RUN SPICe for incorporation

Happy Republic Day 2018!!

From this Republic Day 2018, company secretaries will start using this headline day to day in reference to the incorporation of companies in India. The government of India these days works keeping ist both eyes on world banks’ ease of doing a business index. Ease of starting and closing businesses are the prime focus. The Companies (Amendment) Act, 2017 notified on 3rd January 2018 primly aims to ease the incorporation of companies among other objects. Now, three rules are amended to facilitate to make incorporation a “child’s play”.

Ministry of Corporate Affairs placed advance information regarding the possible change in a manner of incorporation of companies in India immediately after notification of the Amendment Act. [i]

Now, Ministry of Corporate Affairs (MCA) vide notification S.O. 351(E) dated 23rd January 2018, appoints the 26th January 2018 as the date on which the provisions of section 1 and section 4 of the said Act shall come into force. This notification effectively substitutes clause (i) of subsection (5) of section 4 of the Companies Act, 2013 [ii] with a new clause from Section 4 of the Companies Amendment Act, 2017. New Clause read as under:

“(i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of twenty days from the date of approval or such other period as may be prescribed:

Provided that in case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of sixty days from the date of approval.”

Though, company secretaries incorporating companies in India for foreign subscribers do not find reduced time person comfortable. Now, the process needs to run against time and reduce comfort at end of subscribers not the government.

With the publication of above-mentioned commencement notification for Section 4, Ministry of Corporate Affairs (MCA) placed advance information on the site to give a more fair idea of future. [iii]

Demonetization of Incorporation

On 20th January 2018, Ministry of Corporate Affairs published in official Gazette the Companies (Registration Offices and Fees) Amendment Rules, 2018 which shall also come into force on 26th January 2018.  This amendment (i) disallow any resubmission for name approval and (ii) make incorporation free of government fee for companies being incorporated having share capital up to Rs. 10,00,000/-.

In the Annexure – table of Fee, the item I – Fee for filings etc. under section 403 of the Companies Act, 2013 a new table is inserted. The changes, as reproduced hereunder in footnote [iv] , make fee for incorporation including payment of fee on any other document to be submitted at the time of incorporation NIL in case of –

1. Companies having share capital incorporated with fee less than Rs. 10,00,000/- and
2. Companies not having share capital incorporated with members less than 20.

To be more specific, newly inserted second Proviso to sub-rule (2) of Rule 38 (dealing with Incorporation Spice Form – 32) also mandates no fee at the time of incorporation of abovementioned companies. The Proviso read:

“Provided further that in case of companies incorporated, with effect from the 26th day of January, 2018, with a nominal capital of less than or equal to rupees ten lakhs or in respect of companies not having a share capital whose number of members as stated in the articles of association does not exceed twenty, fee on INC-32 (SPICe) shall not be applicable”.

The payment of stamp duty is governed by different state stamp laws and will remain for now.

RUN for company name

A draft notification regarding the Companies (Incorporation) Amendment Rules, 2018 published here on MCA indicates substitution of original [v] Rule 9 of the Companies (Incorporation) Rules, 2014:

“Reservation of Name: An application for reservation of name shall be made through the web service available at ww.mca.gov.in by using RUN (Reserve Unique Name) along with fee as provided in the Companies (Registration offices and fees) Rules, 2014, which may either be approved or rejected, as the case may be, by the Registrar, Central Registration Centre”

The forms appear easy than earlier Form INC – 1 and seem to be filed without digital signatures and without requisites software as required for other e-forms used by MCA. Though, fully automated approval of name is still a dream for promoters and company secretaries.

Application of Incorporation

The draft notification regarding the Companies (Incorporation) Amendment Rules, 2018 published here on MCA indicates substitution of original [vi] Rule 12 of the Companies (Incorporation) Rules, 2014:

“Application for incorporation of companies. An application for registration of a company shall be filed, with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.INC-32 (SPICe) along with the fee as provided under the Companies (Registration offices and fees) Rules, 2014”

With amendment, Form INC – 7 discontinued. Though incorporation was with Central Registration Centre (CRC, Manesar), original and substituted rules retain drafting mistake and have mention jurisdictional registrar.

