Between February 2026 and now, the Ministry of Corporate Affairs has quietly rewired how Section 185 of the Companies Act 2013 gets enforced. Through notifications dated 10 February 2026, the Registrars of Companies have been formally appointed as adjudicating officers under Section 454, which means a director loan flagged in your statutory audit no longer waits for the NCLT queue — the local ROC can issue a penalty order in weeks. The numbers are unforgiving: ₹5 lakh to ₹25 lakh on the company, the same fine plus up to six months imprisonment on every officer in default, and an identical fine plus jail on the director who received the loan. For private companies between ₹5 crore and ₹500 crore in revenue — the sweet spot where founder advances are most common — this is the single most dangerous provision in the Companies Act after Section 164 disqualification.

The problem: why founder-director loans keep triggering ₹25 lakh orders

The pattern is almost identical across every adjudication order published on the MCA portal in the last twenty-four months. A growing private company has positive cash on its books. The founder, who is also the managing director, takes a short-term loan from the company — sometimes to fund a personal property, sometimes to bridge a personal tax outgo, often simply because the founder treats the company’s account as their own. The transaction is recorded in the books, sometimes as a loan, sometimes as an “advance”. The statutory auditor flags it under Section 185 in the next audit. By then, the ROC has the matter on its desk and the penalty clock has started.

The misconception that drives most of these orders is that a private limited company can do whatever its shareholders agree to. That was broadly true under the 1956 Act. It is no longer true under the Companies Act 2013. The 2013 Act is a regulator-driven statute that treats every limited liability company as a separate legal person, distinct from its founders, even if a single individual holds 99 percent of the equity and is the sole working director. Section 185 is the most visible expression of this principle.

The second misconception is that the exemption notification dated 5 June 2015 covers all private companies. It does not. The exemption applies only where every one of three conditions is satisfied. Many growing private companies fail the second condition the moment they take a working-capital line from their bank that exceeds twice their paid-up share capital, or the moment a body corporate — even a sister LLP — subscribes to a single share.

The penalty matrix you should pin to your boardroom wall

The third row is the row most founders do not internalise. The recipient director is independently punishable. If the founder is also the MD, the same individual is hit twice — once as officer in default and once as recipient. In a husband-wife director pair where the loan is routed to the spouse, both individuals are independently liable.

The 2026 enforcement shift you cannot ignore

For most of the last decade, Section 185 violations sat in a long queue. The Adjudicating Officer was the Regional Director, and Regional Directorates were stretched. Three structural changes have closed that backlog window:

1. ROC adjudication powers — Notification dated 10 February 2026. The Ministry of Corporate Affairs has formally appointed every Registrar of Companies as an adjudicating officer under Section 454 for a long list of provisions, including Section 185. The ROC no longer has to refer minor and intermediate Section 185 violations upwards. It can issue show cause, hear the company and pass a penalty order — all within ninety days in most cases.
2. Three new Regional Directorates. The number of Regional Directorates has been expanded from seven to ten, with new offices in Ahmedabad, Bengaluru and Chandigarh effective 16 February 2026. For Bangalore-headquartered private companies, what used to be a Chennai-routed file now sits with the new RD Bengaluru, dramatically shortening the response window.
3. MCA-21 V3 search. The V3 portal exposes loan and advance entries from AOC-4 financials in a way the older portal did not. Statutory auditors are using these data trails during peer reviews, and the ICSI’s representation to the MCA dated 6 May 2026 confirms that AOC-4 disclosures are now the single most-queried data set in the portal.

What Section 185 actually prohibits, in plain words

Section 185(1), read together with its proviso and Section 185(2) as substituted by the Companies (Amendment) Act 2017, prohibits a company from doing any of these things, in favour of any director of the company, or of any director of its holding company, or any partner or relative of such director, or any firm in which any such director or relative is a partner:

• Directly or indirectly advancing a loan, including any loan represented by a book debt.
• Giving a guarantee in connection with any loan taken by the recipient from a third party.
• Providing any security in connection with such a third-party loan.

Section 185(2) extends the prohibition to loans to any private company in which any director of the lending company is a director or member, to any body corporate at a general meeting of which not less than 25 percent of the total voting power is exercised by such directors, and to any body corporate whose board, MD or manager is accustomed to act on the directions of the lending company’s board. Section 185(3) carves out exceptions for managing directors, ordinary course of business lending by financial companies, and wholly-owned subsidiary loans. Section 185(4) lays down the penalty regime.

The seven-step compliance test before approving any director loan

Skipping any step is how companies end up in the ROC’s penalty list. Step 3 is where most private companies fail. Step 7 is where most companies file the form but get the disclosure wording wrong.

The three exemption conditions, decoded

Condition A — No body corporate has invested in the share capital

The wording matters. The condition is breached the moment any other body corporate — Indian or foreign, holding, subsidiary or unrelated — subscribes to or acquires even a single share of the company. The most common trigger is a flip-up structure where the founder LLP takes equity in the operating private limited. Once the LLP is on the cap table, the exemption is gone, even if the founder still controls 99 percent through direct holding.

Condition B — Borrowings below 2× paid-up capital or ₹50 crore, whichever is lower

This is the bright-line condition most growing private companies cross unconsciously. A company with ₹50 lakh paid-up capital loses the exemption the moment its aggregate borrowings — including the bank overdraft, the working capital line and any loan from a related body corporate — cross ₹1 crore. The ₹50 crore alternative cap only matters for larger private companies; for a typical Series-A-stage private company with low paid-up capital, the 2× cap binds first.

Condition C — No default on any borrowing

A single missed instalment on the working capital loan — even one cured within the same week — disqualifies the company for the entire financial year in which the default occurred. Defaults in the past, if reported under any RBI mechanism, can also disqualify. Many companies discover this condition only after the auditor flags it during the AOC-4 sign-off.

Section 185 vs Section 186 — the most-confused pair in the Companies Act

If the recipient is a director or an entity in which a director is interested, Section 185 is the test that runs first. Only after a Section 185 carve-out is found — managing director scheme, wholly-owned subsidiary, special resolution under the substituted Section 185(2) — does Section 186 become the operative provision.

Five real fact patterns that have triggered Section 185 orders

1. The founder housing advance. Founder is MD and 99 percent shareholder. The company advances ₹40 lakh to the founder for buying a flat. There is no special resolution and no employment scheme. The auditor flags it. The ROC issues a penalty of ₹5 lakh on the company and ₹5 lakh on the founder personally.
2. The director’s HUF guarantee. Director’s HUF takes a bank loan. The company gives a corporate guarantee. The director is interested in the HUF. Section 185 is triggered. No carve-out applies. Penalty cascade follows.
3. The sister-concern loan. Two private companies have a common director. The first company lends ₹2 crore to the second. Section 185(2) is triggered. The lending company fails Condition B because its borrowings exceed 2× paid-up capital. Penalty orders are issued against both companies.
4. The advance that became a loan. The company gives the MD a ₹6 lakh travel advance. Two years pass without settlement. The auditor reclassifies it as a loan. The ROC accepts the reclassification. Penalty is applied even though no formal loan agreement existed.
5. The promoter LLP layer. Founder routes capital into the operating private limited through a promoter LLP. The LLP is a body corporate. Condition A is breached. Every subsequent loan to the founder from the company becomes a Section 185 contravention.

What the Companies (Amendment) Act 2017 actually changed

Two changes are worth memorising because they are the only legal escape routes outside the private-company exemption:

• Substituted Section 185(2). A company may now advance a loan or give a guarantee or security to any person in whom a director is interested, including a body corporate, provided that a special resolution is passed by the lending company and the loans are utilised by the borrower for its principal business activities. The interest rate must not be less than the prevailing yield of one-, three-, five- or ten-year government securities closest to the tenor of the loan.
• Section 185(3)(c) — wholly-owned subsidiary. The prohibition in Section 185(1) does not apply to a loan made by a holding company to its wholly-owned subsidiary or a guarantee given or security provided in connection with such a loan, regardless of whether the subsidiary’s directors overlap with the holding company.

Both routes still require board approval and MGT-14 filing within 30 days. The 2017 amendment did not relax the punishment under Section 185(4); it only opened the door for genuine business loans through the special-resolution route.

What you must do this quarter

1. Run a Section 185 ledger audit. Ask your finance team to extract every loan, advance and inter-company debit from your books for the last three financial years. Tag each line as covered by Section 185, exempt, or in the grey zone.
2. Test the exemption. Pull your shareholding register and your borrowing schedule. Confirm whether your company satisfied all three conditions of the 5 June 2015 notification on the date of each transaction. The test is transaction-by-transaction, not financial-year-by-financial-year.
3. Settle grey-zone advances. Where an advance has remained outstanding beyond a reasonable settlement period, either reverse it through reimbursement vouchers or convert it into a formal loan that meets the Section 185(2) special-resolution route, including the interest-rate floor.
4. File MGT-14 retrospectively where possible. If a board resolution exists but MGT-14 was missed, file it now with additional fees. Late filing is a lesser offence than non-filing.
5. Update your statutory registers. The Register of Loans (Form MBP-2) and the Register of Contracts (Form MBP-4) must reflect every Section 185 and Section 188 transaction. ROCs are increasingly inspecting these registers during scrutiny.
6. Brief your statutory auditor. A clean Section 185 file going into the audit is the single fastest way to neutralise auditor qualification under CARO 2020.
7. Build a board approval template. The board resolution wording must record the unanimous consent of directors present, the rate of interest, the security, the tenor and the purpose. Generic templates do not survive ROC scrutiny.

The deeper implication for founder-led private companies

According to CS Sapna Malpani, the reason Section 185 produces so many orders is not because companies set out to cheat — it is because the line between “the company’s money” and “the founder’s money” feels artificial when the founder owns 99 percent of the company. The 2013 Act does not accept that intuition. Once the limited liability shield is chosen, the corporate veil cuts both ways: the founder is protected from the company’s creditors, and the company’s money is protected from the founder. The penalty regime is the enforcement mechanism for that bargain.

The forward prediction worth tracking: within the next eighteen months, the new ROC-Bengaluru office is likely to clear a backlog of Section 185 cases against Bangalore-headquartered private companies that filed AOC-4 returns between 2019 and 2023. The disclosures in those returns are now searchable on the V3 portal. Founders who took inter-company loans during the funding boom of 2020–2022 should not assume that the absence of a show-cause notice today implies safety.

