Tech Glitches Halt Startup Filings On MCA Site

As the current fiscal year (FY23) is nearing its end, it is time for unlisted MSMEs and startups to submit their regulatory filings on the Ministry of Corporate Affairs’ portal (MCA21). 

However, following the launch of the MCA21’s new Version 3 (V3) on 23rd January, companies are facing issues in submitting their filings. They have also raised concerns regarding this with the ministry.

Taking note of this matter, India’s Finance Minister Nirmala Sitharaman recently directed the MCA to create a special team to address public grievances on priority and further asked the ministry to monitor issues on a regular basis. 

Sitharaman also tweeted that for resolving these issues, the MCA is working along the Institute of Chartered Accountants of India (ICAI), the Institute of Corporate Secretaries of India (ICSI), LTIMindtree, which developed Version 3, National Institute for Smart Government (NISG) and  consultants of EY India. 

On 23rd January, when the first phase of Version 3 (V3) was launched, 46 forms were migrated from MCA21’s previous version (V2) to the new version. In MCA21’s old version, forms used to be downloaded, filled offline and then, used to get uploaded on the website. At the end, a registered company or professional had to pay challan (payment receipt) for submitting filing on the MCA site.

However, the new version (V2) is completely different from the old version as it has digitised the entire filing process. 

“Now, the MCA is making a practice of converting the entire filing process online. When we say online, it means that a company or professional would now have to be connected online with the MCA21 website to fill up forms, submit those forms and only then return filings could happen,” said Nakul Grover, partner at Cicero Chambers LLP. 

With the migration of forms to Version 3, Indian startups and SMEs are either unable to access forms or are facing errors while submitting those forms on the website. 

Speaking about this tech failure, Devansh Lakhani, a chartered accountant and an angel investor said that out of the 46 forms that were moved to V3, most of the issues are coming in the PAS-3 and MGT-14 forms.

In essence, the PAS-3 form is filed when startups and SMEs issue new securities while the MGT-14 form is submitted when the companies pass a new resolution. 

“I believe this issue might take some time to resolve and MCA should go back to V2 forms till the time it’s not resolved. Also, next time while introducing an enhanced version, the ministry should pilot test it in a beta version before mass launching it,” Lakhani added. 

What Are The Glitches On MCA21 Portal?

Besides PAS-3 and MGT-14, the INC-7 form, which is used for filing incorporation details, is another crucial form that startups are unable to access currently on the MCA21 website. Owing to this, startups are not able to register themselves.  

“Incorporation form (INC-7) which is used for incorporation of a new company is not available in the V3 version. Also, the MCA21 website is also not sending ‘name availability certificate’ to the respective company’s ID, which applied for it,” said Jitender Ahlawat, founder of HJA & Associates LLP (a legal firm). 

Originally, for incorporating a business entity, a company needs to first apply for a name certificate and then, for an incorporation form. Due to technical errors at MCA site, companies are able to file for name certification but are not able to apply for an incorporation form. 

A company prefills a PAS-3 form and adds data related to issued capital, subscribed capital, and paid up capital before allotment and then uploads the form on the MCA21 website. Post uploading the form, the website now shows errors in the data or shows incorrect data, which is again not editable. 

“In this scenario, a company cannot amend data in some columns of the PAS-3 form and thus, it is unable to complete filings. The problem persists even after a company issues a clarification letter,” Jitendra explained. 

To give relief to troubled startups and MSMEs, the Centre issued a circular on 7th February waiving off penalties up to 22rd February on late filings of 46 forms, which have been migrated to V3 portal. Irrespective of the Centre’s relief, companies are complaining that MCA21 portal is still levying penalties for late filings.

“Even after the issuance of the circular, the MCA21 portal is not waiving off penalties. Because of a technical glitch on the website, companies are receiving challans with additional fees. The maximum penalty, a company is paying right now is 12X of the normal fee, which ranges between INR 300 and INR 600,” Nakul Grover said. 

Under the Version 3, the MCA site is now offering only two login ids to registered users and is also linking these ids with Aadhar and Pan Card thus, giving limited access to users.  The site is also disassociating digital signatures of companies’ directors and other professionals, which in turn, is impacting business deals particularly cross-border contracts. 

Complaining about these issues, Muthoot Finance approached the Karnataka High Court, in February, urging it to direct the Ministry of Corporate Affairs to accept its filings in physical form. 

Acknowledging the writ petition, Karnataka HC asked the ministry to receive Muthoot Finance’s documents in physical form since the online system (MCA site) has crashed and there is no other way than to receive the copy of the said documents physically, according to the judicial papers.