Amendments in the Companies Act, 2013 and MCA relaxations due to outbreak of COVID-19
1) General circular 10/2020 & 15/2020 – Regarding clarification on spending for CSR Funds for COVID-19 & FAQs thereof :
– The Ministry of Corporate Affairs via General circular number 10/2020, clarified that the amount spend on account of CSR funds for COVID-19 is eligible CSR activity.
– The funds may be spent for various activities which are mentioned under item number (i) which includes activities relating to and eradicating hunger, poverty, malnutrition, promoting healthcare including preventive healthcare, sanitation, making available safe drinking water and (xii) which relates to disaster management including relief, rehabilitation & reconstruction activities of Schedule VII of the Act.
It is further clarified via FAQs which expenditure will be considered as eligible expenditure for CSR activities related to COVID-19., ( this is only an illustrative list for better understanding) :
|Expenditure||Eligible or Not||Reason|
|1) Contribution to PM Cares Fund.||Eligible||Will fall under item number viii of Schedule VII and has been further clarified via office memorandum F. No. CSR-05/1/2020-CSR-MCA|
|2) Contribution to Chief Minister’s Relief Fund or State Relief Fund.||Not Eligible||Not included in Schedule VII of the Companies Act, 2013|
|3) Contribution to State Disaster Management Authority.||Eligible||Covered under item xii of the schedule and clarified in the circular.|
|4)Spending CSR funds for COVID -19||Eligible||Specifically in circular 10/2020, it is specified that CSR funds can be spent for various activities related to COVID-19, under items i & xii of Schedule VII and the items mentioned should be liberally interpreted.|
|5) Payment of salary / wages to Employees/ workers during lockdown.||Not Eligible||Its contractual & statutory obligation of the company.|
|6) Payment of wages to Casual / daily wage workers during lockdown.||Not Eligible||Its moral / humanitarian / contractual obligation of all companies irrespective of whether they have legal obligation of CSR or not.|
|7) Ex-gratia payment to temporary / Casual /daily wage workers||Eligible subject to condition||If payment made over and above the disbursement of wages, specifically to combat COVID-19, then it is admissible CSR expenditure as one time exception however there has to be made an explicit declaration regarding the same by the Board of Company and the Statutory auditor should duly certify the same.|
2) General circular 11/2020 – Regarding Special measures under Companies Act, 2013 and LLP Act, 2008.
The following measures have been implemented by The Ministry of Corporate Affairs to reduce the compliance burden :
1) No additional fees to be paid for delay in filing any document, return, statement, etc during moratorium period from 1st April, 2020 to 30th September, 2020, in the MCA-21 Registry irrespective of the due dates.
Also Companies Fresh Start Scheme, 2020 has been introduced via circular 12/2020 and some modifications are made in the LLP Settlement Scheme, 2020 via circular 13/2020, which will not only reduce the compliance burden but also enable longstanding noncompliant Companies/LLPs to make a fresh Start.
2) Section 173 of the Companies Act , 2013 requires that every company shall held minimum 4 meetings of board of directors and the gap between 2 meetings shall not exceed 120 days, here looking into the current situation due to COVID-19, an extended period of additional 60 days is provided till 30th September 2020, which means gap between two consecutive meetings of board may extend to 180 days till next 2 quarters, instead of 120 days . This is one time relaxation provided by government.
3) The Companies (Auditor’s Report ) Order, 2020 shall be applicable from F.Y 2020-21 instead of F.Y 2019-20 to ease the burden on companies and auditors.
4) The independent directors of a Company have to attend at least one meeting in a year without the attendance of non independent directors & members of management, as per Schedule IV of the Companies Act, 2013.
For, the F.Y 2019-20 , if independent directors were not able to hold even 1 meeting , then it will not be considered as a violation.
5)The requirement of section 73(2)(c) of the Companies Act 2013 for depositing at least 20% of the amount of deposits maturing during F.Y 2020-21 , in deposit repayment reserve before 30th April 2020 can be compiled till 30th June 2020.
6)The requirement of Rule 18 of Companies (Share Capital & Debenture) Rules 2014, to invest / deposit at least 15% of amount of debentures maturing during the year in specified investment methods , before 30th April, 2020 can be complied till 30th June, 2020.
7) For complying with the requirement of filing the declaration in MCA Registry , u/s 10A of Companies Act, 2013 by newly incorporated companies within 180 days of incorporation, an additional period of 180 days is allowed.
8) As per section 149 of the act, every company shall have at least 1 director who has stayed in India for at least 182 days in previous calendar year, non compliance of this minimum residency requirement for F.Y 2019-20 will not be considered as a violation.
Looking into the current situation and circumstances due to pandemic caused by COVID-19 , companies are requested to take all urgent decisions requiring approval of members, other than items of extraordinary business or business where any person has a right to be heard, through postal ballet/e-voting mechanism, in accordance with the provisions of the Act and rules there under. (without holding general meeting which requires physical presence of members at a common venue).The procedure for conducting such meeting is prescribed in the circular in detail in Circular 14/2020.
Further to resolve certain issues faced by the stakeholders in receiving and serving notices/ responses by post in the current circumstances the government has provided some measures which includes use of electronic means for conducting the same such as emails, video conferencing, OAVM (Other Audio Visual Method) and the procedure for the same is prescribed in Circular 17/2020.
4) General circular 16/2020 – Relaxation provided with respect to filings to be made u/s 124 and 125 of the Companies Act, 2013 read with IEPFA( Accounting, Audit, Transfer and Refund) Rules, 2016.
– The government via circular 11/2020 has already provided that no additional fees shall be levied in case of delay in filing forms, statements, etc in MCA-21 till 30th September, 2020, the same applies to filings required under section 124 and 125 of the act read with rules, also other forms like IEPF 1, IEPF-1A, IEPF-2, IEPF-3, IEPF-4, IEPF-7 and e-verification form IEPF-5 shall also be covered under the said relaxation.
The above summary is based on the knowledge as well as opinion of the author.