How this compares to related provisions every CS should know

Section 185 sits alongside three other Companies Act provisions that founders confuse with it. Section 184 deals with disclosure of interest by a director in any contract — including a director loan — and requires Form MBP-1 at the first board meeting of every financial year, plus immediate disclosure of any change in interest. Section 188 deals with related party transactions and requires board and shareholder approval for transactions beyond prescribed thresholds. Section 189 requires maintenance of a register of contracts in which directors are interested. A director loan typically triggers all four sections simultaneously: Section 184 (disclose interest), Section 185 (prohibition or carve-out), Section 188 (related party approval if outside the ordinary course) and Section 189 (record in the register). A clean compliance file addresses all four together.

Frequently Asked Questions

What is Section 185 of the Companies Act 2013

Section 185 prohibits a company from advancing any loan, providing any guarantee, or offering any security in connection with a loan, to its own directors or to any person in whom such directors are interested. The provision applies to all companies — private, public, and listed — though private companies meeting three specific conditions are exempt under the 5 June 2015 notification. Contravention attracts a fine of ₹5 lakh to ₹25 lakh on the company, plus the same fine plus up to six months imprisonment on every officer in default and on the recipient director.

Is a private limited company exempt from Section 185

Only if it satisfies all three conditions in the MCA exemption notification dated 5 June 2015: no other body corporate has invested in its share capital, its borrowing from banks, financial institutions and bodies corporate is less than twice its paid-up share capital or ₹50 crore (whichever is lower), and it has not defaulted on any borrowing. The moment any one of these conditions fails — including a single missed working-capital instalment — the exemption is lost and Section 185 applies in full.

Can a company give a loan to its managing director

Yes, but only where the loan to the managing director or whole-time director forms part of conditions of service extended to all employees (a uniform housing or vehicle scheme, for example), or where the loan is given pursuant to a scheme approved by the members through a special resolution. Outside these two routes, a loan to the managing director triggers Section 185 and the full penalty regime.

What is the difference between Section 185 and Section 186

Section 185 deals exclusively with loans, guarantees and securities given to directors and entities in which directors are interested — it is a prohibition with limited exceptions. Section 186 deals with loans, guarantees, securities and investments given to any person other than a director — it is a permission subject to limits, board approval and shareholder approval. Section 185 carries criminal consequences including imprisonment; Section 186 contraventions are civil and result in fines only. The Section 185 test runs first; only if cleared does Section 186 apply.

Can a holding company give a loan to its wholly-owned subsidiary

Yes. Section 185(3)(c), inserted by the Companies (Amendment) Act 2017, explicitly permits a company to advance a loan, give a guarantee or provide security to its wholly-owned subsidiary, even where the subsidiary’s directors overlap with the holding company. The transaction must still comply with Section 186 limits and board approval, and the subsidiary must use the funds for its principal business activities.

Does Section 185 apply to advances given to directors for company business

A bona fide advance for company expenditure — travel, hotel, vendor advances — does not amount to a loan under Section 185, provided it is properly accounted, supported by vouchers and reconciled. The risk arises when an advance remains unsettled for an unreasonable period or gets reclassified as a loan by the auditor.

Can Section 185 violations be compounded

Section 185 contraventions are not directly compoundable because the offence carries imprisonment as a possible punishment, and compounding under Section 441 is generally limited to fine-only offences. The practical route is either a Special Court closure on refund of the loan with interest, or post-facto ratification through a special resolution where the underlying transaction itself qualifies for the substituted Section 185(2) route.

What is the latest ROC adjudication position on Section 185

Following notifications dated 10 February 2026, every Registrar of Companies is now an adjudicating officer under Section 454 for a wide list of provisions including Section 185. This shortens the gap between show cause and order — typically to 90 days. Three new Regional Directorates in Bengaluru, Ahmedabad and Chandigarh, effective 16 February 2026, have added capacity to clear the backlog. Companies with historical Section 185 grey areas should expect faster scrutiny.

Sources and references

1. India Code — Companies Act 2013, Section 185 (Bare Act)
2. MCA Notification dated 5 June 2015 — Exemptions to Private Companies
3. MCA — ROC Adjudication Orders portal
4. MCA Notifications dated 10 February 2026 — ROC adjudication powers under Section 454
5. ICSI Representation to MCA dated 6 May 2026 — MCA-21 V3 portal issues
6. Khaitan & Co — Related Entity Lending: Section 185 and 186 Conundrum
7. TaxGuru — Section 185 exemptions and examples
8. Vinod Kothari — Companies (Amendment) Act 2017 — Section 185 and 186 relief

Disclaimer: This article is for general information for Indian private companies, startups and IPO-bound entities. It is not legal advice. Section 185 outcomes depend on transaction-specific facts and the prevailing position of the Registrar of Companies. Consult a Practising Company Secretary or counsel before acting.

By CS Sapna Malpani · Practising Company Secretary, Bangalore · 15 May 2026 · 12 minute read

In April 2025, the ROC Hyderabad slapped an adjudication penalty on a mid-sized private company and its directors for failing to mention the particulars of a ₹4.2 crore loan to a subsidiary in the Board’s Report. The amount that should have been a one-line disclosure became a public order, a permanent dent on the directors’ compliance record, and a quiet warning to every founder running a multi-entity startup: Section 186 of the Companies Act 2013 is no longer a sleeping section. It is the most enforced inter-corporate compliance provision in India today, and a startling number of Indian companies are violating it without realising.

The Problem: Why Section 186 Is Quietly Sinking Indian Startups

Walk into any funded startup in Bangalore, Mumbai or Gurgaon and you will find the same picture. The flagship operating company has multiple subsidiaries: one for technology, one for a marketplace, one for a special licence, one for a foreign acquisition. The parent moves money around like petty cash. ₹50 lakh to fund the subsidiary’s payroll. A corporate guarantee for the subsidiary’s office lease. An investment in a sister company because the auditor said it was needed.

Each of these movements is a Section 186 transaction. Each one needs a board resolution, a calculation of the headroom available under the 60% rule, and a disclosure in the Board’s Report. In ten years of practice, I have seen this section violated more than any other in the Companies Act 2013 — and I have seen the consequences play out painfully when a Series B investor’s due diligence team finds the gap.

The hard truth is this: a single uncorrected Section 186 violation has blocked at least three Bangalore fundraises in the last 18 months that I am personally aware of. Founders had to issue indemnities, redo board resolutions retroactively (often impossible), and in two cases the deal closed at a lower valuation because the investor priced in the regulatory risk.

This guide is the deep-dive every founder, director and CFO should bookmark. It is built from the bare provision in India Code, the latest ROC adjudication orders, and the Cyril Amarchand Mangaldas analysis of the section. By the end of it, you will know exactly what to do before, during and after any inter-corporate transaction.

The Penalty Matrix at a Glance

A single inter-corporate loan above the limit, without a special resolution, with no MGT-14, and missed from the Board’s Report can therefore trigger penalties exceeding ₹10,00,000 across overlapping provisions — plus the very real risk of imprisonment for the officer in default.

What Section 186 Actually Says

Section 186 of the Companies Act 2013 is titled “Loan and investment by company“. It governs four kinds of transactions a company may enter into with any other body corporate or person:

1. Loans granted to any person or body corporate
2. Guarantees given on behalf of any person or body corporate
3. Securities created in connection with a loan to any person or body corporate
4. Investments by way of subscription, purchase or otherwise in the securities of any body corporate

The section sits between Section 185 (loans to directors and connected persons) and Section 187 (investments to be held in company’s own name). All three together form what practitioners call the “capital movement triad” — the legal architecture for how money moves out of a company and into another entity.

The objective of Section 186 is twofold. First, it prevents diversion of company funds into unrelated ventures without shareholder approval. Second, it ensures that the lending company itself does not become a captive financier for promoters and group entities at the cost of minority shareholders and creditors. The 60% / 100% rule is the mathematical expression of this protective philosophy.

The 60% / 100% Calculation Rule, Explained Step by Step

Under Section 186(2), a company cannot, directly or indirectly, do any of the following without a prior special resolution if the aggregate of existing and proposed exposure exceeds the prescribed limit:

• Give any loan to any person or other body corporate
• Give any guarantee or provide security in connection with a loan to any other body corporate or person
• Acquire by way of subscription, purchase or otherwise, the securities of any other body corporate

The prescribed limit is the higher of two amounts:

Worked example. Consider a Bangalore-based private company with:

• Paid-up share capital: ₹10 crore
• Free reserves: ₹6 crore
• Securities premium account: ₹4 crore

Under formula (a): 60% of (10 + 6 + 4) = 60% of ₹20 crore = ₹12 crore

Under formula (b): 100% of (6 + 4) = ₹10 crore

Limit = Higher of the two = ₹12 crore.

Until aggregate exposure reaches ₹12 crore across all loans, guarantees, securities and investments combined, the board can sanction with a unanimous board resolution. The moment a proposed transaction takes the aggregate beyond ₹12 crore, the company needs a prior special resolution in a general meeting plus a Form MGT-14 filing under Section 117.

Two operational nuances that catch companies out:

1. “Free reserves” excludes revaluation reserve and unrealised gains. Refer to the definition in Section 2(43) read with Rule 6 of the Companies (Specification of Definitions Details) Rules, 2014. Many CFOs include the wrong reserves and overstate their headroom.
2. The aggregate is cumulative and continuous. A guarantee given two years ago, still alive on the balance sheet, counts toward today’s limit. Companies that drop expired guarantees from their internal register often miscalculate available room.

The Compliance Flowchart Every Founder Should Pin to Their Wall

The Two-Layer Rule: Section 186(1)

Section 186(1) imposes a separate structural restriction. A company cannot make any investment through more than two layers of investment companies. The objective is to prevent the use of multi-layered holding structures to obscure ultimate ownership and movement of funds — a problem that the Sahara case and several other earlier scandals had brought to light.

What counts as an “investment company”? Rule 2(1)(c) of the Companies (Restriction on Number of Layers) Rules, 2017 defines an investment company as a company whose principal business is acquisition of shares, debentures or other securities. The first investee operating company does not count as a “layer”. The second and subsequent levels of pure-play holding structures do count.

Two important exemptions, introduced by the Companies (Amendment) Act, 2017:

• Foreign acquisition: A company may acquire any other foreign company that has investment subsidiaries beyond two layers, as per the laws of the foreign country
• Compliance requirement: A subsidiary may have any other investment subsidiary for the purposes of meeting the requirements of any law or rule for the time being in force

For Indian startups with ESOP trusts, EMI subsidiaries, IFSC GIFT City entities, or foreign acquisitions, this is a live design question. The structure must be audited by a Practising Company Secretary before incorporation, not after.

The Interest Rate Floor: Section 186(7)

Section 186(7) requires that no loan be given at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan. This is the provision most often violated by group lending in startup holding structures.

