THE LEGAL BRIDGE

Judiciary & Law Notes Series

THE COMPANIES ACT, 2013

CHAPTER XXV

Companies to Furnish Information or Statistics

Section 405

For Judicial Service Aspirants & Law Students

RJS • DJS • PCS-J • HJS • UPJS • BJS • MPCJ

Central Govt Power to Call Information • MSME-1 • DPT-3 • PAS-6 • BEN-2

— Enriched with landmark judgments and illustrative case law —

Chapter XXV — Companies to Furnish Information or Statistics

Chapter XXV of the Companies Act, 2013 consists of a single section — Section 405 — which empowers the Central Government to call for information or statistics from companies on matters relating to their constitution or working. Though brief, the provision sits at the intersection of corporate transparency and regulatory surveillance. It is the statutory basis for several widely-used compliance filings such as Form MSME-1 (for outstanding payments to Micro, Small, and Medium Enterprises), Form DPT-3 (return of deposits), and Form PAS-6 (half-yearly reconciliation of dematerialised securities).

For examinees, the emphasis is not on the text of Section 405 itself (which is short), but on the breadth of its scope, the major notifications issued under it, and its role as a flexible instrument by which the Central Government can gather corporate data for economic planning, policy formulation, and regulatory action.

Section 405 — Power of Central Government to Direct Companies to Furnish Information or Statistics

(1) Power to Call for Information

The Central Government may, by order, require companies generally, or any class of companies, or any company, to furnish such information or statistics with regard to their or its constitution or working, and within such time, as may be specified in the order.

Three important features are embedded here:

• Scope of addressees — 'companies generally' permits universal orders; 'any class of companies' permits targeted orders (e.g., listed companies, NBFCs, specific sector); 'any company' permits individual orders for special scrutiny;
• Scope of subject matter — the information sought may relate to the 'constitution' of the company (ownership structure, share capital, directors) or its 'working' (operations, transactions, financial position, compliance history);
• Discretion on time — the Central Government may specify 'such time' as it considers reasonable, with the particular deadline contained in the order itself.

(2) Mandatory Compliance

Every order under sub-section (1) shall be complied with by the company or companies to which it is addressed, in the manner and within the time specified therein. No company that is the subject of an order under Section 405 may refuse compliance on grounds of commercial confidentiality or otherwise — the Act creates an absolute obligation to furnish the information sought.

(3) Publication in Official Gazette

Any order under sub-section (1) may, if necessary, be published in the Official Gazette. Publication converts what might otherwise be a company-specific order into a general directive, broadening its legal effect and putting the entire regulated class on notice.

(4) Inquiry upon Suspected Misinformation

Where a company fails to comply with an order made under sub-section (1), or furnishes any information or statistics which is incorrect or incomplete in any material respect, the company shall be liable to penalty of ₹20,000 and in case of continuing failure, with a further penalty of ₹1,000 for each day after the first during which such failure continues, subject to a maximum of ₹3 lakh.

(5) Powers to Inspect and Verify

Where an order has been issued under sub-section (1), the Central Government may require the company to furnish such information or statistics to any person, authority or officer as may be specified in the order. The officer so specified has implicit powers to verify and scrutinise the information furnished, and where necessary, escalate to a Section 206 inspection or a Section 210 investigation.

Section 405 as a Flexible Regulatory Instrument

The brevity of Section 405 disguises its practical importance. The section is frequently invoked by the Ministry of Corporate Affairs to gather data for:

• Economic policy formulation — aggregate data on corporate capital, employment, turnover, CSR spending, feeding into NITI Aayog analyses and RBI financial stability reports;
• Identifying trends in corporate misconduct — such as routing of transactions through shell companies, non-payment to MSMEs, lapses in beneficial ownership disclosures;
• Implementing specific policy interventions — the government invoked Section 405 during the demonetisation exercise of 2016-17 to gather information on cash holdings of companies;
• Mandating structured periodic disclosures — the series of Section 405 notifications has converted several one-off inquiries into standing disclosure requirements.

Major Notifications Issued Under Section 405

Form MSME-1 — Half-Yearly Return of Outstanding Payments to MSMEs

The Specified Companies (Furnishing of information about payment to micro and small enterprise suppliers) Order, 2019, was issued by the Central Government under Section 405. Every 'specified company' that has received goods or services from 'micro or small enterprises' and whose payment to such supplier exceeds forty-five days from the date of acceptance or deemed acceptance, is required to file a half-yearly return in Form MSME-1 with the Ministry of Corporate Affairs, disclosing —

• The amount of outstanding payment to each MSME supplier;
• The reasons for the delay in payment beyond 45 days;
• Period of outstanding amount.

The return must be filed by 30 April (for October-March period) and 31 October (for April-September period). Failure to file attracts the Section 405(4) penalty. This notification implements Section 9 of the MSME Development Act, 2006, and is a significant policy intervention to protect the working capital cycle of small businesses from delayed payments by larger corporate buyers.

