Case Summary
Company: Tejas Cargo India Limited
Default: The company availed a commercial vehicle loan from HDFC Bank before obtaining the Certificate of Commencement of Business (INC-20A).
Relevant Section: Section 10A(1) and (2) of the Companies Act, 2013
Penalty Provision: ₹50,000 on company + ₹1,000 per day (up to ₹1 lakh) on each officer in default
Penalty Imposed: ₹50,000 on the company; ₹25,000 each on two directors (₹1,00,000 total exposure)
Adjudicating Authority: ROC Delhi
Order Date: 14 January 2025
What Went Wrong?
The company was incorporated on 26 March 2021 but filed its INC-20A (Commencement of Business Declaration) only on 9 August 2021.
Before this filing, it availed a commercial loan from HDFC Bank on 16 July 2021— a clear exercise of borrowing power without obtaining the commencement certificate, which is prohibited under Section 10A(1).
The non-compliance arose mainly from procedural oversight— the company likely assumed that incorporation itself allowed business operations and financing, overlooking the post-incorporation compliance timeline.
What Could Have Been Done Differently
- Timely filing of INC-20A: Within 180 days of incorporation, before exercising any borrowing power.
- Internal compliance checklist: Ensuring no agreements, bank facilities, or commercial operations are undertaken before obtaining the commencement certificate.
- Professional involvement: A Company Secretary or compliance consultant could have flagged the restriction and advised holding off the loan till post-filing acknowledgment.
- Automated reminders: Use compliance tracking tools to flag due dates within 30–60–90-day intervals post incorporation.
How We Would Have Represented the Company
If we had represented the company, our approach would focus on:
- Demonstrating bona fide intent: The company did not commence active business; the loan was preparatory, not operational.
- Highlighting immediate rectification: The declaration (INC-20A) was filed within 25 days of the loan, showing voluntary correction.
- Invoking proportionality: Under Section 454(3), the Adjudicating Officer has discretion in fixing the penalty considering nature and gravity of default.
- Citing absence of mala fide gain: The transaction caused no loss to stakeholders or exchequer; it was a technical lapse in timing. Such an approach could have led to a reduced penalty or advisory closure under compassionate grounds — particularly for a first-year procedural default.
Learning for Professionals
- Always verify INC-20A filing status before signing any loan or lease agreements post-incorporation.
- Treat the Commencement Certificate as a green flag for all operational and financial activities.
- Respond promptly to ROC show cause notices — tone and documentation can significantly influence the adjudicating outcome.
- Maintain a compliance tracker for all post-incorporation filings (INC-20A, DIR-3 KYC, AOC-4, MGT-7A, etc.).
Professional Insight — CS Prashant Kumar
“In practice, ROC officers view Section 10A violations seriously because they touch the foundation of company operations. However, when rectified swiftly and accompanied by a transparent explanation, adjudicating officers often limit penalties to the minimum statutory figure.”
If You Receive a Similar Notice
- Don’t ignore it. Respond within 15 days with a factual, humble representation.
- Attach proof of compliance and rectification (like SRN of INC-20A).
- Avoid emotional language — stick to facts, timing, and intent.
- Engage a professional early to structure your defence and avoid escalation to RD.
References
[ROC Delhi Adjudication Order — Tejas Cargo India Limited (Order ID: PO/ADJ/01-2025/DL/00050, dated 14.01.2025)]