For example, if a holding company gives a three-year loan of ₹2 crore to its sister operating company at 6% per annum, but the current three-year G-Sec yield is 7.1%, the loan violates Section 186(7). The fact that the loan is to a group entity is irrelevant — the floor applies universally except where a specific exemption (such as the wholly-owned subsidiary carve-out for principal business activity) is available.

The current G-Sec yields can be checked on the RBI website or the CCIL daily yield curve. For ongoing loans, the rate at the time of grant of the loan is what matters; subsequent yield changes do not retroactively make the loan compliant or non-compliant.

The Exemptions: Who Is Outside Section 186

Section 186(11) carves out three principal categories of companies and transactions from the limits prescribed in Section 186(2) and (3) — though disclosure and interest-rate requirements continue to apply:

1. Banking companies, insurance companies, housing finance companies, and certain NBFCs in the ordinary course of their business
2. Loans, guarantees and securities given by a holding company to its wholly-owned subsidiary, joint venture, or in respect of a loan made by any other person to its wholly-owned subsidiary — provided the funds are used for the subsidiary’s principal business activity
3. Acquisition by a holding company by way of subscription, purchase or otherwise, of the securities of its wholly-owned subsidiary

The wholly-owned subsidiary exemption is the one most relevant to startups. But it is conditional. The funds must be used for the principal business activity of the subsidiary. If a holding company lends to its WOS and the WOS in turn parks the money in a fixed deposit or lends it onward to a third party, the exemption falls away and Section 186 applies retrospectively from the date of the original loan. Practising Company Secretaries see this issue come up repeatedly in funded startup audits.

Section 185 vs Section 186: Stop Confusing These Two

This is the single most common conceptual error in private company compliance. Section 185 and Section 186 govern different kinds of transactions, but founders treat them as interchangeable. Here is the clean distinction:

Some transactions touch both sections. A loan from a private company to its subsidiary in which the holding company’s director is a director (and that director holds more than 2% in the subsidiary) is a Section 185 transaction in form and a Section 186 transaction in substance. Both compliances must be done. Skipping either gets the company on the wrong side of an enforcement action that is virtually un-fixable retrospectively.

For the Section 185 deep-dive, see our companion guide on Section 185: loans to directors.

What You Must Do Now: A Step-by-Step Compliance Plan

For every existing or proposed inter-corporate transaction, run the following sequence. This is the same sequence I use with founder clients and the same sequence due diligence teams use to flag gaps.

Step 1: Build the Section 186 Register

Open Form MBP-2 (Register of Loans, Guarantees, Securities and Acquisitions made by the company) and populate it with every existing loan, guarantee, security and investment. Include the date, amount, purpose, terms, security, and interest rate. The register must be maintained at the registered office and produced for inspection.

Step 2: Compute the 60% / 100% Limit

Take the latest audited balance sheet. Compute the limit as: Higher of [60% × (Paid-up + Free reserves + Securities premium)] or [100% × (Free reserves + Securities premium)]. Document the calculation in a board note. Update after every quarterly book closure.

Step 3: Compare Aggregate Exposure to Limit

Sum up all live loans, guarantees, securities and investments. If aggregate is within the limit, a unanimous board resolution is sufficient for new transactions. If aggregate exceeds (or the new transaction will cause it to exceed) the limit, a prior special resolution and Form MGT-14 filing are mandatory.

Step 4: Confirm Interest Rate Compliance

For every loan, confirm the interest rate is not lower than the prevailing G-Sec yield for the closest tenor. Document the G-Sec yield reference (date and source) in the board resolution. Build a quarterly rate-reset clause for floating-rate loans if applicable.

Step 5: Pass the Board Resolution Correctly

Section 186(5) requires a unanimous board resolution. This is distinct from an ordinary majority. Every director present at the meeting must consent. A single dissent invalidates the approval. Capture the unanimous consent explicitly in the minutes.

Step 6: File MGT-14 if a Special Resolution Was Passed

Form MGT-14 must be filed within 30 days of passing the special resolution under Section 117. Late filing attracts ₹100 per day penalty. Do not delay this filing — the penalty is mechanical and the ROC will issue an adjudication notice automatically.

Step 7: Disclose in the Board’s Report

Section 134(3)(g) requires every Board’s Report to specify particulars of every loan, guarantee, security and investment made under Section 186. Include date, amount, purpose, recipient, interest rate, and security. This is the single most-cited Section 186 violation in ROC adjudication orders since 2024.

Step 8: Annual Review and Reporting

At every financial year-end, reconcile the Section 186 register with the audited balance sheet. Confirm all live transactions are within the limit. Identify any expired or matured transactions to clean up the aggregate. Prepare a one-page note for the auditor’s compliance certificate.

The Deeper Implication: Why ROCs Are Focusing on Section 186 in 2026

The expansion of ROC adjudication powers under Section 454 in February 2026, combined with the addition of three new Regional Directors at Bengaluru, Ahmedabad and Chandigarh, has meaningfully changed the enforcement landscape. The ROC no longer has to refer matters to NCLT for minor defaults. Adjudication is now an in-house procedure with a 60-day timeline and a published order.

According to CS Sapna Malpani, “Section 186 is the new Section 117. Just as the ROC built a body of MGT-14 adjudication orders between 2022 and 2025, the next 24 months will see a sustained focus on Section 186 disclosures — particularly the Board’s Report omissions under Section 134(3)(g). Companies that have not built a Section 186 register and a quarterly compliance check will find themselves in an adjudication queue.”

The prediction for 2026-27 is straightforward. Expect a wave of adjudication orders against private companies whose Board’s Reports for FY 2024-25 are silent on Section 186 transactions that the balance sheet plainly reflects. The MCA’s data analytics are now mature enough to spot this mismatch automatically.

Key Takeaways

Sources and References

1. Companies Act, 2013, Section 186 — India Code
2. Companies Act, 2013, Section 134(3)(g) and Section 134(8) — India Code
3. Companies (Meetings of Board and its Powers) Rules, 2014 — MCA
4. Companies (Restriction on Number of Layers) Rules, 2017 — MCA
5. Cyril Amarchand Mangaldas: “Key issues under Section 186 for a corporate lawyer” — corporate.cyrilamarchandblogs.com
6. ICSI Guidance Note on Loans and Investments — ICSI
7. MCA ROC Adjudication Orders Database — MCA
8. ICSI Secretarial Standards SS-1 (Board Meetings) — ICSI

Frequently Asked Questions

What is the limit for inter-corporate loans under Section 186 of the Companies Act 2013?

Under Section 186(2), a company cannot give a loan, guarantee, security or make an investment exceeding 60% of (paid-up share capital + free reserves + securities premium account) OR 100% of (free reserves + securities premium account), whichever is higher. Beyond this limit, a prior special resolution in a general meeting is mandatory. The aggregate is calculated across all existing loans, guarantees and investments — not transaction by transaction. The single biggest miscalculation founders make is failing to add up old, still-live guarantees when computing their current headroom.

What is the difference between Section 185 and Section 186 of the Companies Act?

Section 185 governs loans, guarantees and securities provided by a company to its directors, KMPs and any entity in which they are interested. Section 186 governs loans, guarantees, securities and investments by a company to or in any other body corporate. Section 185 has near-absolute prohibitions with limited exceptions and qualitative tests; Section 186 has quantitative limits (the 60% / 100% test) and procedural safeguards. The same transaction may attract both sections — for example, a loan to a subsidiary in which a director holds more than 2% requires compliance with both. Many startup founders skip one of the two checks and pay the price during due diligence.

What is the penalty for violating Section 186?

Under Section 186(13), the company is liable to a fine of not less than ₹25,000 extending up to ₹5,00,000. Every officer in default faces imprisonment up to 2 years and a fine ranging from ₹25,000 to ₹1,00,000. Separately, non-disclosure of Section 186 transactions in the Board’s Report under Section 134(3)(g) attracts a civil penalty of ₹3,00,000 on the company and ₹50,000 on each officer in default under Section 134(8). Both penalties can be levied for the same lapse — the disclosure failure does not subsume the substantive violation, and the substantive violation does not subsume the disclosure failure.

Is a special resolution required for every inter-corporate loan under Section 186?

No. A unanimous board resolution is sufficient when the aggregate of loans, investments, guarantees and securities is within the prescribed limit (60% / 100% test). A special resolution is required only when the aggregate exceeds the limit. The special resolution must be filed with the ROC in Form MGT-14 within 30 days under Section 117. Companies often forget the MGT-14 filing and incur a separate ₹25,000 + ₹100 per day penalty. The MGT-14 filing is a frequent source of adjudication orders, particularly because the form auto-fails when the resolution text does not match the prescribed format.

Does Section 186 apply to loans given by a holding company to its wholly-owned subsidiary?

Section 186(11) carves out specific exemptions. Loans, guarantees and securities provided by a holding company to its wholly-owned subsidiary, or by a holding company in respect of any loan made to its wholly-owned subsidiary, are exempt from the quantitative limits in Section 186(2) and (3) — provided the loan is used by the subsidiary for its principal business activity. However, the disclosure requirements under Section 186(4) and the interest rate floor under Section 186(7) continue to apply. If the WOS uses the loan for any purpose other than its principal business, the exemption is lost and the quantitative limit applies retrospectively.

What interest rate must a company charge on inter-corporate loans?

Under Section 186(7), no loan shall be given at a rate of interest lower than the prevailing yield of one-year, three-year, five-year or ten-year Government Security closest to the tenor of the loan. Interest-free loans are not permitted unless covered by a specific exemption such as the wholly-owned subsidiary carve-out for principal business activity. Charging a below-market rate or zero interest is a common Section 186 violation flagged in secretarial audits, particularly for inter-group lending in startup holding structures. The applicable G-Sec yield is the rate at the time of grant of the loan; subsequent yield changes do not retroactively make the loan compliant or non-compliant.

How many layers of investment companies are permitted under Section 186(1)?

A company cannot make investments through more than two layers of investment companies under Section 186(1). Exemptions apply for acquisitions of foreign companies with more than two layers as per the host country’s laws, and for subsidiaries that have any other investment subsidiary for compliance with applicable law. The 2017 amendment introduced these carve-outs, but the basic two-layer cap continues to be enforced by ROCs in adjudication orders. For Indian startups with ESOP trusts, EMI subsidiaries, IFSC GIFT City entities, or foreign acquisitions, the holding structure must be audited by a Practising Company Secretary before incorporation.

Where is Section 186 compliance disclosed in the Board’s Report?

