Compliance Monitoring System by Ministry of Corporate Affairs

Compliance Monitoring System introduced by Ministry of Corporate Affairs

Compliance Monitoring System by MCA:

The Ministry of Corporate Affairs has recently introduced a new Artificial Intelligence based system for ensuring compliance of laws and provisions by the companies in India. This system is called as the Compliance Monitoring System that works on the online tracing mechanism. It is basically introduced to automatically detect the non-compliances by a business firm. It also digitally issues and sends the non-compliancy show cause notices to defaulters making the whole process online and very easy. Even the reply for such a notice is to be filed by the defaulter through online mode.

Aims and objectives for introduction of Compliance Monitoring System:

The Ministry of Corporate Affairs had a broad aim and objective behind introducing the Compliance Monitoring System in India-

  • For preventing the shell companies to foster.
  • For detecting any non-compliance at an early stage.
  • For issuing show cause notices to defaulter directors or companies at the right time,
  • For increasing the overall compliance level in the whole country.
  • For providing the defaulter companies or directors to reply for the show cause notice issued to them through online mode.
  • For avoiding any negligence in applicability of the provisions of Companies Act, 2013 while incorporation or the annual compliance filing.

Need for Compliance Monitoring System:

An A.I. based universal Compliance Monitoring System is required in a country as populated as India for the following reasons-

  • There were a large number of non-compliance cases in India. The companies used to delay compliance for various reasons. These were either detected after the burst of some bigger scam or in most cases was undetected by the authority.
  • In a country where there are more than 14 lakhs of companies monitoring the compliance through manual methods and ways is very difficult and time constraining. Method of traditional scrutiny is not a viable option here.
  • Compliance Monitoring helps in detecting the non-compliance cases.
  • It issues the show cause notices to defaulters as when required and even when the number of defaulters are at large numbers.

Show-Cause Notice issued Compliance Monitoring System:

If a company or its directors fail to fulfill the compliance requirements or to file the annual compliances as per the ROC Compliance Checklist timely, then the Ministry of Corporate Affairs through the Compliance Monitoring System portal issues a show-cause notice through the emails to the defaulters either it be a company or directors or company secretaries. The following are the details are mandatory to be mentioned on show cause notice-

  • It shall bear a CMS Reference Number making it unique for each defaulter and to ease the process.
  • Nature of the non-compliance.
  • Section or provision under which it has been issued.
  • Last date for submitting a reply for such notice.

Procedure for replying a show cause notice issued by Compliance Monitoring System– The defaulter who has been issued a show cause notice is required to file a reply through online mode against it within 15 days of issuing date of the notice. The procedure is very simple to follow to submit the reply.

  • Login to the Compliance Monitoring System portal of the MCA.
  • Click the Reply to Show Cause Notice tab.
  • In the portal, provide the CMS Reference Number.
  • An OTP will be generated and will be sent to the registered mail id.
  • Put in the OTP sent to you.
  • Reply the for the notice in about less than 500 words. But, if the reply crosses the recommended limit print it on a company letter head, authenticate it by the director or member of the company and share it as an attachment on the portal.
  • Submit the reply.
  • Record all the acknowledgements for future references.
  • Non-submission of reply is taken and assumed as the company has nothing to say or validate its reason for non-compliance. Which makes it liable to punishments and penalties under the companies act.

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    Author: Anil Agrawal
    EZYBIZ India Consulting LLP, New Delhi. The firm is business and tax consultancy firm providing consultancy in Taxation, Regulatory, Transfer pricing, Valuation, Corporate funding and Business set up matters. He may be reached at 9899217778 or anil@ezybizindia.in.