Government Companies, Registration Offices, Statistics and Nidhis

Section 394(1): where the Central Government is a member. It shall cause an annual report on the working and affairs of the company to be:

• (a) prepared within three months of the annual general meeting before which the comments of the Comptroller and Auditor-General of India and the audit report are placed under the proviso to section 143(6); and
• (b) as soon as may be after that, laid before both Houses of Parliament, together with a copy of the audit report and the Comptroller and Auditor-General's comments upon or supplement to it.

Section 394(2). Where a State Government is also a member, that State Government shall cause a copy of the same annual report, with the audit report and comments, to be laid before the House or both Houses of the State Legislature.

Section 395(1): where the Central Government is not a member. Every State Government which is a member, or the only State Government which is, shall cause the annual report to be prepared within the time specified in section 394(1) and laid before the House or both Houses of the State Legislature with the audit report and comments.

Section 395(2). Sections 394 and 395 apply, so far as may be, to a Government company in liquidation as they apply to any other.

Note the three points that decide a question on these sections. The report is on the working and affairs, not merely the accounts; the trigger for the three months is the annual general meeting at which the Comptroller and Auditor-General's comments are placed; and the forum is Parliament, the State Legislature, or both, according to who the members are.

Registration offices: section 396

Section 396(1). For exercising the powers and discharging the functions conferred on the Central Government by or under this Act, and for the registration of companies, the Central Government shall, by notification, establish such number of offices at such places as it thinks fit, specifying their jurisdiction.

Section 396(2) and (3). It may appoint such Registrars, Additional, Joint, Deputy and Assistant Registrars as it considers necessary, whose powers and duties, terms of service and salaries are as prescribed.

Section 396(4). It may direct a seal or seals to be prepared for the authentication of documents required for or connected with the registration of companies.

The Registrar's records as evidence: sections 397 and 399

Section 397. Notwithstanding any other law, any document reproducing or derived from returns and documents filed with the Registrar, on paper or in electronic form, or stored on any electronic data storage device or computer readable media by the Registrar, and authenticated by the Registrar or an officer empowered by the Central Government in the prescribed manner, is deemed to be a document for the purposes of this Act and is admissible in any proceedings under it without further proof or production of the original, as evidence of the contents of the original or of any fact stated in it of which direct evidence is admissible.

Section 399(1): inspection. Save as otherwise provided, any person may (a) inspect by electronic means any documents kept by the Registrar which were filed or registered under this Act or which record a fact required to be recorded, on payment of the prescribed fees; and (b) require a certificate of incorporation of any company, or a certified copy or extract of any other document, on payment in advance of the prescribed fees.

The proviso restricts two classes. In relation to documents delivered with a prospectus under section 26, and to documents delivered under section 388(1)(b) for a foreign company's prospectus, the right is exercisable only during the fourteen days beginning with the date of publication of the prospectus, or, at other times, with the permission of the Central Government.

Section 399(2): compelling production. No process for compelling the production of any document kept by the Registrar shall issue from any court or the Tribunal except with the leave of that court or Tribunal, and any such process shall bear a statement that it is issued with leave.

Section 399(3): certified copies. A copy of or extract from any document kept and registered at any registration office, certified to be a true copy by the Registrar, whose official position need not be proved, is admissible in all legal proceedings as of equal validity with the original.

Electronic filing: sections 398, 400, 401 and 402

Section 398(1). Notwithstanding anything to the contrary in this Act, and without prejudice to section 6 of the Information Technology Act, 2000, the Central Government may make rules requiring, from a prescribed date, that:

• (a) applications, balance sheets, returns, declarations, memoranda, articles, particulars of charges and other documents be filed in electronic form and authenticated as prescribed;
• (b) documents, notices and communications required to be served or delivered be so in electronic form;
• (c) such documents be maintained by the Registrar in electronic form and registered or authenticated as prescribed;
• (d) inspection of documents maintained electronically be made through the electronic form;
• (e) fees, charges and other sums be paid through the electronic form; and
• (f) the Registrar register changes of registered office, alterations of memorandum or articles, issue certificates of incorporation, record notices and discharge his other functions in electronic form.