The proviso to Rules 9 is same as earlier as inserted with effect from 29^th May 2015, hence not reproduced and discussed here.

SPICe of Incorporation

The draft notification regarding the Companies (Incorporation) Amendment Rules, 2018 published here on MCA indicates an insertion of a clarification by way of a proviso in original [vii] Rule 38 of the Companies (Incorporation) Rules, 2014. Rule 38 deals with incorporation through SPICe Form INC – 32.  A second proviso is inserted after the first proviso to sub-rule (1):

“provided further that in case of incorporation of a company having more than seven subscribers or where any of the subscriber to the MOA/AOA is signing at a place outside India, MOA/AOA shall be filed with INC-32 (SPICe) in the respective formats as specified in Table A to J in Schedule I without filing form INC-33 and INC-34”

Amendment of Incorporation related Forms:

Newly substituted forms are RUN Form INC – 1, INC – 3, INC – 12, INC – 22, INC – 24, and INC – 32. Form s INC – 33 and INC – 34 amended to have mention word Form RUN in place of Form INC – 1.

Allotment of Director Identification Number

To reflect the fact that Director Identification Number (DIN) may be allotted with the incorporation of a company and the process of allotment of Director Identification Number (DIN) may run independently, the Marginal Heading of Rule 9 of the Companies (Appointment and Qualification of Directors) Rules 2014 is being changed.

The Marginal Heading of rule 9 shall be Application for allotment of Director Identification Number before appointment in an existing company.

The draft notification regarding the Companies (Appointment and Qualification of Directors) Amendment Rules, 2018 published here on MCA indicates substitution of original [viii] sub-rule (1) of Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014:

“Every applicant, who intends to be appointed as director of an existing company shall make an application electronically in Form DIR-3, to the central Government for allotment of a Director Identification Number (DIN) along with such fees as provided under the companies (Registration offices and Fees) Rules, 2014.

Provided that in case of proposed directors not having approved DIN, the particulars of maximum three directors shall be mentioned in Form No.INC-32 (SPICe) and DIN may be allotted to maximum three proposed directors through Form INC-32 (SPICe)”;”

The substituted sub-rule is as self-explanatory as earlier was.

Appointment WiTHOUT DIN possible

Newly inserted subclause (iiia) in clause (a) of sub-rule (3) of rule 9 makes it clear that allotment of a Director Identification Number shall not be possible without a proposed appointment in an existing company or in a company proposed to be incorporated. The proposed clause which read “board resolution proposing his appointment as director of an existing company” made a formal proposal of appointment in an existing company mandatory. This clause also makes it possible to propose a person without DIN to be a director in an existing company. This is an ease where companies need to put an appointment of a director on hold just for want of Director Identification Number.

One less Precertification

The draft notification regarding the Companies (Appointment and Qualification of Directors) Amendment Rules, 2018 published here on MCA indicates substitution of original [ix] Clause (b) sub-rule (3) of Rule 9 of the Companies (Appointment and Qualification of Directors) Rules, 2014:

“Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital signature certificate and shall be verified digitally by a company secretary in full time employment of the company or by the managing director or director or CEO or CFO of the company in which the applicant is intended to be appointed as director in an existing company.”

This substitution is doing away powers of a chartered accountant in practice or a company secretary in practice or a cost accountant in practice to verify Form DIR – 3. Though this will not add any significant ease to DIN allotment process, reduce a layer of check and balance.

Amendment in DIR Forms

Form DIR – 3 and Form DIR – 12 are substituted here with a missed opportunity to club proposed function of Form DIR – 3 with Form DIR – 12 and reduce a duplication of filing at the time of the appointment of a director.

