Thousands of start-ups are incorporated every week in India. There are various online and offline consultants who help the start-ups getting registered. But often it’s found they have little knowledge of the trade and they give wrong documents/information during incorporation. The promoters having the belief that their consultants have the expertise never cross check whether they are doing this in the correct way. The result is that hundreds of start-ups are registered in an improper way.

 

Now one may wonder after receiving the Certificate of Incorporation from the Ministry of Corporate Affairs can anybody find out the wrong? The answer is Yes. The Ministry by itself or on an advice of a whistle blower can make due diligence of the documents and information filed during incorporation. If a malpractice is found then it can start proceeding under Section 7(6) of Companies Act, 2013 which reads as-

 

“at any time after the incorporation of a company, it is proved that the company has been got incorporated by furnishing any false or incorrect information or representation or by suppressing any material fact or information in any of the documents or declaration filed or made for incorporating such company, or by any fraudulent action, the promoters, the persons named as the first directors of the company and the persons making declaration under clause (b) of subsection (1) shall each be liable for action under section 447”

 

Section 447 of Companies Act 2013 deals with punishment for performing fraudulent activities. Out of many things it states that any person found guilty of fraud can be punished with an imprisonment term that can extend up to 10 years and shall be liable to pay fine which may be three times amount involved in the fraud.

 

Now even if the start-up thinks of applying to National Company Law Tribunal or NCLT against such an order there is no guarantee of relief. If the NCLT up hold the order of the Ministry then the company will be punishable under Section 7(7) of Companies Act, 2013. The Bench can do any of the following-

– pass such orders including changes, if any, in its memorandum and articles;
– direct that liability of the members shall be unlimited i.e. the personal property of the promoters to be attached;
– direct removal of the name of the company from the register of companies i.e. striking it off or pass an order for the winding up of the company;
– pass such other orders as it may deem fit.

 

All in all its of paramount importance that a startup hires a good consultant with sufficient expertise in this domain who shall guide him or her to a proper and compliant way of registration. This will not only serve the purpose but also help the promoters in focusing on the core operations rather than regulatory hassles.

 

We at Taxmantra.com have helped in incorporation of thousands of startup. Our in-house team of experts shall be glad to assist you to register your startup in a compliant way. Do drop a line at Taxmantra.com-Start Your Business We shall reach back to you at the earliest.