Section 134(3)(g) requires every Board’s Report to include particulars of loans, guarantees, and investments under Section 186. The disclosure must specify the date of the loan or investment, the amount, the purpose, and the rate of interest. ROC adjudication orders in 2024-25 have repeatedly penalised companies for omitting these particulars in the Board’s Report, with separate civil penalties under Section 134(8) of ₹3,00,000 on the company and ₹50,000 per officer in default. A one-line generic disclosure is insufficient — each transaction must be tabulated.

Last updated: 15 May 2026 by CS Sapna Malpani. This article is general information, not legal advice. Section 186 has overlapping interactions with Section 185, Section 188, FEMA, and the LODR Regulations for listed companies. Consult a Practising Company Secretary before structuring any inter-corporate transaction.

By CS Sapna Malpani, Practising Company Secretary, Bangalore | Published 12 May 2026 | Last updated 12 May 2026

In the first four months of 2026 alone, the Registrars of Companies in Chandigarh, Ahmedabad and Mumbai have already passed adjudication orders ranging from Rs 5.5 lakh to over Rs 10 lakh against private companies that crossed Rs 10 crore in paid-up share capital and failed to appoint a whole-time Company Secretary or Chief Financial Officer within the six-month window. The Section 203 KMP penalty regime, dormant for years, has become one of the most actively enforced provisions of the Companies Act, 2013. The trigger event is silent. The penalty arithmetic stacks per day. And the personal exposure on every director who signed the financial statements during the default period is not capped by the company’s pocket.

The problem most founders do not see coming

Section 203 KMP penalty enforcement does not begin with an MCA inspection or a complaint. It begins with the ROC running a back-end query on the V3 portal that pulls every company whose paid-up share capital crossed Rs 10 crore at any point in the past five years and cross-joins that list against MR-1 and DIR-12 filings to find the gaps. Every gap becomes an adjudication candidate. The notice arrives, the ninety-day reply window opens, and the calculation begins.

For private companies, the rule is narrower than for listed and public companies — only a whole-time Company Secretary is mandatory once paid-up crosses Rs 10 crore. There is no MD requirement and no CFO requirement under Section 203 directly. But two things widen the net dramatically. First, Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 brings every private company at or above Rs 10 crore paid-up into the CS net. Second, the NCLAT in Hamlin Trust v. LSFIO Rose Investment S.a.r.l (involving Rattan India Finance Private Limited) held that where a private company’s articles voluntarily provide for a CFO appointment, the candidate selected must still satisfy the eligibility norms of Section 203. The voluntary appointment route, used by many VC-funded private companies under investor agreements, is therefore not a Section 203 escape hatch.

According to CS Sapna Malpani, “Every founder reading this who has done a Series A or Series B since 2022 should pull out their post-money cap table tonight. If the round took paid-up past Rs 10 crore, the six-month clock started on the day of allotment. Most companies have already missed it and do not know they have a building Section 203 KMP penalty exposure.”

The penalty arithmetic — what Section 203(5) actually says

Section 203(5) of the Companies Act, 2013 (as amended) imposes a structured penalty on the company and on each officer in default. The amounts below come directly from the bare Act text on India Code:

A worked example tells the story. A private company crosses Rs 10 crore paid-up on 1 January 2024. The six-month window expires on 1 July 2024. The company appoints a Company Secretary only on 1 July 2025 — 365 days late. The penalty stack is:

• Company: Rs 5,00,000 (fixed)
• Each of three directors who were Officers in Default: Rs 50,000 + (Rs 1,000 x 365) = Rs 4,15,000 each, total Rs 12,45,000
• Total exposure on a single Section 203 default: Rs 17,45,000

Stretch the default to 500 days and each director hits the Rs 5,00,000 per-individual cap — a three-director board ends up at Rs 5,00,000 (company) + Rs 15,00,000 (three directors) = Rs 20 lakh for a single missed appointment. This is not theoretical. ROC Chandigarh’s January 2026 order on Sael Industries hit Rs 5.5 lakh for a 6-month CFO delay; an earlier order on a different company touched Rs 10 lakh.

The KMP threshold decision flow for a private company

Most boards lose Section 203 KMP compliance because the threshold question is asked once and then forgotten. Use the flow below at every quarter-end:

The trigger date is the date paid-up actually crosses Rs 10 crore, not the date the Board first notices. Common silent triggers documented in 2025-2026 adjudication orders include:

• Allotment of equity to a new investor at a premium (post-money paid-up crosses threshold)
• Conversion of CCPS or CCDs into equity per their original terms
• Bonus issue out of free reserves
• ESOP exercise tranche that bumps paid-up past Rs 10 crore
• Rights issue to existing shareholders
• Capitalisation of share premium into equity

Three live 2026 cases that reset what compliance looks like

The pattern across the orders below is consistent: ROC accepts that the default was unintentional, accepts the company’s representation, and still imposes statutory penalty because Section 454 read with Section 203(5) leaves the adjudicating officer no discretion to waive once the default is admitted.

The DHANLAXMI SOLVEX order is the cautionary one. The default ran from 2014 to 2019 — a near-five-year window — and the company surfaced inside the adjudication queue in 2026, more than seven years after the trigger date. There is no statute of limitations on a continuing default under the Companies Act. Pulling old paid-up records and discovering a forgotten 2018 conversion is enough to wake up an order in 2026.

Vacancy timeline — the second-most missed sub-rule

Section 203(4) gives the Board six months to fill any vacancy in the office of a KMP. The vacancy date is the date the previous incumbent ceased to hold office — resignation effective date, end-of-term, or removal. Adjudication officers are now counting the default from day 1 after expiry of the six-month window, not from the date of inspection.

By the numbers — 2026 enforcement snapshot

What you must do now — a step-by-step playbook

1. Pull the paid-up trail. Extract every PAS-3 filed by the company since incorporation. Build a running paid-up share capital ledger with dates. Flag the first instance paid-up touched or crossed Rs 10 crore.
2. Identify the trigger date. If the trigger has already happened, the six-month window has either passed or is currently running. If passed, you have an open Section 203 default — proceed to step 3. If running, proceed to step 4.
3. Quantify open exposure. For each director and KMP who was on the Board during the default period, compute Rs 50,000 + Rs 1,000 x (days from end of six-month window to today, or to date of remediation). Add Rs 5 lakh for the company. This is the live exposure if the ROC issues a show-cause tomorrow.
4. Identify a Company Secretary candidate. A practising CS (PCS) on full-time engagement does not satisfy Section 203 read with Rule 8A — the requirement is a whole-time, employed CS. Use an executive search firm or the ICSI Placement Portal.
5. Pass the Board Resolution. The resolution should record the trigger date, acknowledge the appointment under Section 203, and authorise filing of DIR-12 and MR-1. The KMP designation must be explicit.
6. File DIR-12 within 30 days, MR-1 within 60 days. Both filings on MCA V3 portal. Attach the Board Resolution, letter of appointment, and consent to act as KMP.
7. Update statutory registers. Register of KMP under Section 170 must be updated. Reflect the appointment in the next AOC-4 and MGT-7.
8. Compound the past default voluntarily. File a compounding application under Section 441 for the period of default. Voluntary compounding before ROC adjudication often results in lower quantum than waiting for an adjudication order.
9. Build a successor pipeline. Document a 90-day named successor for the CS role so a resignation does not start a new six-month vacancy clock without a back-up.
10. Audit cross-references. The same V3 cross-join logic that catches Section 203 also catches Section 96 (AGM), Section 137 (AOC-4), Section 92 (MGT-7) and Section 12(3)(c). Run an internal compliance audit in parallel.

The deeper implication — why 2026 is the inflection year

Three structural changes are driving the surge in Section 203 KMP penalty orders. First, the MCA Notification S.O. 698(E) of 10 February 2026 made every Registrar of Companies an adjudicating officer in addition to the Regional Director, collapsing the time from notice to order from 12-24 months to 90-150 days. Second, the V3 portal’s compliance dashboard now flags paid-up share capital crossings automatically, removing the inspection-driven discovery dependency. Third, the CCFS-2026 amnesty is bringing forward defaulters who are filing overdue MGT-7 and AOC-4 returns under the scheme — and those very filings expose underlying Section 203 gaps that the ROC then pursues separately because CCFS does not cover Section 454 adjudication penalties.

According to CS Sapna Malpani, “The forward prediction for the next four quarters is straightforward — every private company with paid-up between Rs 10 crore and Rs 100 crore will face an ROC query at some point in FY 2026-27. The differentiator between a Rs 5,000 compounding fee and a Rs 17 lakh adjudication order will be whether the company self-identified and remediated before the show-cause notice arrived.”

How Section 203 sits next to other commonly confused provisions

Sources and references

• India Code — Section 203, Companies Act 2013: indiacode.nic.in (Section 203)
• Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 — Rule 8A — primary text on MCA.
• ROC Chandigarh Adjudication Order on Sael Industries — January 2026 — analysis at studycafe.in
• ROC Chandigarh Rs 10 lakh penalty order — analysis at taxguru.in
• ROC Adjudication Order — Failure to Appoint Company Secretary — taxguru.in (CS appointment penalty)
• NCLAT order in Hamlin Trust v. LSFIO Rose / Rattan India Finance — Cyril Amarchand Mangaldas analysis
• Taxmann opinion on ROC Section 203 + CS/CFO non-appointment with compounding for prior period: taxmann.com
• MCA Adjudication Orders directory: mca.gov.in (ROC adjudication orders)
• Compliance Calendar — Adjudication Order Section 203 from Penalty to Relief: compliancecalendar.in

Frequently Asked Questions

Does Section 203 apply to private companies?

Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 requires every private company with a paid-up share capital of Rs 10 crore or more to appoint a whole-time Company Secretary. Section 203 itself (covering MD, WTD, CS and CFO) applies directly to listed companies and public companies with paid-up capital of Rs 10 crore or more. Private companies are not required to appoint an MD or CFO under Section 203, but the NCLAT in Rattan India Finance held that where a private company voluntarily appoints a CFO via its articles, the eligibility norms of Section 203 still bind that appointment.

What is the penalty under Section 203(5) for non-appointment of KMP?

Under Section 203(5) of the Companies Act, 2013, the company is liable to a one-time penalty of Rs 5 lakh, and every director and Key Managerial Personnel in default is liable to a penalty of Rs 50,000 plus Rs 1,000 per day of continuing default, capped at Rs 5 lakh per individual. Real adjudication orders in 2026 are stacking the per-day component aggressively. ROC Chandigarh imposed Rs 10 lakh on a single company for a CFO delay, and ROC Ahmedabad imposed Rs 5.5 lakh on Sael Industries for a 6-month CFO delay.

