Companies Act Compliance for IFSC Registered Entities

While IFSCA regulates business activities of entities in GIFT City, corporate law compliance continues under the Companies Act, 2013. Every IFSC registered entity incorporated as a company in India must follow this law, except for specific exemptions notified by the Ministry of Corporate Affairs (MCA).

This article (Part 3 of our series on Audit and Compliance for IFSC Registered Entities) explains:

1. Applicability of the Companies Act, 2013 to IFSC entities
2. Exemptions and relaxations granted to GIFT IFSC companies
3. Key reporting and filing obligations under combined Companies Act + IFSCA framework

1. Applicability of Companies Act, 2013 to IFSC Registered Entities

All GIFT IFSC companies are incorporated under the Companies Act, 2013, meaning core provisions continue to apply, including:

• Financial Reporting (Sec. 129 & 133): IFSC companies must prepare financial statements annually. They may adopt Ind AS or IFRS as prescribed, to align with global standards.
• Audit Requirements (Sec. 139–144): Appointment of statutory auditors, auditor tenure, duties, reporting responsibilities, and restrictions on auditor services remain applicable.
• Board Governance (Sec. 173–177): Board meetings, committees, and director duties apply unless specifically exempted.
• Filing & Returns (Sec. 92, 137): Companies must file annual returns and audited financials with the Registrar of Companies (RoC) along with sectoral filings to IFSCA.

Why this matters:
IFSC entities operate in a dual compliance ecosystem. Even though IFSCA is the sectoral regulator, the Companies Act, 2013 ensures corporate governance, investor protection, and legal enforceability. This duality gives confidence to both Indian and global stakeholders investing or dealing with GIFT IFSC companies.

2. Exemptions & Relaxations for IFSC Companies

To make GIFT IFSC globally competitive, the MCA has given specified IFSC companies several compliance relaxations. These are designed to reduce administrative burden, especially in the first few years of operations, while still ensuring accountability.

Key Exemptions

• Corporate Social Responsibility (Sec. 135):
  IFSC companies are exempt from CSR provisions for their first five years. This means they are not required to spend a portion of profits on CSR activities, easing initial financial obligations.
• Audit Committee & Nomination/Remuneration Committee (Sec. 177 & 178):
  Unlike other public companies, IFSC companies are not required to constitute Audit or Nomination & Remuneration Committees. This reduces compliance costs and simplifies governance structures.
• Auditor Rotation (Sec. 139(2)):
  IFSC companies are exempt from mandatory rotation of auditors. This allows them to continue with the same audit firm beyond the normal 5/10-year rotation rule, reducing disruption and audit transition costs.
• Financial Year Alignment (Sec. 2(41)):
  IFSC companies with a foreign parent can align their financial year with that of the parent without seeking National Company Law Tribunal approval. This eases global consolidation and investor reporting.
• Loan & Investment Restrictions (Sec. 186):
  Relaxations allow IFSC companies to extend loans, guarantees, and investments more freely, supporting cross-border financial services transactions.

Why this matters:
These exemptions position GIFT IFSC as an internationally competitive jurisdiction by removing procedural hurdles that often deter global businesses. For compliance officers, CFOs, and directors, it means a lighter compliance load while still retaining statutory oversight.

3. Reporting & Filing Obligations

Despite relaxations, IFSC companies must ensure timely compliance with essential filings, both under Companies Act and IFSCA regulations.

(a) Sectoral Filings with IFSCA

• Audited Financials: To be submitted annually (by 30th September).
• Net Worth Certificates & Compliance Reports: Semi-annual or annual, depending on entity type (insurance, PSPs, FMEs, intermediaries).
• Cybersecurity Reports: Annual filing within 90 days of financial year end.

(b) Board & Governance Reporting

• At least two Board meetings per year are required for small IFSC companies.
• Filing of key resolutions with RoC (e.g., borrowings, investments).
• Maintenance of statutory registers such as directors, members, and charges.

4. Penalties for Non-Compliance

Failure to comply can lead to:

• Monetary penalties under the Companies Act or IFSCA rules.
• Suspension of license or registration for persistent defaulters.
• Director disqualification for repeated non-filing of returns or financials.

Conclusion

The Companies Act, 2013, along with targeted relaxations, provides a balanced compliance regime for IFSC registered entities. While core obligations like audit, annual returns, and financial filings remain intact, exemptions in areas like CSR, auditor rotation, and committee requirements ease the compliance burden, making GIFT IFSC a globally competitive hub.