be waived off.

Imposed Penalty

The ROC after considering the fact and circumstances of the case levied penalties. The penalty amount was determined based on the company's failure to comply with the relevant legal requirements. The details of the penalty, are as follows:

For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs, 1,09,000
Director 1: Rs 1,10,900

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs 58,000
Director 1: Rs 58,000

Reduction in penalties

Considering the request made by the appellant company for reduction or waive off the penalty in appeal is hereby allowed by the RD. Accordingly, the appeal is allowed and it was directed to the representative of the appellant company that the revised penalty to be paid as under latest by 08.01.2021.

For Financial Statements as under section 137(1) of the companies Act 2013

On Company: Rs18,000
Director 1: Rs 18,000

For Annual Return as per section 92 (4) of the companies Act 2013

On Company: Rs 7,000
Director 1: Rs 7,000

Any Benefit of Section 446B of Companies Act

Section 446B of the Companies Act, 2013, provides for lesser penalties in cases involving small companies and startups. However, in this case, Concerned RD had after considering the fact and circumstances of the appeal of appellant company reduce the quantum of penalty up to substantial amount.

Conclusion

The case of Mega Structures Realestate Limited highlights the critical importance of timely compliance with annual filing requirements under Sections 92 and 137 of the Companies Act, 2013. Non-compliance not only results in financial penalties but also exposes the company and its directors to regulatory scrutiny. However, as demonstrated in the appeal process, genuine mitigating circumstances—such as health issues of key personnel and financial constraints—can be considered for penalty reduction.