Form DPT-3 — Return of Deposits

The Companies (Acceptance of Deposits) Rules, 2014, read with Section 73 of the 2013 Act, require companies to file Form DPT-3 annually. A supplementary notification under Section 405 expanded the scope to capture not only 'deposits' under Section 73 but also amounts received by companies as loans or advances that fall outside the deposit definition. The DPT-3 return is the single most comprehensive reporting of a company's external borrowings and public deposits — critical data for RBI, SEBI, and regulatory monitoring.

Form PAS-6 — Half-Yearly Reconciliation of Dematerialised Securities

Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 read with Section 405 mandates Form PAS-6 reporting. Unlisted public companies must reconcile their share capital with the dematerialised holdings registered with the depositories (NSDL, CDSL) and file this report half-yearly. The rule implements the policy objective of moving all public company shares to dematerialised form — reducing forgery, improving transfer efficiency, and enabling tax traceability.

Form MGT-6 — Declaration of Beneficial Interest

Under Section 89 read with Section 405, companies receive declarations of beneficial interest in shares (MGT-4 by registered owner, MGT-5 by beneficial owner) and must file Form MGT-6 with the Registrar within 30 days. This is part of the beneficial ownership transparency architecture, complementing Section 90 (Significant Beneficial Owners).

Form BEN-2 — Return of Significant Beneficial Owners

Section 90 read with the Companies (Significant Beneficial Owners) Rules, 2018, notified under Section 405, requires the filing of BEN-2 within 30 days of receipt of SBO declaration. This is the key anti-opacity tool — tracing the real individuals who control companies through layers of intermediate entities.

Section 405 in the Context of Corporate Surveillance

The sweeping powers under Section 405 must be read together with other data-gathering mechanisms in the Act:

Section 405 fills the gap between routine annual filings (which are standardised and limited in scope) and formal investigation (which is targeted, adversarial, and expensive). It is a flexible tool to gather thematic data across the corporate population — whether for regulatory preparedness, identifying emerging risks, or enabling policy-driven interventions.

Judicial Approach — Limits on Section 405

Although Section 405 creates a broad obligation, Indian courts have clarified that the power must be exercised reasonably and for a legitimate purpose. Some guiding principles from the case law on similar statutory-information powers:

Procedural Safeguards and Compliance Strategy

For companies receiving Section 405 orders, best practice calls for:

• Prompt acknowledgement of receipt and compliance within the specified timeline;
• Internal audit of the accuracy of data to be furnished — because Section 405(4) penalises not only non-compliance but also incorrect/incomplete information;
• Retention of underlying documentation supporting the information furnished (annual reports, board minutes, bank statements, contracts) in case of subsequent scrutiny;
• Engagement of legal counsel where the order appears vague, overbroad, or beyond the scheme of the Act — to consider judicial challenge;
• Cross-verification with the company secretary or compliance officer that the information furnished is consistent with previous filings (inconsistencies are red flags for the Registrar).

Section 405 and Cross-Border Data Requirements

An emerging issue is the scope of Section 405 when the information sought is held outside India. For multinational companies operating through Indian subsidiaries or branches, data may be held in overseas data centres, subject to foreign data protection laws (GDPR, CCPA, etc.). The Companies Act does not explicitly address this tension, but as a matter of practice, the Central Government's orders typically relate to Indian operations and Indian-held data. The Digital Personal Data Protection Act, 2023, further adds layer of consideration — personal data shared under Section 405 must comply with the DPDPA's consent and purpose-limitation framework where it relates to natural persons (employees, directors, customers). The interplay of these frameworks is still evolving.

Practical Significance — The MSME-1 Example

To illustrate the real-world impact, consider the MSME-1 filing mandate. As of 2024, it is estimated that over 2 lakh Indian companies fall within the 'specified company' definition — those having dealings with MSME suppliers and having delayed payments beyond 45 days. The filings made under this single notification have:

• Provided the government a quantitative picture of the working capital stress in the MSME sector;
• Enabled the MSME Ministry to pursue delinquent large corporates through the Facilitation Council mechanism under the MSMED Act, 2006;
• Influenced the design of the Trade Receivables Discounting System (TReDS) — permitting MSMEs to factor receivables on a regulated platform;
• Flagged individual offenders for targeted regulatory action;
• Supported Reserve Bank of India's financial stability assessments and its surveillance of sectoral credit flows.

This exemplifies how a single section — Section 405 — operating alongside secondary notifications, can generate a disclosure regime of significant economic and regulatory weight.

Future Trajectory

Section 405 is likely to be used with increasing frequency as the Central Government expands digital surveillance capabilities. Emerging areas of data gathering include:

• Environmental, Social, and Governance (ESG) metrics — with India's commitment to net-zero by 2070, corporate carbon disclosures may become mandatory under Section 405 notifications;
• Corporate Social Responsibility (CSR) data — more granular periodic reporting on CSR expenditures, impact assessments, and beneficiary details;
• Supply chain information — for companies sourcing from abroad, to support 'Make in India' monitoring and trade-flow analysis;
• Climate-related financial disclosures aligned with international frameworks such as TCFD;
• Cyber-security incidents — mandatory reporting of material cyber breaches for listed and large unlisted companies.