What triggers Section 203 for a private company that was below Rs 10 crore?

The Section 203 trigger is the moment the company’s paid-up share capital crosses Rs 10 crore, not the moment authorised capital is increased. Common triggers are a fresh equity allotment to a new investor, conversion of CCPS or CCDs into equity, bonus issue paid from reserves, ESOP exercise that bumps paid-up past the threshold, and rights issue. The six-month appointment window starts from the date paid-up crossed Rs 10 crore. Founders routinely miss this because the trigger is silent — it is not driven by a fresh ROC filing.

How quickly must a KMP vacancy be filled under Section 203?

Section 203(4) requires every vacancy in the office of any KMP to be filled by the Board within six months from the date of vacancy. The vacancy date is the date the previous incumbent ceased to hold office (resignation, death, removal, retirement). The six-month window is non-negotiable. ROCs are now counting the default period from day 1 after the six-month window expires, not from any later discovery date.

Can a director of the company double up as the CFO to save cost?

No. Section 203(3) prohibits the same individual from being appointed as both Managing Director and Chairman, except where the articles permit, and a person already designated as a CEO, Manager or Whole-time Director cannot be a KMP of more than one company at the same time (with limited subsidiary exceptions). More importantly, ROC Karnataka penalised Landomus Reality for appointing a director as CFO in violation of Section 203 eligibility. The CFO appointment must be a real, separate employment with KMP designation, not a label pasted on an existing director.

Does the CCFS-2026 amnesty scheme cover Section 203 penalties?

CCFS-2026 (the MCA amnesty scheme running until 15 July 2026) waives up to 90 per cent of additional fees on overdue ROC filings such as MGT-7, AOC-4 and others. It does NOT directly waive an adjudication penalty already passed under Section 454 for a Section 203(5) default. However, voluntarily filing under CCFS often surfaces the underlying Section 203 default, allowing the company to remediate via fresh KMP appointment plus compounding under Section 441 instead of waiting for an inspection-driven adjudication. Read more on the CCFS-2026 guide for the broader playbook.

Who is an Officer in Default for a Section 203 penalty?

Officer in Default is defined under Section 2(60) of the Companies Act and includes every Whole-time Director, every KMP currently on board, and where there is no Whole-time Director or KMP, all the directors. For a Section 203 default, the practical exposure falls on the directors who were on the Board during the default period plus any KMP who held office during that period. The Rs 50,000 plus Rs 1,000 per day penalty applies per officer in default, not collectively.

Author: CS Sapna Malpani, Practising Company Secretary, Bangalore. Office address and direct contact at sapnamalpani.com. This article is for general guidance and is not a substitute for tailored professional advice on a specific company’s facts.

Last updated: 11 May 2026 · By CS Sapna Malpani, Practising Company Secretary, Bangalore

On 10 February 2026 the Ministry of Corporate Affairs published Notification S.O. 698(E). The notification did two things at once. It appointed every Registrar of Companies as an adjudicating officer under Section 454 of the Companies Act, 2013 and Section 76A of the LLP Act, 2008. And it raised the number of Regional Directorates from 7 to 10, adding new offices at Bangalore, Ahmedabad and Chandigarh. Both changes became operational on 16 February 2026. The MCA Adjudication Order page has already published several first-quarter orders that confirm the new pipeline is live.

For private companies, funded startups and LLPs registered in Karnataka, the practical consequence is sharp. The penalty machinery has moved one layer closer. The window between default and order has collapsed. And the Bangalore Regional Director, who supervises every Karnataka entity, now sits at the centre of the appeal architecture. This piece walks through what changed, what it means in real rupees, and the six things a compliance team should be doing in May 2026.

What the 10 February 2026 Notification Actually Says

The technical heart of the notification is short. The Central Government, in exercise of powers under Section 454(1) of the Companies Act, 2013 and Section 76A of the LLP Act, 2008, appoints the Registrars listed in the schedule as adjudicating officers for the corresponding territorial jurisdictions. The companion notification under Section 458 of the Companies Act expands the list of Regional Directors to ten. Both come into force on 16 February 2026.

Section 454 was inserted into the Companies Act in 2017 to move minor penalty matters out of the criminal court system and into an administrative track. Until February 2026 the section was operating through a single layer of officers, mostly drawn from the senior cadre at the Regional Director level. The 10 February notification effectively distributed that authority down to every RoC. There are 25 RoCs in the country today. The capacity of the adjudication pipeline has increased by an order of magnitude.

Section 76A of the LLP Act is the parallel provision for LLPs. It was inserted by the LLP (Amendment) Act, 2021 and was activated piecemeal between 2022 and 2024. The 10 February 2026 notification completes the migration — every LLP default that does not carry imprisonment as a possible punishment now sits inside the administrative adjudication framework.

The shift is structural. Minor compliance has moved from criminal courts to administrative officers, and administrative officers have moved from regional to local. — According to CS Sapna Malpani

The New Map: 10 Regional Directorates and Where Karnataka Sits

Before 16 February 2026 there were 7 Regional Directors with sprawling jurisdictions. Karnataka companies looked to Hyderabad. Bombay and Gujarat were both inside one office. Punjab and Haryana sat with Delhi. The 10 February notification corrected the asymmetry by adding three new RDs.

For Karnataka-registered companies and LLPs the change is not cosmetic. Previously a Bangalore-incorporated private limited company appealing an order had to travel to Hyderabad, brief counsel there, and wait inside a queue that handled four large states. The South-Western RD at Bangalore now handles Karnataka only. The listing time at first appeal stage should fall by 40 to 60 percent in the first full year, by the MCA’s own internal estimates referenced in stakeholder consultations.

The New Enforcement Flow

The old enforcement architecture for minor defaults had four stops. RoC notice. RoC reference to the Regional Director or NCLT. Order. Appeal to the NCLT or the NCLAT. The new flow has three.

Three structural points are worth flagging. First, the e-show-cause notice arrives on MCA V3 and on the registered email. Physical post is no longer the primary mode. A stale registered email is now a compliance risk in its own right — companies must check that their V3 profile has a working active address. Second, the personal hearing under Section 454(4) is a statutory right. Skipping it weakens the appeal. Third, the appeal must be filed with the new Regional Director, not the NCLT. Counsel still occasionally misroutes — the 60-day clock is unforgiving.

Why the Pace of Penalty Orders Has Already Increased

The MCA Adjudication Order portal at mca.gov.in/data-and-reports/rd-roc-info/roc-adjudication-orders publishes every order issued. In the 90 days between 16 February and 11 May 2026 the portal has logged a noticeably higher volume than the same window in 2025. The reasons are structural, not anecdotal.

The point of these numbers is not that penalties are harsher. The penalty quantum is unchanged. The point is that the latency between defaulting and getting an order has fallen sharply. Companies that operated on the assumption that a Section 12 registered office mismatch or a Section 117 unfiled MGT-14 would simmer for two years before reaching enforcement no longer have that luxury.

The Section-by-Section Penalty Map

Some of the most commonly invoked penalty sections are listed below. Each of these can now be adjudicated end-to-end by the RoC. The numbers are taken from the bare Act; CCFS-2026 covers additional fees but does not waive Section 454 statutory penalties.

The officer-in-default exposure is the harder part of the table. A Rs 5,00,000 personal penalty on a Section 203 default cannot be reimbursed by the company under Section 197(13). The director pays from personal income. The order is permanently indexed on MCA V3 against the DIN and surfaces in every subsequent diligence report.

What the First 90 Days of Orders Reveal

The MCA Adjudication Order portal published its first batch of orders under the new framework in March 2026 and the volume has climbed steadily since. Three patterns are visible from a reading of the first quarter’s orders.

The first pattern is the focus on registered office defaults. Section 12(8) read with Section 12(4) penalty orders dominate the early sample. The reason is mechanical: the MCA V3 portal cross-checks the registered office address against the GST registration and the bank KYC on file. Where these do not match, an e-show-cause notice is generated automatically. Companies that quietly moved office without filing INC-22 are surfacing fast. A typical order in this category sits in the Rs 50,000 to Rs 1,00,000 range for the company and a similar amount for each officer in default.

The second pattern is the rise in Section 203 KMP orders against private companies that have crossed the paid-up capital trigger. Section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 requires every private company with a paid-up share capital of Rs 10 crore or more to appoint a whole-time Company Secretary. The trigger date for many funded startups is the date of the Series B or Series C closing. RoCs are now systematically running paid-up-capital queries on V3 and matching them against the appointment data. The orders quote the Rs 5 lakh statutory cap and the Rs 1,000-per-day continuing default add-on, with separate orders against the company and each director-in-default.

The third pattern is the use of Section 454(8). Where a penalty order is not paid within 90 days, the RoC can refer the matter for prosecution. This is no longer rare. In the first 60 days post-notification, at least two RoCs have publicly initiated Section 454(8) proceedings against directors whose adjudication penalty crossed the 90-day threshold unpaid. The lesson for compliance teams is simple: an adjudication order cannot be filed away in the bottom drawer. Pay or appeal within the window. Sitting on the order is the most expensive path.

What This Means for Foreign-Owned Indian Subsidiaries

The foreign holdco pattern — Singapore, Mauritius or Delaware parent with an Indian operating subsidiary — is over-represented in the funded startup base. These subsidiaries have a recurring set of compliance gaps: BEN-2 not filed for the indirect SBO, FC-GPR delays after share issuance, FLA returns not filed on time, and DIR-3 KYC lapses for the nominee directors. Before 16 February 2026 a typical pattern was for all four defaults to accumulate, get flagged at the time of a Series B diligence, and then get cleaned up urgently in a Rs 40 to 60 lakh remediation exercise. The MCA’s old enforcement latency made this a viable, if expensive, strategy.

The new latency makes it dangerous. A funded subsidiary in Bangalore with a Mauritius parent that has not filed BEN-2 in 18 months can now expect an e-show-cause notice within 6 to 10 months of the default crossing the threshold rather than 18 to 24. The penalty is the same. The cleanup timing is no longer a founder’s choice.

Six Actions for Compliance Teams in May 2026

This is not a quarter to be passive about MCA filings. The six steps below should be on a Bangalore-registered private company’s or LLP’s compliance checklist this month.

