MCA Imposes Rs.2.5 Lakh Penalty on Company for Not Filing Form INC-20A

In a recent adjudication order, the Registrar of Companies (RoC), Hyderabad, under the Ministry of Corporate Affairs (MCA), imposed a penalty of ₹2,50,000 on a Small Private Limited Company along with its four defaulting directors. The penalty was levied for failure to comply with Section 10A of the Companies Act, 2013, which mandates the declaration of commencement of business within 180 days of incorporation.

This case serves as a stark reminder to startups and newly incorporated entities: Failing to meet basic compliance obligations can result in serious financial and legal consequences. Let’s break down what happened, the legal framework behind it, and the key takeaways for new companies.

What Is Form INC-20A and Why Is It Important?

Form INC-20A is a statutory declaration required to be filed by every company (having share capital) incorporated on or after 2nd November 2018, under Section 10A of the Companies Act, 2013.

This form essentially confirms two things:

1. That each subscriber to the company’s Memorandum of Association has paid for the shares they agreed to take; and
2. The company is ready to start business activities or borrow funds.

This form must be filed within 180 days of incorporation. Until this declaration is submitted:

• The company cannot legally commence business.
• It cannot borrow money or raise funds.
• Banks may refuse to activate accounts without the filing.

Failure to submit this form within the deadline can lead to penalties, disqualification of directors, and, in some cases, even strike-off of the company by the RoC.

Details of the Case: Abhayahastha Information Services Pvt. Ltd.

• Name of the Company: Abhayahastha Information Services Private Limited
• Date of Incorporation: 18th October 2021
• Location: Hyderabad
• Jurisdiction: RoC Hyderabad
• Default: Failed to file Form INC-20A within 180 days from the date of incorporation
• Nature of Violation: Failure to file Form INC-20A within 180 days of incorporation
• Governing Provision: Section 10A(1) read with Section 454 of the Companies Act, 2013

Despite being legally required to file INC-20A by around 15th April 2022, the company failed to comply. The RoC even gave the company a reasonable opportunity to rectify the issue by issuing notices, but received no response or corrective action.

Penalty Details

Given the clear default, the Adjudicating Officer at RoC Hyderabad invoked powers under Section 10A(2) read with Section 454 of the Companies Act, 2013, to impose penalties on both the company and its responsible directors.

The order also stated that the directors must pay the penalty from their personal income, not from company funds.

The penalty must be deposited on the MCA21 portal within 90 days, and proof must be submitted via Form INC-28. Failure to do so can result in additional legal complications.

Legal Provisions Involved

Section 10A(1) – Declaration of Commencement of Business

This section mandates every company with share capital incorporated on or after 2nd November 2018 to file Form INC-20A within 180 days of incorporation. Non-compliance triggers:

• A fine of ₹50,000 on the company, and
• A fine of ₹1,000 per day (capped at ₹1 lakh) on each officer in default.

Section 10A(2) – Power to Act on Non-Compliance

This gives the Registrar the authority to initiate action for non-compliance, including recommending the strike-off of the company under Section 248 if it has not commenced business.

Section 454 – Adjudication of Penalties

This allows the RoC to act as an adjudicating authority, conducting a review and imposing penalties without the need for court intervention.

Appeal Provision

If the company or its directors wish to appeal the RoC’s order, they can do so under Section 454(5) by:

• Filing Form ADJ within 60 days of receiving the order
• Submit a certified copy of the order to the Regional Director (South East Region), Hyderabad

However, unless strong and valid reasons are presented, such appeals rarely succeed in obvious default cases.

Why Is This Case Important?

This is not an isolated incident. Several companies have been penalised, struck off, or faced long-term compliance issues for missing this simple yet crucial filing. What makes this case notable is:

• The strict action taken even against a small company proves that the law applies uniformly
• The financial burden imposed on individual directors
• The avoidable nature of the entire issue—it could have been resolved by simply filing one form on time.

Compliance Lessons for New Companies

Starting a business doesn’t end with incorporation. In fact, it’s just the beginning. New companies must follow a set of legal and financial compliance steps to operate smoothly.

Key Compliance Requirements After Incorporation:

• File Form INC-20A (Declaration of Business Commencement) within 180 days
• Verify Registered Office by filing Form INC-22, if not done during incorporation
• Open a bank account in the company’s name
• Receive subscription money from shareholders
• Appoint the first auditor within 30 days and file Form ADT-1
• Hold the first Board Meeting within 30 days
• Maintain statutory registers (Register of Members, Directors, etc.)
• Apply for PAN, TAN, and GST (if applicable)
• Ensure compliance with labour laws, PF/ESI registration (if hiring staff)
• Keep up with annual filings like Form AOC-4 and MGT-7

Conclusion

The penalty imposed on Abhayahastha Information Services Pvt. Ltd. is a clear example of how ignoring even basic compliance steps can lead to significant financial and reputational damage. For startups and small companies, the cost of non-compliance far outweighs the cost of timely filings. 

Remember: Incorporating a company is easy, but staying compliant is what keeps you in business.

Don’t let avoidable delays or lack of awareness harm your entrepreneurial journey. Act early, stay informed, and get the right support to keep on the right side of the law.

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At IndiaFilings, we understand how critical early-stage compliance is for your company's long-term success. That’s why we offer end-to-end support from incorporation to post-registration compliance.

With IndiaFilings, you get:

• Step-by-step guidance on Form INC-20A and other filings
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• Filing support for appeals if a penalty has already been imposed

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