Module: | Specialized Audits, Tech & ESG Disclosures
Q82: Consider the following statements regarding the physical verification of a company's Registered Office under Section 12 of the Companies Act, updated for 2025:
1. The Registrar of Companies (RoC) has the discretionary power to initiate a physical verification of a company’s registered office if there is reasonable cause to believe the company is not carrying on any business.
2. During the physical verification, the RoC is required to take a photograph of the registered office building in the presence of at least two independent local witnesses.
3. If the physical verification reveals that the registered office does not exist, the RoC must immediately levy a flat penalty of Rupees 5 Lakhs without initiating any strike-off proceedings.
Which of the above statements is/are incorrect?
2. During the physical verification, the RoC is required to take a photograph of the registered office building in the presence of at least two independent local witnesses.
3. If the physical verification reveals that the registered office does not exist, the RoC must immediately levy a flat penalty of Rupees 5 Lakhs without initiating any strike-off proceedings.
Which of the above statements is/are incorrect?
✅ Correct Answer: C
🎯 Quick Answer:
C. Only 3 is incorrect.Structural Breakdown: Statement 1 is correct; the RoC holds explicit statutory power to conduct these surprise physical inspections.
Statement 2 is correct; the rules mandate photographic evidence and the presence of two independent local witnesses to prevent arbitrary harassment by officials.
Statement 3 is incorrect; if the office is found to be non-existent, the law empowers the RoC to initiate proceedings for the removal of the company's name from the register (strike-off under Section 248), rather than simply levying a flat financial penalty.
Historical/Related Context: Tens of thousands of companies were historically registered at the exact same 100-square-foot address in Kolkata or Delhi, acting purely as conduits for money laundering.
The MCA introduced physical verification rules to purge these phantom entities from the database.
Causal Reasoning: Fining a non-existent shell company is useless because there is no legitimate business to pay the fine.
The only effective regulatory response to a fake address is to legally terminate the corporate entity (strike-off) so it can no longer be used for illicit banking transactions.