1. Run an MCA V3 audit on every entity. Pull the master data, the filing history and the registered email. Confirm that the email reaches a person who reads it daily. The e-show-cause notice will land here first.
2. Reconcile against the CCFS-2026 amnesty. Pending MGT-7, AOC-4, DPT-3, MSME-1, INC-22 and similar filings can be cleared at 10 percent additional fee until 15 July 2026. Use it.
3. Re-map RoC and RD jurisdiction. For Karnataka entities the RoC is Bangalore and the RD is now also Bangalore. Update the compliance manual and the appeal vendor list.
4. Check Section 203 thresholds. Paid-up capital crossings trigger a KMP requirement within six months. Subsidiaries of listed companies are caught. Review the trigger date and the current state of compliance.
5. Update BEN-2 and SBO disclosures. The foreign holdco angle is the highest probability source of adjudication exposure for funded startups. Verify the SBO declaration chain and the BEN-2 filing record.
6. Standardise the response template. A written representation to a Section 454 notice has a 21-day window. The team should have a template with the cause-of-default, remediation evidence and compounding plea ready to be customised, not drafted from scratch each time.

The Cost-of-Delay Comparison

The cleanest way to make this practical is to compare two scenarios for the same default. A Bangalore-registered private limited company has not filed its MGT-7 annual return for FY 2023-24 and FY 2024-25. Two years of default. The base statutory fee is the same in both scenarios; the additional fee is where the gap opens.

The gap is not subtle. Acting inside the CCFS window costs about a tenth of waiting for the new RoC pipeline to surface the default. The same maths plays out for AOC-4, DPT-3, MSME-1, DIR-3 KYC and most other Section 454 defaults. Compliance teams that delay the audit-and-clear exercise until August are choosing the more expensive path.

How This Sits Inside the Broader 2026 MCA Reform Arc

The February notification is one piece of a larger compliance-architecture reset that began in 2025. The CCFS-2026 amnesty scheme (open 15 April to 15 July 2026) creates a one-time window to clear historic defaults. The Companies Incorporation Amendment Rules 2026 consolidated more than fifteen forms and pulled them onto the V3 portal. The SEBI ICDR Amendment 2026 added pre-IPO pledge disclosure rules. The LLP V3 portal completed migration in March.

The decentralisation of adjudication powers is the enforcement leg of this reset. The CCFS amnesty is the carrot; the new RoC adjudication pipeline is the stick. Companies that use the CCFS window and the new local RD jurisdiction to clean up by 15 July will be in materially better shape than those that wait.

Related Reading

For the CCFS-2026 amnesty mechanics see the CCFS-2026 amnesty scheme guide. For the MGT-14 default pattern that is now drawing the most adjudication orders see the MGT-14 late filing penalty deep-dive. For LLP-specific compliance under the new framework see the LLP Form 11 deadline guide.

Sources and References

• MCA Notification S.O. 698(E) dated 10 February 2026 — IBC Law
• MCA Appoints Registrars as Adjudicating Officers under Section 454 — TaxGuru
• MCA Appoints Registrars as Adjudicating Officers, Revises Territorial Jurisdiction — TaxScan
• Centre Gives RoC Adjudication Powers: What The New MCA Reform Means For Companies And LLPs — Mondaq
• MCA Expands Regional Directors List under Companies Act from 16 Feb 2026 — Taxmann
• MCA Expands List of Regional Directors under Section 458 — TaxGuru
• RoC Adjudication Orders — MCA Official Portal
• Section 454 Adjudication of Penalties — Companies Act 2013 Bare Act
• Centre Gives RoC Adjudication Powers — AK and Partners analysis

Frequently Asked Questions

What changed in MCA enforcement on 16 February 2026?

Two things changed simultaneously. Notification S.O. 698(E) dated 10 February 2026 appointed every RoC as an adjudicating officer under Section 454 of the Companies Act and Section 76A of the LLP Act. The companion notification raised the number of Regional Directorates from 7 to 10, adding new offices at Bangalore, Ahmedabad and Chandigarh. Both came into force on 16 February 2026. The result: every minor default now travels through the RoC, and the appeal sits with the closest Regional Director, not the NCLT.

Does the Bangalore Regional Director cover Karnataka?

Yes. The South-Western Regional Directorate headquartered at Bangalore now supervises the RoC, Bangalore and the Official Liquidator office for Karnataka. For private companies and LLPs registered in the State, both first-instance penalty orders and the first appeal happen inside Karnataka. Earlier, the appeal routed through Hyderabad or Chennai depending on the year.

What kinds of defaults will RoCs now adjudicate directly?

Section 454 covers any penalty provision in the Companies Act that does not carry imprisonment as a possible punishment. In practice this means the bulk of operating compliance: MGT-7 annual return, AOC-4 financials, DIR-12, BEN-2, INC-22, Section 117 board resolutions, Section 203 KMP gaps, Section 12 CIN display, MSME-1, DPT-3 and LLP Form 8 and Form 11. Section 76A of the LLP Act has the equivalent reach for LLPs.

Are the penalty amounts the same as before?

Yes. The notification did not change a single penalty number. What it changed is who imposes them and how fast. A Section 203 default that earlier sat in the NCLT can now be adjudicated end-to-end by the RoC. Financial exposure stays the same; time from default to order has collapsed from years to months.

Where do I appeal a RoC adjudication order now?

The first appeal is to the Regional Director under Section 454(5), within 60 days of receipt. For Karnataka entities, that is the South-Western RD at Bangalore. The second appeal is to NCLAT. The NCLT is bypassed entirely for these minor defaults.

Does this apply to LLPs as well?

Yes. The same 10 February 2026 notification simultaneously activated Section 76A of the LLP Act, 2008. RoCs are now adjudicating officers for LLP defaults too — Form 8, Form 11, designated partner non-appointment and registered office defaults.

What should I do in the next 30 days?

Three things. Run an internal MCA V3 audit to surface every pending filing before the system flags it. Use the CCFS-2026 amnesty (open until 15 July 2026) to clear historic defaults at 10 percent additional fee. Map your jurisdiction under the new RD list and confirm your registered email on V3 is active.

This article is for general information and does not constitute legal advice. For specific compliance positions, consult CS Sapna Malpani.

SEBI Extends IPO Observation Letter Validity to 30 September 2026: ₹43,500 Crore Lifeline for 40 IPO-Bound Companies

By CS Sapna Malpani, Practising Company Secretary, Bangalore | Last Updated: 27 April 2026 | Reading Time: 14 minutes

On 7 April 2026, SEBI quietly handed roughly 40 IPO-bound companies a six-month reprieve worth ₹43,500 crore in collective fundraising. The circular extends the validity of every observation letter expiring between 1 April and 30 September 2026 to a single uniform date: 30 September 2026. For any issuer whose DRHP cleared SEBI in the second half of 2025, this is the difference between a 2026 listing and starting from scratch in 2027 with a fresh ₹3 to ₹5 crore in advisory fees. This guide walks IPO-bound CFOs, founders and CS practitioners through exactly what changed, who qualifies, what must be refiled, and how to use the window without tripping over the fine print on Minimum Public Shareholding (MPS).

The Problem: Why a Lapsed Observation Letter Costs ₹3 to ₹5 Crore to Fix

An IPO observation letter is SEBI’s clearance under Regulation 25 of the SEBI ICDR Regulations 2018, allowing an issuer to proceed with the public offer based on the Draft Red Herring Prospectus filed earlier. The standard validity is 12 months from the date of issue. Once it lapses, Regulation 25(2) is unforgiving: the issuer must file a fresh DRHP, re-pay SEBI filing fees, refresh audited financials, redo legal due diligence and restart the 60 to 90 day SEBI review cycle.

For a typical mid-cap Main Board IPO raising ₹500 to ₹2,000 crore, the all-in cost of a lapse runs:

• Fresh BRLM mandate fees: ₹1.5 to ₹2.5 crore
• Updated legal due diligence: ₹40 to ₹80 lakh
• Refreshed audit and Restated Financial Information: ₹25 to ₹50 lakh
• SEBI re-filing fees: 0.05% of issue size, up to ₹5 crore
• Roadshow re-run, printing, advertising: ₹50 lakh to ₹1 crore
• Lost market window opportunity cost: not quantifiable, often the biggest hit

Add 6 to 12 months of delay, and a lapsed observation letter routinely turns into a ₹4 crore mistake. According to data from Prime Database cited in the 7 April circular, observation letters covering ₹43,500 crore of collective fundraising were due to expire in the same six-month window. Without the SEBI relief, India would have seen the largest single IPO logjam since the 2020 covid pause.

Penalty Comparison: Letting It Lapse vs Using the Extension

The math is brutal. Every CFO sitting on a 2025-issued observation letter that expires in mid-2026 should have the addendum strategy on a partner-level board call before the next monthly review.

What Exactly Changed on 7 April 2026

SEBI’s circular invokes Regulation 300 of SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018, which lets the regulator relax the strict application of timelines on a case-by-case or one-time basis. The key operative paragraphs:

1. Validity extension: Observation letters issued under Regulation 25 of ICDR that were due to expire between 1 April 2026 and 30 September 2026 stand extended to 30 September 2026.
2. Conditionality: The extension is conditional on the issuer filing an updated offer document and an undertaking from the Book Running Lead Manager confirming continued ICDR compliance.
3. MPS forbearance: Stock exchanges and depositories are directed not to initiate penal action against listed companies whose MPS compliance deadlines fall in the same 1 April to 30 September 2026 window.
4. Reason recorded: SEBI cites geopolitical tensions in West Asia and subdued market sentiment as the trigger.
5. One-time relief: The circular explicitly states this is a one-time measure and not a structural change to ICDR Regulation 25.

According to Business Standard’s reporting on the same day, the relief covers four categories of issuer at risk: those whose DRHPs were cleared in Q3 or Q4 of FY 2025-26, mid-cap technology and consumer companies that paused road shows after the West Asia escalation in March, listed companies with promoter dilution deadlines, and SME-to-Main Board migrations that needed a fresh DRHP refresh.

The Refresh Timeline: 7 Phases Between Now and 30 September 2026

By the Numbers: The Scale of the Lifeline

Decision Flow: Should You Use the Extension or Just Launch Now?

What You Must Do Now: A 7-Step Refresh Action Plan

Step 1: Confirm Eligibility

Pull the original SEBI processing memo (received via the SEBI Intermediary Portal). Add 12 months to the observation letter date. If the result falls between 1 April 2026 and 30 September 2026, you qualify. If the original letter already expired before 1 April 2026, you do not qualify and must refile a fresh DRHP under standard Regulation 25 timelines.

Step 2: Run a Material Change Audit

The biggest trap with refresh filings is undisclosed material change. The CS team must run a structured material-change audit covering eight buckets: financial performance variance from DRHP projections, new litigation or regulatory orders, related party transactions exceeding Section 188 thresholds, board and KMP changes, ESOP grants and dilution, business mix or geographic shifts, foreign investment events under FEMA, and changes to promoter shareholding or pledge structure. Any material event missed here exposes the directors to Section 26 ICDR misstatement liability.