The Explanation clarifies that rules under the section shall not relate to the imposition of fines or other pecuniary penalties, or to the demand or payment of fees, or to contravention of the Act or punishment for it.

Section 398(2). The Central Government may frame a scheme by notification to carry the sub-section into effect.

Section 400. The rules may provide that the electronic form shall be exclusive, or in the alternative, or in addition to the physical form.

Section 401. The Central Government may provide value added services through the electronic form and levy the prescribed fee.

Section 402. All the provisions of the Information Technology Act, 2000 relating to electronic records, including the manner and format of filing, apply to records in electronic form under section 398 so far as they are not inconsistent with this Act.

Fees: sections 403 and 404

Section 403(1). Any document required to be submitted, filed, registered or recorded, or any fact or information required to be registered, shall be so within the time specified in the relevant provision, on payment of the prescribed fee.

The proviso, which is where the additional fee lives. Where a document, fact or information required under section 92, the annual return, or section 137, the filing of financial statements, is not filed within the period provided in those sections, it may be filed after the expiry of that period on payment of such additional fee as may be prescribed, without prejudice to any other legal action or liability under the Act.

Section 404. All fees, charges and other sums received by any Registrar or other officer of the Central Government under this Act shall be paid into the public account of India in the Reserve Bank of India.

Compare section 349, which does the same for an Official Liquidator's receipts.

Information and statistics: section 405

Section 405(1). The Central Government may, by order, require companies generally, or any class of companies, or any company, to furnish such information or statistics with regard to their constitution or working, within such time as may be specified.

Section 405(2). Every such order shall be published in the Official Gazette, and the date of publication is deemed to be the date on which the requirement is made.

Section 405(3). To satisfy itself that the information furnished is correct and complete, the Central Government may require the company to produce records or documents in its possession, allow inspection by an officer, or furnish further information.

Section 405(4): the penalty. Failure to comply with an order under sub-section (1) or (3), or furnishing information or statistics incorrect or incomplete in any material respect, makes the company and every officer in default liable to a penalty of twenty thousand rupees, and for a continuing failure a further one thousand rupees for each day after the first, subject to a maximum of three lakh rupees.

Section 405(5). Where a foreign company carries on business in India, references to a company in the section include the foreign company in relation, and only in relation, to that business.

Nidhis: section 406

Section 406(1): the definition is an act of the Government. "Nidhi" or "Mutual Benefit Society" means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society.

Note the form of that definition. A company is not a Nidhi because of what it does; it is a Nidhi because it has been declared to be one.

Section 406(2). The Central Government may, by notification, direct that any provisions of this Act specified in it (a) shall not apply to a Nidhi or Mutual Benefit Society, or (b) shall apply with such exceptions, modifications and adaptations as are specified.

Section 406(3) and (4): parliamentary control. A copy of every notification proposed to be issued shall be laid in draft before each House of Parliament while it is in session for a total period of thirty days; and if both Houses agree in disapproving it, it shall not be issued, or if both agree in making a modification, it shall be issued only as so modified. In reckoning the thirty days, no account is taken of any period during which the House is prorogued or adjourned for more than four consecutive days.

Section 406(5). Copies of every notification issued shall, as soon as may be, be laid before each House of Parliament.

The scheme is the classic one of delegated legislation under parliamentary supervision, and the requirement that the draft be laid, and not merely the notification, is the strongest form of it.

A worked example

Konkan Power Development Limited has sixty per cent of its paid-up share capital held by the Central Government and fifteen per cent by the State Government of Maharashtra.

Is it a Government company? Yes. Not less than fifty-one per cent of the paid-up capital is held by the Central Government, so it is within section 2(45); and its subsidiary would also be a Government company.

Its annual report. Its accounts are audited by an auditor appointed on the Comptroller and Auditor-General's direction, and the Comptroller and Auditor-General's comments and the audit report are placed before the annual general meeting under the proviso to section 143(6). Within three months of that meeting the Central Government must cause an annual report on the working and affairs of the company to be prepared, and as soon as may be afterwards laid before both Houses of Parliament with the audit report and comments: section 394(1).

