New Delhi: More than one in three eligible companies in India failed to file their annual returns or financial statements in FY25, according to government data, prompting legal experts to warn that the country’s corporate registry is becoming increasingly cluttered with inactive, dormant and financially stressed companies, undermining the reliability of records relied upon by investors, lenders and regulators.
Data tabled in the Lok Sabha on 20 July shows statutory filing compliance has deteriorated steadily over the past five years, even as the number of registered companies has surged, raising questions over the integrity of the corporate affairs ministry’s database and the effectiveness of enforcement.
The number of companies that did not file annual returns rose from 252,394 (22.6% of eligible companies) in 2020-21 to 664,576 (37.7%) in 2024-25. Alongside, the count of companies that did not file financial statements increased from 255,198 (22.9%) to 662,349 (37.5%) over the same period.
The parliamentary reply also exposed a striking enforcement gap. While more than 664,000 companies failed to file annual returns in FY25, action was initiated against only 277 companies for such violations. Similarly, only 291 of more than 662,000 companies faced action for failing to file financial statements.
“Annual returns and financial statements are the primary mechanism by which the MCA (ministry of corporate affairs) gathers data that becomes public record about a company’s shareholding, management and financial position. Large-scale non-filing degrades the reliability of this public record for parties conducting due diligence, credit assessment or KYC,” said Jay Parikh, partner at Cyril Amarchand Mangaldas.
Queries emailed to the ministry of corporate affairs remained unanswered till press time.
Why compliance is slipping
The parliamentary reply does not explain the sharp rise in non-compliance, but legal experts say it is likely the result of several factors.
According to Anuj Trivedi, partner at Dentons Link Legal, the rise in the number of companies not undertaking statutory filings appears to be driven by increasing compliance obligations and financial constraints faced by smaller businesses, among other reasons.
“Limited compliance capacity among small businesses, frequent regulatory changes, portal-related issues, audit delays, and lack of awareness are key factors behind delayed or missed statutory filings. Limited use of automated compliance tools further adds to the challenge,” said Prasad Nakashe, partner at Deloitte India.
Under the Companies Act, 2013, businesses are required to file annual returns and financial statements every year with the ministry of corporate affairs, providing key information on their ownership, management and financial position.
Hardeep Sachdeva, senior partner at AZB & Partners, said compliance has become increasingly technology-driven and documentation-intensive, making it more difficult for smaller companies with limited governance infrastructure to keep up with filing requirements.
Lawyers said the ease-of-doing-business reforms have made company incorporation smoother, but annual compliance remains challenging, particularly for small businesses without dedicated legal or company secretarial support.
“For companies that are financially stressed or being wound down informally, escalating late filing fees and penalties can make catching up expensive and may discourage them from undertaking remedial actions,” said Parikh.
Under the Companies Act, companies that file their annual returns or financial statements late must pay an additional fee of 100 for each day of delay, with no upper limit. If they continue to default and regulatory action is initiated, they may also face statutory penalties of up to ₹2 lakh for the company and up to ₹50,000 for each officer in default.
Growing corporate base
The deterioration in compliance comes even as India’s corporate base has expanded rapidly. The number of eligible companies rose 58% over the five-year period to 1.76 million in FY25, according to the parliamentary reply.
The compliance concerns come against the backdrop of an increasingly crowded corporate registry. As of June 2026, India had 3.15 million registered companies, but only 2.12 million were classified as active, data from ministry of corporate affairs’ corporate data management (CDM) portal showed. More than one million had been struck off, declared dormant, were under liquidation, undergoing strike-off proceedings or had shifted to other legal structures.
Under company law, a strike-off removes a company from the MCA register after it becomes inactive or fails to comply with statutory requirements.
State-wise data showed the compliance challenge is concentrated in India's largest corporate hubs. Maharashtra recorded the highest number of annual return defaults in 2024-25, with 127,624 companies failing to file, followed by Delhi (73,867), Uttar Pradesh (61,959), Karnataka (51,870), Tamil Nadu (48,020) and Telangana (47,390).
Remedial measures
The government, in its Lok Sabha reply, said it has taken several steps to improve compliance, including reminder emails and SMS alerts, awareness programmes, an e-adjudication module, simplified compliance norms for startups and small companies, lower incorporation fees, expanded fast-track mergers and continued permitting virtual shareholder meetings.
To improve compliance, Vijaykumar Puri, partner at chartered accountancy firm VPRP & Co LLP, recommended capping late filing fees, making it easier for inactive companies to obtain dormant status or exit, resuming large-scale strike-offs, increasing awareness of compliance schemes and strengthening enforcement.
Sudhir Bassi, executive director at Khaitan & Co, also suggested MCA should publish the names of persistent defaulters and conduct wider awareness campaigns to improve compliance. He also suggested that the Institute of Company Secretaries of India (ICSI) play a bigger role in educating companies through seminars and outreach programmes.