Bibliography:

1. https://aishmghrana.me/ for various analyses on the corporate law.
2. The Companies Act, 2013 as amended
3. The Companies (Amendment) Act, 2017
4. The Companies (Registration Offices and Fees) Rules, 2014 as amended
5. the Companies (Registration Offices and Fees) Amendment Rules, 2018 as hosted at http://egazette.nic.in/WriteReadData/2018/182248.pdf and last accessed on 26^th January 2018 at 700 AM.
6. The Companies (Incorporation) Rules, 2014 as amended
7. Draft of the Companies (Incorporation) Amendment Rules, 2018 as hosted at http://www.mca.gov.in/Ministry/pdf/CompaniesIncorporationAmendmentRules2018_25012018.pdf and last accessed on 26^th January 2018 at 700 AM.
8. The Companies (Appointment and Qualification of Directors) Rules, 2014 as amended
9. Draft of the Companies (Appointment and Qualification of Directors) Amendment Rules, 2018 as hosted at http://www.mca.gov.in/Ministry/pdf/AppointmentQualificationDirectoramendmentrules2018_25012018.pdf and last accessed on 26^th January 2018 at 700 AM.

… … …

[i] Advance information dated 3^rd January 2018 placed on MCA website read as under:

“A new name reservation service is being developed and is likely to be deployed on 26th January, 2018. Therefore w.e.f. 00:00 hours of 06-01-2018, INC-1 will not be available on the MCA Portal. Stakeholders are advised to submit INC-1 application till 23:59 hours of 05-01-2018. Stakeholders who reserved names using INC-1 are requested to use SPICe for incorporation immediately. However, resubmission of INC-1 is allowed till 23:59 hours of 11-01-2018.

INC-7 form is likely to be discontinued w.e.f 10.01.2018. In case the name reserved using INC-1 is to be used for incorporation through SPICe form, users should file the form latest by 17.01.2018. It is requested that SPICe should be filed with due care which has to be completed latest by 24.01.2018. Stakeholders may plan accordingly.”

[ii] The substituted clause which was effect from 1st April 2018 till 25^th January 2018 is as under:

“(i) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.”

[iii] “Stakeholders may kindly note that a new web service “RUN” (Reserve Unique Name) for reserving name of proposed company and for changing name of existing company will be launched w.e.f. 26^th January 2018. Also, Forms SPICe(INC-32), SPICe MoA(INC-33), SPICe AoA(INC-34), INC-3, INC-22, INC 24, DIR-3, DIR-12 and GNL-1 will be revised on MCA21 Company Forms Download page. Stakeholders are advised to check the latest version of the form before filing.”

[iv] (I) In respect of a company having a share capital

1. b) For registration of OPC and small companies whose nominal share capital exceed Rs. 10,00,000 the fee of Rs. 2000 with the following additional fees regulated according to the amount of nominal capital shall for every Rs.10,000 of nominal share capital or part of Rs.10,000 after the first Rs.10,00,000 and up to Rs. 50,00,000 be Rs. 200.
2. For submitting, filing, registering or recording any document by this Act required or authorised to be submitted, filed, registered or recorded:
   …
   …

Provided that in case of companies to be incorporated with effect from 26.01.2018 with a nominal capital which does not exceed rupees ten lakhs fee shall not be payable.

(II) In respect of a company not having a share capital :

7. For registration of a company whose number of members as stated in the articles of association, does not exceed 20 – NIL
8. For filing or registering any document by this Act required or authorized to be filed or registered with the Registrar.
   …
   …
   Provided that in case of companies to be incorporated with effect from 26.01.2018 whose number of members as stated in the articles of association, does not exceed 20, fee shall not be payable.

[v] “An application for the reservation of a name shall be made in Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 which may be approved or rejected, as the case may be, by the Registrar, Central Registration Centre.” – from 26^th January 2016 till 25th January 2018

AND

“An application for the reservation of a name shall be made in Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.”- From  1^st April 2014 to25th January 2018.

[vi] “An application shall be filed, with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.lNC-7 (Part I company and company with more than seven subscribers) and Form No,lNC-32 (SPICe) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 for registration of a company” – from 1^st January 2017 till 25th January 2018

AND

“An application shall be filed, with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated, in Form No.INC.2 (for One Person Company) and Form no. INC.7 (other than One Person Company) along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 for registration of a company” – From  1^st April 2014 to 31^st December 2016.