And in Mumbai. The State Government being also a member, it must cause a copy of the same annual report, with the audit report and comments, to be laid before the House or both Houses of the State Legislature: section 394(2).

A different shareholding. Had the Central Government held nothing and the State Government fifty-five per cent, the obligation would have fallen on the State Government alone under section 395(1), and the report would go only to the State Legislature. And if the company were in liquidation, sections 394 and 395 would apply to it as they apply to any other Government company.

Its filings. Every document it files goes to the Registrar of the office established for its jurisdiction under section 396, in electronic form as the rules under section 398 require, with fees paid electronically and the Registrar maintaining the record electronically.

Proving a filing later. In a suit five years afterwards a party wishes to prove the company's charge on its plant. A document reproduced or derived from what was filed, authenticated by the Registrar, is admissible without further proof or production of the original: section 397. A copy certified by the Registrar to be a true copy is admissible as of equal validity with the original, and his official position need not be proved: section 399(3). Should the party want the original produced, no process may issue except with the leave of the court or Tribunal, and the process must say that it was issued with leave: section 399(2).

Inspecting the file. Any person may inspect the Registrar's documents by electronic means on the prescribed fee, but the documents delivered with the company's prospectus under section 26 may be inspected only within fourteen days of the publication of the prospectus, or later with the Central Government's permission: proviso to section 399(1).

A late annual return. The company files its section 92 annual return two months late. It may still be filed, on payment of such additional fee as may be prescribed, without prejudice to any other legal action or liability: proviso to section 403(1). The fee, and every other sum the Registrar receives, goes into the public account of India in the Reserve Bank of India: section 404.

A demand for statistics. The Central Government, by an order published in the Official Gazette, requires all companies in the power sector to furnish information about their constitution and working within sixty days, the date of publication being deemed the date the requirement was made. The company returns figures that are materially incomplete. It and every officer in default are liable to a penalty of twenty thousand rupees, with one thousand rupees a day for a continuing failure, up to three lakh rupees: section 405(4). Had the company been a foreign company carrying on business in India, the section would have applied to it in relation to that business only.

A Nidhi. Separately, Sahyadri Mutual Benefit Limited applies to be treated as a Nidhi. It becomes one only when the Central Government declares it to be a Nidhi by notification in the Official Gazette: section 406(1). The Government may then, by notification, direct that specified provisions of the Act shall not apply to it, or shall apply with exceptions, modifications and adaptations; but the draft of that notification must be laid before each House of Parliament for thirty days, and if both Houses agree in disapproving it, it shall not be issued, or if both agree on a modification, it shall issue only as modified: section 406(2) and (3).

Distinctions that carry marks

What this does NOT mean

It does not mean a Government company's report goes only to Parliament. Where a State Government is also a member, a copy goes to the State Legislature as well; and where the Centre is not a member, it goes to the State Legislature alone.

It does not mean the report is about the accounts. It is an annual report on the working and affairs of the company, laid together with the audit report and the Comptroller and Auditor-General's comments.

It does not mean the original filing must always be produced. A document derived from it and authenticated by the Registrar is admissible without further proof or production of the original.

It does not mean anybody may inspect anything at any time. Documents delivered with a prospectus may be inspected only within fourteen days of its publication, or later with the Central Government's permission.

It does not mean electronic rules may create offences. The Explanation to section 398 excludes rules relating to fines, pecuniary penalties, the demand or payment of fees, contravention or punishment.

It does not mean a company becomes a Nidhi by carrying on that business. It becomes one when the Central Government declares it to be one by notification in the Official Gazette.

