Most of the over 1,160 adjudication orders issued by RoCs in FY25 are on breaches of fundamental company law requirements such as maintaining a registered office, reporting any change in registered office to the authorities, filing financial statements and annual reports on time, appointment of key managerial persons, filing of board decisions with the RoCs as well as issues like reporting significant beneficial ownership—a new area of enforcement.
Nearly half of these companies are private limited, which have a lower disclosure requirement than public limited companies under the Companies Act.
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Also, most of the companies against which penalty orders have been issued are small businesses, indicating that awareness of regulatory requirements and their compliance is lagging behind in this segment. The increasing number of adjudication orders indicate RoCs are on a drive to penalize companies which falter on fundamental requirements of transparency.
For example, over 140 breaches detected this financial year were of section 12 of the Companies Act dealing with the requirement of a registered office, and about 120 were of section 137 dealing with filing of financial statements. Non-filing of annual returns and significant beneficial ownership are also among the most common breaches.
“Having a registered office is a very basic requirement and all registered companies should have complied with this requirement within the given timeframe. Other violations such as non-filing of financial statements or annual returns, filing of forms/resolutions etc. have their own consequences under the Companies Act. Companies where such non-compliances occur consider compliance as a cost and hence do not engage a company secretary to look after these. However, a well- governed company can surely avoid such instances,” said Institute of Company Secretaries of India (ICSI) president Dhananjay Shukla.
“The level of compliance in companies with a full-time company secretary certainly outperforms those without it, as the cost of compliance is much lesser vis-à-vis the cost of non-compliance in terms of reputational loss and penalties etc. incurred by a company,” said Shukla.
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FY25 accounts for the highest number of adjudicatory orders in five years for which data is readily available. In FY24, there were over 1,000 regulatory orders and there were over 500 in FY23. In FY22, there were 230 adjudicatory orders and over 300 in FY21, data available from the ministry showed.
Queries emailed to the ministry on Friday seeking comments for the story remained unanswered at the time of publishing.
ICSI, a statutory body and the self-regulator of company secretaries, pointed out that while highlighting the violations of Companies Act, it would be useful to see whether a full-time company secretary was engaged by such entities for ensuring compliance and governance functions.
Growing enforcement by RoCs signals that companies must shift from reactive to proactive compliance management to avoid penalties and reputational risks, said Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.
The ministry’s statutory filing portal MCA21, which was revamped about two years ago, enables high-end research and analysis including use of artificial intelligence, which explains the spurt in show-cause notices for violations, according to Vikash Thakur, associate director at Nexdigm, a business and professional services company.
There may be an increase in notices initially, but it will help in efficient and transparent corporate governance over a period of time, he said. Thakur said that many companies may have also faced challenges updating their records due to system migration, resulting in show-cause notices.
“Additionally, the relatively recent introduction of regulations like Section 90 and the significant beneficial ownership rules may have led to awareness gaps, particularly among smaller firms,” said Thakur.
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The current increase in adjudication orders on routine submissions demonstrate the direction the authorities are heading—stricter adherence to compliance and strengthening of the corporate ecosystem, said Amit Maheshwari of AKM Global.
“While these actions reinforce regulatory discipline and act as a deterrent to other companies, aggrieved parties have the option to appeal against such orders. Many companies have also successfully obtained favourable rulings, leading to a reduction or settlement of penalties. This also highlights the importance of proactive compliance and a strategic approach to legal remedies,” said Maheshwari.
Thakur of Nexdigm also said that to further enhance compliance, ongoing training and support for companies in the MCA21 system are essential. “We anticipate a significant reduction in show-cause notices as companies become more familiar with the system,” said Thakur.