[vii] “38. Simplified Proforma for Incorporating Company Electronically (SPICe).-

(1) The Application for incorporation of a company under this rule shall be in FORM No INC-32 (SPICe) along with e-Memorandum of Association (e-MOA) in Form No INC-33 and e-Articles of association (e-AOA) in Form No INC-34.

Provided that in case of incorporation of a company falling under section 8 of the Act, FORM No INC-32 (SPICe) shall be filed along with FORM No. INC-13 (Memorandum of Association) and FORM No. INC-31 (Articles of Association) as attachments.

(2) For the purposes of sub-rule (1), the application for allotment of Director Identification Number up to three Directors, reservation of a name, incorporation of company and appointment of Directors of the proposed for One Person Company, private company, public company and a company falling under section 8 of the Act Shall be filed in FORM No. INC-32 (SPICe), with the Registrar, within whose jurisdiction the registered office of the company is proposed to be situated along with the fee of rupees five hundred in addition to the registration fee as specified in the Companies (Registration of Offices and Fees) Rules. 2014:

Provided that where an applicant has applied for reservation of a name under Rule 9 and which has been approved therein, he may fill the reserved name as proposed name of the company.

(3)  For the purposes of filing SPICe Form, the particulars of maximum of three directors shall be allowed to be filled in FORM No INC-32 (SPICe), and allotment of Director Identification Number of maximum of three proposed directors shall be permitted in FORM No INC-32 (SPICe) in case of proposed directors not having approved Director Identification Number.

(4) The promoter or applicant of the proposed company shall propose only one name in FORM NO. INC-32 (SPICe).

(5) The promoter or applicant of the proposed company shall prepare Memorandum of Association (e-MoA) in FORM No. INC-33 and Articles of Association (e-AoA) in FORM No. INC-34, in accordance with rule 13.

Provided that the subscribers and witness or witnesses shall affix their digital signatures to the e-MoA and e-AoA.

(6)  For incorporation using application as provided in this rule, provisions of the sub-clause (i) of sub-section (5) of section 4 of the Act, rule 9, and clause (a) of sub-rule (1) of rule 16 to the extent of affixing recent photograph shall not apply.

(7)  A company using the provisions of this rule may furnish verification of its registered office under sub-section (2) of section 12 of the Act by filing FORM No INC-32 (SPICe) in which case the company shall attach along with such FORM No lNC-32 (SPICe), any of the documents referred to in sub-rule (2) of rule 25.

(8)  FORM No lNC-22 shall not be required to be filed in case the proposed company maintains its registered office at the given correspondence address.

(9) (a) Where the Registrar, on examining FORM No INC-32 (SPICe), finds that it is necessary to call for further information or finds such application or document to be defective or incomplete in any respect, he shall give intimation to the applicant to remove the defects and re-submit the e-form within fifteen days from the date of such intimation given by the Registrar.

(b) After the resubmission of the document, if the registrar still finds that the document is defective or incomplete in any respect, he shall give one more opportunity of fifteen days to remove such defects or deficiencies.

 Provided that the total period for re-submission of documents shall not exceed thirty days.

 (10) The Certificate of Incorporation of company shall be issued by the Registrar in Form No. INC-11.”

– From 1^st January 2017 to 25^th January 2018

There was another version of Rule 38 was in effect from 1^st October 2016 to 31^st December 2016.

[viii] “Every individual, who is to be appointed as director of a company shall make an application electronically in Form DIR-3, to the Central Government for the allotment of a Director Identification Number (DIN) along with such fees as provided in the Companies (Registration Offices and Fees) Rules, 2014” – From  1st April 2014 to 25th January 2018.

[ix] “Form DIR-3 shall be signed and submitted electronically by the applicant using his or her own Digital Signature Certificate and shall be verified digitally by –

(i) a chartered accountant in practice or a company secretary in practice or a cost accountant in practice; or

(ii) a company secretary in full time employment of the company or by the managing director or director of the company in which the applicant is to be appointed as director.”

– From  1st April 2014 to 25th January 2018.