Quick revision

• 2(45), 394 and 395: a Government company is one in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, a State Government or Governments, or both, and includes its subsidiary; where the Central Government is a member it prepares an annual report on the working and affairs within three months of the annual general meeting at which the Comptroller and Auditor-General's comments and the audit report are placed, and lays it before both Houses of Parliament with them; a State Government which is also a member lays a copy before the State Legislature; where the Centre is not a member, every State Government which is does so; and the sections apply to a Government company in liquidation.
• 396: the Central Government shall, by notification, establish registration offices with specified jurisdictions, may appoint Registrars and Additional, Joint, Deputy and Assistant Registrars on prescribed powers and terms, and may direct seals for authentication.
• 397 and 399: a document reproducing or derived from filings and authenticated by the Registrar is deemed a document under the Act and admissible without further proof or production of the original; any person may inspect electronically on fees and obtain certified copies, save that documents filed with a prospectus under section 26 or section 388(1)(b) may be inspected only within fourteen days of publication or with the Central Government's permission; no process for production may issue without the leave of the court or Tribunal, and must say so; and a Registrar's certified copy is of equal validity with the original, his official position needing no proof.
• 398, 400, 401 and 402: the Central Government may require filing, service, maintenance, inspection, payment and the Registrar's own functions to be in electronic form, framing a scheme by notification; such rules may not relate to fines, penalties, fees or contraventions; the electronic form may be exclusive, alternative or additional; value added services may be provided on a fee; and the Information Technology Act, 2000 applies to the electronic records so far as consistent.
• 403 and 404: documents must be filed within the time specified on the prescribed fee, a document under section 92 or 137 being filable late on an additional fee without prejudice to other liability; and all fees, charges and sums received go into the public account of India in the Reserve Bank of India.
• 405: the Central Government may by order published in the Official Gazette require any or all companies to furnish information or statistics about their constitution or working, and may require records, inspection or further information to verify them; default or material incompleteness costs the company and every officer in default twenty thousand rupees, plus one thousand rupees a day, up to three lakh rupees; and the section applies to a foreign company in relation only to its Indian business.
• 406: a Nidhi or Mutual Benefit Society is a company declared to be one by the Central Government by notification; the Government may disapply or modify provisions of the Act for it; the draft notification must be laid before each House of Parliament for thirty days, and is not issued if both Houses disapprove, or issued only as modified if both agree on a modification, prorogation and adjournments of more than four consecutive days being excluded; and every notification issued must be laid before each House.

Test yourself

1. What is a Government company, and to whom is its annual report presented? A company in which not less than fifty-one per cent of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by each, including its subsidiary: section 2(45). Where the Central Government is a member, the report is laid before both Houses of Parliament; where a State Government is also a member, a copy is laid before the State Legislature; and where the Central Government is not a member, every State Government which is lays it before the State Legislature: sections 394 and 395.

2. Within what time must the report be prepared? Within three months of the annual general meeting before which the comments given by the Comptroller and Auditor-General of India and the audit report are placed under the proviso to section 143(6): section 394(1)(a).

3. Are the Registrar's records evidence? Yes. A document reproducing or derived from returns and documents filed with the Registrar, on paper or electronically, authenticated by the Registrar or an empowered officer, is deemed a document for the purposes of the Act and is admissible without further proof or production of the original: section 397. A copy certified by the Registrar is admissible as of equal validity with the original, and his official position need not be proved: section 399(3).

4. May a court compel production of a document kept by the Registrar? Only with leave. No process for compelling production shall issue from any court or the Tribunal except with the leave of that court or Tribunal, and any such process shall bear a statement that it is issued with leave: section 399(2).

5. What is the penalty for failing to furnish information or statistics? The company and every officer of the company who is in default are liable to a penalty of twenty thousand rupees, and for a continuing failure a further one thousand rupees for each day after the first, subject to a maximum of three lakh rupees: section 405(4). Furnishing information incorrect or incomplete in any material respect attracts the same penalty.

6. How does a company become a Nidhi, and what follows? It becomes a Nidhi or Mutual Benefit Society when the Central Government, by notification in the Official Gazette, declares it to be one: section 406(1). The Government may then direct by notification that specified provisions of the Act shall not apply to it, or shall apply with exceptions, modifications and adaptations, the draft being laid before each House of Parliament for thirty days and being withheld if both Houses disapprove or modified if both agree on a modification: section 406(2) and (3).