Step 3: Refresh Restated Financial Information

Audited financials in the DRHP must be no older than six months as of the addendum filing date. For most issuers refreshing in May or June 2026, this means using FY 2025-26 audited numbers as the latest stub period. The auditor must issue either a fresh consent or an addendum opinion confirming Regulation 33 compliance.

Step 4: Obtain BRLM Compliance Undertaking

The Book Running Lead Manager must issue a written undertaking, on its letterhead, that the issuer continues to comply with all SEBI ICDR disclosure requirements as of the refresh date. Most BRLMs charge a refresh fee of ₹15 to ₹40 lakh for this exercise, materially less than the ₹1.5 to ₹2.5 crore re-mandate cost.

Step 5: Pass a Board Re-validation Resolution

Convene a board meeting under Section 173 read with Secretarial Standard SS-1. Pass a resolution authorising the addendum filing and re-confirming the IPO size, structure and OFS component. File MGT-14 with ROC within 30 days under Section 117(3)(g) read with Section 179(3)(d). Failure to file MGT-14 attracts up to ₹10.49 lakh in adjudication penalty as the recent KCP Infra case shows.

Step 6: File the SEBI Addendum

Upload the updated offer document, BRLM undertaking, material change disclosure and board resolution through the SEBI Intermediary Portal. Use the existing observation letter reference number; do not create a fresh DRHP record. SEBI typically clears refresh filings within 21 to 30 working days. The fee is at the SEBI’s discretion under Regulation 300, and most refresh filings have been waived in past cycles.

Step 7: Plan the Launch Window

Allow at least 30 working days between SEBI clearance and intended issue opening. This buffer accommodates roadshows, anchor allocation and exchange in-principle approvals. Working backwards from 30 September 2026, the practical launch must close by mid-September. That gives a launch window of approximately 90 days between mid-June and mid-September 2026.

The Deeper Implication: SEBI Is Signalling, Not Just Relieving

According to CS Sapna Malpani, the more interesting story is the regulatory signal beneath the relief. SEBI does not extend observation letter validity casually. The last time it did so was during the covid market freeze in mid-2020. By citing geopolitical risk as the reason in 2026, SEBI is doing two things at once: providing genuine relief to issuers, and signalling to the market that it expects the IPO pipeline to restart in earnest only in the September quarter. The implication for IPO-bound CFOs is that the September window will be crowded. Companies that file early, complete refresh by mid-July and slot a clean July-August launch will outpace the September rush.

The second implication is that the MPS forbearance is structurally significant. Stock exchanges have historically frozen promoter holdings of issuers that miss MPS deadlines. The 7 April circular’s direction not to initiate penal action removes a Damocles sword over roughly 12 listed companies that were tracking close to the 25% public shareholding threshold. Expect ICSI and SEBI to issue follow-up FAQs in May 2026 clarifying which MPS deadlines specifically qualify for the relief.

How This Compares to Earlier SEBI Relief Cycles

Two earlier SEBI extensions are worth comparing. In April 2020, SEBI extended observation letter validity from 12 to 18 months as part of the covid relief package; that was a structural change to Regulation 25 itself, not a one-time relief. In November 2021, SEBI granted a 90-day case-by-case relaxation to specific issuers without a blanket circular. The April 2026 relief sits between these two: it is a blanket circular like 2020, but operates as a one-time extension under Regulation 300 rather than a structural amendment.

The practical takeaway: do not treat the 30 September 2026 date as the new normal. SEBI has historically reverted to the 12-month standard once macro conditions stabilise. Issuers planning fresh DRHPs in 2027 should still build their internal calendars around the 12-month observation letter assumption.

Common Mistakes to Avoid

From CS practice, four mistakes show up repeatedly when issuers refresh observation letters:

1. Treating the extension as automatic: It is not. Without an addendum filing and BRLM undertaking, the letter still effectively lapses because the issuer cannot launch without SEBI’s refreshed clearance.
2. Underestimating material change disclosure: Issuers often disclose only financial changes and forget litigation, board changes, and FEMA events. Section 26 ICDR misstatement liability survives the addendum filing.
3. Missing the MGT-14 trigger on the re-validation board resolution: This is a Section 117 ROC filing requirement separate from the SEBI addendum. Default attracts a 30-day delay penalty under Section 117(2).
4. Booking the launch too close to 30 September 2026: SEBI’s 21-30 day refresh review plus 30-day launch buffer means filings after mid-June are at risk of slipping past the cutoff.

Sources and References

• SEBI Circulars repository (Gold)
• India Code: Companies Act 2013, Sections 117, 173, 188 (Gold)
• Business Standard, 7 April 2026 (Bronze)
• Business Today, 7 April 2026 (Bronze)
• Studycafe analysis (Silver)
• SEBI ICDR Regulations 2018, Regulation 25 and Regulation 300
• ICSI Guidance Note on Public Issues, 2024 edition

Frequently Asked Questions

What did SEBI’s 7 April 2026 circular do for IPO-bound companies?

SEBI extended the validity of IPO observation letters expiring between 1 April 2026 and 30 September 2026 to a single uniform date: 30 September 2026. The circular also relaxed Minimum Public Shareholding norms for the same period and applies to roughly 40 issuers planning to raise about ₹43,500 crore. The relief was issued under Regulation 300 of the SEBI ICDR Regulations 2018 as a one-time measure citing geopolitical tensions in West Asia and weak market sentiment.

Which companies qualify for the SEBI IPO observation letter extension?

Any issuer whose SEBI ICDR observation letter is set to expire between 1 April 2026 and 30 September 2026 qualifies. The relief covers Main Board IPOs, follow-on offers and OFS-only filings. Issuers must submit updated offer documents and a compliance undertaking from their lead managers to use the extension. Letters that already expired before 1 April 2026 are not covered and the issuer must refile a fresh DRHP under standard Regulation 25 timelines.

What happens if an IPO observation letter lapses without an extension?

A lapsed observation letter forces a fresh DRHP filing under Regulation 25(2) of SEBI ICDR Regulations 2018. That means re-paying SEBI filing fees (up to ₹5 crore at 0.05% of issue size), refreshing audited financials, redoing legal due diligence and restarting a 60 to 90 day SEBI review cycle. For mid-sized IPOs, the all-in cost can exceed ₹4 crore in advisory and merchant banker fees, plus 6 to 12 months of clock-time delay.

Does the extension apply to MPS compliance for already-listed issuers?

Yes. The same circular directs stock exchanges and depositories not to initiate penal action including fines or freezing of promoter holdings against listed companies whose Minimum Public Shareholding compliance deadlines fall between 1 April 2026 and 30 September 2026. This is a parallel relief and does not require a separate application; it operates automatically through the exchange’s enforcement framework.

What documents must a company refile to use the extension?

An issuer must file an updated offer document reflecting the latest available financials, an undertaking from the Book Running Lead Manager confirming continued ICDR disclosure compliance, and a board resolution authorising re-validation. Material changes in financials, litigation, related party transactions or corporate structure must be disclosed even if no new approval is required. Additionally, the issuer must file MGT-14 with the ROC within 30 days of the re-validation board resolution under Section 117(3)(g).

Is the SEBI extension automatic or do issuers have to apply?

It is conditional. The validity extends automatically to 30 September 2026, but the issuer cannot launch the IPO without first filing updated offer documents with SEBI and obtaining the lead manager’s compliance undertaking. In practice, treat it as a 60-day refresh exercise rather than a free pass. Most issuers will end up paying ₹40 to ₹65 lakh in refresh costs versus ₹3 to ₹5 crore for a full fresh DRHP.

Why did SEBI grant this one-time relief?

The circular explicitly cites geopolitical uncertainty in West Asia and weak retail and institutional sentiment as the reason. Around 40 companies with collective fundraising plans of ₹43,500 crore were at risk of seeing observation letters lapse during the same window, which would have meant the largest IPO logjam since the 2020 covid pause. SEBI chose blanket relief over case-by-case applications to avoid an administrative bottleneck.

Can SME IPOs use the same relief?

Yes, SME IPOs cleared by exchange-level processes that mirror SEBI ICDR observation letters fall within the spirit of the circular. NSE Emerge and BSE SME platform issuers should consult their merchant bankers for exchange-specific guidance, but the principle of refresh-and-relaunch applies.

This article is for informational purposes only and does not constitute legal or investment advice. CS Sapna Malpani is a Practising Company Secretary based in Bangalore and a Partner at Vivek Hegde & Co, Company Secretaries. For specific advice on your IPO observation letter refresh, please schedule a consultation.

CCFS 2026: Save 90% on MCA Penalties – The Complete Guide to the ROC Filing Amnesty Window (15 April – 15 July 2026)

Last updated: 22 April 2026 | By CS Sapna Malpani, Practising Company Secretary, Bangalore

A Bangalore-based private limited company with two years of missed annual filings walked into our office last week. The standard additional fee quote from the MCA V3 portal: ₹1,33,600. After applying the Companies Compliance Facilitation Scheme, 2026 (CCFS 2026), the final bill came to ₹13,360 – a straight saving of ₹1,20,240 on a single filing session. That is what this scheme is doing for thousands of defaulting companies across India right now. The window closes on 15 July 2026, and no extension has been notified.

Why CCFS 2026 Is a Once-in-a-Cycle Opportunity

Amnesty schemes from the Ministry of Corporate Affairs are rare. The last comparable window was the Companies Fresh Start Scheme (CFSS) in 2020, triggered by the pandemic. Before that, the Condonation of Delay Scheme (CODS) in 2018. The gap between meaningful amnesties has stretched to 5-6 years on average. The next one is not scheduled, and based on MCA’s recent enforcement tone, it will not come soon.

Over the last 18 months, Registrars of Companies have issued adjudication orders at a pace not seen before. Our firm tracks MCA orders weekly. In FY 2025-26 alone, over 4,800 adjudication orders crossed our desk – many for simple filing defaults that the company secretary could have flagged if someone was watching. Typical penalty slabs for a single year’s default on MGT-7 or AOC-4 now range from ₹1 lakh to ₹11 lakh per company, plus ₹50,000 on each director. CCFS 2026 wipes out most of that exposure for companies that act in time.

The scheme also protects against the silent killer: Section 164(2) director disqualification. Three consecutive years of non-filing of MGT-7 or AOC-4 triggers automatic director disqualification for five years across all companies. Many founders discover this only when their next fundraise or board appointment fails a compliance check. Clearing the backlog under CCFS 2026 stops the Section 164(2) clock before it strikes.

