By CA Surekha S Ahuja
A refined examination of law, interpretation, procedure, defaults, and defence positions
A company’s Certificate of Incorporation does not automatically grant it the right to operate. Modern corporate regulation in India follows a two-stage corporate birth: incorporation, and then activation. The second stage is achieved only through Form INC-20A, the statutory declaration of commencement of business.
This requirement, introduced to curb shell entities, is often underestimated—but legally, it forms the very foundation of the company’s capacity to transact, borrow, and assume obligations.
Failure to comply invites penalties, director liability, and even the possibility of strike-off.
What follows is a comprehensive professional commentary, integrating statutory law, procedural mandates, interpretational nuances, practical examples, and legitimate defence strategies.
Statutory foundation and legal effect
Section 10A of the Companies Act, 2013 mandates that every company incorporated on or after 02.11.2018 must file a declaration confirming:
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Receipt of subscription money as per the Memorandum of Association, and
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Verification of its registered office.
The declaration must be filed within 180 days of incorporation in Form INC-20A, certified by a practising professional.
Legally, Section 10A is not a procedural afterthought. It is a condition precedent to a company exercising any commercial or borrowing powers. Until the declaration is filed, the company remains a corporate entity “in existence” but not “in operation”.
Applicability and specific clarification regarding OPC
A common misunderstanding persists that One Person Companies (OPCs) are exempt. The statutory language admits no such exemption.
Section 10A applies to “every company incorporated after the commencement of this Act”, without differentiation.
Thus, OPC is fully covered.
Other structures such as Section 8 companies, small companies, or start-ups are also equally bound unless they were incorporated before 02.11.2018 or are companies without share capital.
For OPCs, the single subscriber’s capital must be deposited through banking channels and must match the MOA subscription amount.
Legal interpretation and deeper implications
Nature of the requirement
Filing INC-20A is akin to statutory affirmation of corporate credibility. It demonstrates:
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Capital is genuinely infused,
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The registered office exists at the declared location,
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The company is operationally ready.
The objective is regulatory sterilisation—preventing incorporation of entities not backed by real promoters or funds.
Effect on corporate acts
Without INC-20A:
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The company cannot legally borrow.
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Business transactions may be treated as ultra vires.
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Banks may flag the entity as non-operational.
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Input–output GST credit linkages may appear suspicious.
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Any invoice raised may lack legal backing.
A company operating without filing INC-20A is often perceived by regulators as functioning without legal competence.
Procedure and documentation
Capital introduction
Subscription money must come only from the subscriber’s bank account, matching the MOA. Cash, book entries, or third-party deposits typically invite queries or rejection.
Mandatory evidence
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Bank statement or certificate showing capital receipt
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Proof of registered office verification (supporting INC-22)
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Board resolution for opening the bank account
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Professional certification confirming correctness
Delay in opening a bank account—though common—does not extend the 180-day statutory limit.
Consequences of non-compliance
Statutory penalties
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Company: ₹50,000
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Directors: ₹1,000 per day, capped at ₹1 lakh
Regulatory action under Section 248
If the ROC forms an opinion that the company has not commenced its business within 180 days, it may initiate strike-off proceedings.
Companies with no bank activity and no INC-20A filing are the primary targets.
Practical consequences
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Banks deny loans or account upgrades
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Vendors decline contracts requiring proof of business commencement
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Start-ups face funding delays due to incomplete compliance
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GST authorities question early transactions
INC-20A thus becomes the first test of promoter genuineness.
Illustrative real-world examples
Capital introduced in cash
A private company files INC-20A attaching a cash deposit slip. ROC issues a notice citing lack of traceability.
Outcome: Capital was reintroduced through banking channels.
OPC presuming exemption
An OPC applying for collateral-free loan discovers the portal shows “INC-20A not filed”.
Outcome: Bank classification marked the company as “inactive”; loan proposal closed.
ROC strike-off notice
A new company with no bank account and no filings receives a notice under Section 248(1).
Outcome: Filing INC-20A with reasons and proof of business intent stopped strike-off.
Defence strategies and reasonable cause
Bank-related delay
If the promoter demonstrates bank delay (email trails, KYC escalations, system errors), the ROC may consider it a valid “reasonable cause”.
Delayed capital infusion
Where funds were introduced late due to liquidity issues, the company should maintain:
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Board minutes showing intent to infuse capital earlier,
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Email correspondences evidencing financial planning,
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Evidence of subsequent compliance.
Preventing strike-off
When replying to Section 248 notices:
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Demonstrate commercial intent (agreements, GST correspondence)
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Show bank proof of capital deposit
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Highlight that delay was procedural, not deliberate
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Emphasise upcoming business activity
Regulators generally prefer compliance over strike-off if a company evidences genuineness.
Professional observations and subtle compliance issues
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Capital must mirror the amount stated in the MOA—no enhancements before 20A.
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Invoices should not be generated before filing INC-20A as this may be treated as pre-commencement activity.
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Foreign subscribers must complete FIRC and reporting before filing.
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A company filing other forms before 20A (like GST registration or EPFO registration) may attract questions on how operations commenced.
Professionally, the form serves as the earliest indicator of whether the company is compliant or merely existing on paper.
Closing insight
Among all company law compliances, Form INC-20A is the shortest in length but the strongest in legal effect.
It is the statutory bridge between incorporation and operation—the declaration that separates a functioning business from a dormant shell.
When filed correctly, it establishes corporate legitimacy.
When ignored, it places the company on the regulatory radar long before it begins business.
For promoters and professionals, the guiding principle is simple:
Treat INC-20A not as a formality, but as the company’s official entry into lawful commerce.