VISUAL: Fee Waiver Matrix – What CCFS 2026 Actually Gives You

Source: MCA General Circular No. 01/2026 dated 24 February 2026 read with the Companies (Registration Offices and Fees) Rules, 2014.

Who Can Use CCFS 2026 – and Who Is Shut Out

Eligible

• Private limited companies with overdue MGT-7 / MGT-7A or AOC-4 filings for any financial year
• Public unlisted companies with pending annual return or financial statement filings
• Section 8 companies behind on ROC filings
• Foreign companies that have missed FC-3 / FC-4 filings
• Any company with legacy 1956 Act forms (20B, 21A, 23AC, 23ACA, 66, 23B) still pending
• Active companies that want to voluntarily move to dormant status via MSC-1
• Defunct companies that want to exit via STK-2 at a reduced fee

Ineligible (Hard Block)

• Companies already facing strike-off action under Section 248 where the final notice has been issued by the ROC
• Companies that have themselves filed an STK-2 strike-off application before 15 April 2026
• Companies already holding dormant status (application filed before scheme inception)
• Companies dissolved via amalgamation or demerger
• Companies classified as “vanishing companies” by MCA

VISUAL: The Real Cost of Missing the Window

Source: Companies Act, 2013, read with the Companies (Adjudication of Penalties) Rules, 2014.

A Worked Example: ₹1.2 Lakh Saved in One Afternoon

Consider a typical Bangalore private limited company with paid-up capital of ₹25 lakh. The company missed filings for FY 2023-24 (due by October 2024) and FY 2024-25 (due by October 2025). Today is 22 April 2026, which means both years are significantly delayed.

Illustrative figures based on indicative fee slabs under the Companies (Registration Offices and Fees) Rules, 2014. Actual additional fee depends on the authorised capital slab and delay duration per the MCA portal calculator.

VISUAL: The Compliance Timeline You Need to Hit

Step-by-Step: How to File Under CCFS 2026

The scheme does not have a separate application form or approval workflow. The relief is baked into the MCA V3 portal’s fee calculator for the scheme window. The compliance heavy lifting happens inside the company’s books and minutes.

Step 1 – Run a ROC Compliance Audit

Log into MCA V3. Under “View Signatory Details” and “View Public Documents”, pull a complete history of past filings for every financial year since incorporation or the last filed year. Identify every missed MGT-7 / MGT-7A, AOC-4 (and variants), ADT-1, FC-3 / FC-4. If you incorporated before 2014, check for the six legacy 1956 Act forms as well. Our firm does this audit free for any company that signs up for the scheme window – reach out via the contact link below.

Step 2 – Verify Eligibility

Confirm none of the five ineligibility flags apply: Section 248 strike-off notice issued, STK-2 already filed, dormant status already held, company dissolved by amalgamation, or classification as a vanishing company. One easy check: search for the CIN on the “View Public Documents” section and look for any STK-5 or strike-off notice issued by the ROC.

Step 3 – Backfill Board Meetings and Resolutions

For each missed year, pass board resolutions to: approve the financial statements, approve the directors’ report, approve the auditor’s report, authorise signing of MGT-7 and AOC-4, and file MGT-14 where any of the approved matters triggers Section 117 requirements. Compile minute books, notices, and attendance sheets. This is where the engagement of a practising company secretary pays for itself – board meetings held out of time must be documented carefully to withstand scrutiny.

Step 4 – Hold the AGMs

Section 96 requires an AGM for every financial year. For missed years, convene an adjourned AGM or a fresh AGM (as permissible under law and the articles). Adopt the accounts. Capture the minutes and ordinary resolutions.

Step 5 – Upload Forms on MCA V3

File in chronological order: oldest year first. For each year, file AOC-4 first, then MGT-7 (or MGT-7A for small companies). ADT-1 for any auditor appointment not already reported. The portal will show reduced fees during the scheme window – verify that the fee is indeed 10% of the additional fee slab before paying.

Step 6 – Pay and Preserve Records

Pay via MCA’s online gateway. Download every challan, SRN acknowledgement, and approved form. Save copies in the company’s permanent filing folder. Keep a reconciliation sheet showing the normal fee, CCFS 2026 fee, and savings.

Step 7 – File Before the Window Closes

The form must be approved by the ROC (not just uploaded) by 15 July 2026. Given that some forms go into “Under Processing” status for 3-5 days, aim to have everything submitted by 30 June 2026 at the outside. Do not wait until the last week.

The Deeper Implication: MCA Is Clearing the Decks Before a Stricter Regime

According to CS Sapna Malpani, “CCFS 2026 is not a gift from the MCA – it is a strategic reset. The Ministry wants to close the backlog of defaulting companies either by getting them compliant (amnesty), dormant (MSC-1 at 50%), or struck off (STK-2 at 25%). Once this scheme ends on 15 July 2026, expect a sharp rise in Section 454 adjudication orders, director disqualifications under Section 164(2), and Section 248 strike-offs. Companies that ignore this window are signing up for much harder conversations in Q3 and Q4 of 2026.”

The MCA’s data-analytics muscle has grown considerably. V3 portal logs, GSTN cross-referencing, and the new Central Processing Centre (CPC) at IICA give the Ministry clear visibility into which CINs are dormant-but-active. Enforcement post-amnesty is therefore not a threat – it is a certainty. Companies with overdue filings who skip CCFS 2026 should treat adjudication notices as a matter of when, not if.

How CCFS 2026 Differs from Related Compliance Reliefs

Founders often confuse CCFS 2026 with other reliefs. It is narrower than it looks and broader in effect only for certain form categories.

Note that CCFS 2026 does NOT cover DPT-3, DIR-3 KYC, MSME Form 1, INC-22A, BEN-2, INC-20A, or PAS-6. These forms continue under their normal additional fee and adjudication regimes. A company that wants full compliance often needs both CCFS 2026 for the annual return / financial statement backlog AND ordinary filings (with full additional fees) for the other pending forms.

Key Takeaways

Sources and References

1. MCA General Circular No. 01/2026 dated 24 February 2026 – Companies Compliance Facilitation Scheme, 2026 (primary authority)
2. Companies Act, 2013 – Sections 92, 137, 164, 248, 403, 454, 460 (India Code)
3. Companies (Registration Offices and Fees) Rules, 2014 – Additional fee slabs
4. Taxmann analysis – CCFS 2026 scheme scope and eligibility
5. Taxmann – MCA Launches CCFS for Delayed Filings with 10% Additional Fees
6. Business Upturn – CCFS 2026 One-Time Amnesty Announcement
7. Comparable precedent schemes: Companies Fresh Start Scheme (CFSS) 2020, Condonation of Delay Scheme (CODS) 2018, LLP Settlement Scheme 2020

Frequently Asked Questions

What is CCFS 2026 and who is eligible?

CCFS 2026 is the Companies Compliance Facilitation Scheme, 2026 notified by MCA vide General Circular No. 01/2026 dated 24 February 2026. It runs from 15 April 2026 to 15 July 2026 and allows defaulting companies to clear long-pending statutory filings by paying only 10% of the additional fees otherwise applicable. Every active company with overdue filings is eligible, except those facing strike-off action under Section 248, companies that have filed their own strike-off applications, dormant applicants prior to the scheme, entities dissolved through amalgamation, and vanishing companies.

Which forms can be filed under CCFS 2026?

Eleven categories of forms are covered. Annual return forms: MGT-7 and MGT-7A. Financial statement forms: AOC-4, AOC-4 CFS, and AOC-4 NBFC (Ind AS). Auditor appointment: ADT-1. Foreign company filings: FC-3 and FC-4. Legacy Companies Act 1956 forms: 20B, 21A, 23AC, 23ACA, 66, and 23B. Companies can also opt for Form MSC-1 (dormant status) at 50% of normal fees or Form STK-2 (voluntary strike-off) at 25% of normal fees.

How much can a private company actually save with CCFS 2026?

The savings scale with the delay. A private company with two years of missed annual filings (FY 2023-24 and FY 2024-25) would typically pay around ₹1,33,600 in additional fees. Under CCFS 2026, the same filings cost only ₹13,360 – a saving of ₹1,20,240. For longer defaults, savings can easily exceed ₹3 lakh. This is separate from the adjudication penalty under Section 454, which can independently reach ₹5 lakh for the company and ₹50,000 for each officer in default for breach of Section 92 or 137.

Does CCFS 2026 protect directors from disqualification under Section 164(2)?

The scheme does not explicitly restore directorships already cancelled under Section 164(2) for non-filing of annual returns or financial statements for three consecutive years. However, by clearing the backlog before Section 164(2) is triggered or before the ROC takes action, directors prevent disqualification entirely. Companies whose directors are already disqualified should consult a practising company secretary, because the relief under CCFS needs to be combined with an INC-28 or a writ remedy depending on the circumstances.

What happens if a company misses the 15 July 2026 deadline?

After 15 July 2026, the normal regime resumes. Additional filing fees revert to the standard slab (up to 12 times the base fee depending on delay). More importantly, Registrars of Companies may initiate adjudication proceedings under Section 454 for breach of Section 92 (annual return), Section 137 (financial statement filing) and related provisions. Penalty exposure jumps back to ₹10,000 minimum plus ₹100 per day of continuing default for Section 92, and ₹10,000 plus ₹100 per day for Section 137. Directors also face Section 164(2) disqualification risk.

Does CCFS 2026 cover DIR-3 KYC, DPT-3, MSME-1 or INC-22A?

No. CCFS 2026 is limited to the specific forms listed in the circular – primarily annual returns (MGT-7 family), financial statements (AOC-4 family), auditor appointment (ADT-1), foreign company filings (FC-3 and FC-4) and six legacy 1956 Act forms. DIR-3 KYC, DPT-3 (return of deposits), MSME Form 1, INC-22A (ACTIVE), BEN-2, INC-20A and other compliance forms are not covered. These continue to attract normal additional fees and adjudication penalties.

Can a company use CCFS 2026 if an adjudication notice has already been issued?

Conditional yes. If the notice was issued within the last 30 days and no adjudication order has been passed, the company can still file under CCFS 2026 and secure immunity from penalty for the Section 92 or 137 default. However, if more than 30 days have passed since the notice or if an adjudication order has already been passed, the penalty liability under that order survives – only the filing fee relief remains available.

Disclaimer: This article is for information only and does not constitute legal or professional advice. Fees and penalties are illustrative and may vary based on the company’s authorised capital slab, extent of delay, and specific facts. For a binding opinion on your case, engage a practising company secretary.