COMPANIES FRESH START SCHEME, 2020 (CFSS-2020)

[MCA General Circular No. 12/2020 dated 30th March, 2020]

The Ministry of Corporate Affairs (‘MCA’) had, in the Circular No. 11/2020, dated 24th March, 2020, inter alia other relaxations / special measures provided in view of the Covid-19 pandemic, indicated regarding providing immunity to the Companies and LLPs with respect to delayed filing of forms.

MCA has received representations from various stakeholders requesting for grant of one-time opportunity, so as to enable them to complete their pending compliance by filing necessary documents in the MCA-21 registry including filings without being subject to a higher additional fee on account of any delay.

The Companies Act, 2013 (‘the Act’) requires all companies to make annual statutory compliance by filing the Annual Return and Financial Statements. Apart from this, various others statements, documents, returns, etc. are required to be filed on the MCA-21 electronic registry within prescribed time limits, filing fees for filing such statements, documents, returns, etc is governed by section 403 of the Companies Act, 2013 read with Companies (Registration offices and Fees) Rules 2014.

In furtherance of the Ministry’s Circular No. 11/2020, dated 24th March, 2020 and in order to facilitate the companies registered in India to make a fresh start on a clean slate, MCA has decided to take certain alternatives measures for the benefits of all companies.

In order to give such an opportunity to the defaulting companies and to enable them to file the belated documents in the MCA-21 registry, the Central Government in exercise of powers conferred under section 460 read with section 403 of the Companies Act, 2013 has decided to introduce a Scheme namely, Companies Fresh Start Scheme, 2020 (CFSS-2020)” condoning the delay      in filing the above mentioned documents with the Registrar, in so far as it relates to charging of additional fees, and granting of immunity from launching of prosecution or proceedings for imposing penalty on account of delay associated with certain filings. Only normal fees for filing of documents in the MCA-21 registry will be payable in such case during the currency of CFSS-2020 as per the provisions of section 403 read with Companies (Registration offices and Fees) Rules 2014 and section 460 of the Act.

In addition, the scheme gives an opportunity to inactive companies to get their companies declared as ‘dormant company’ under section 455 of the Act by filing a simple application at normal fee. The said provision enables inactive companies to remain on the register of the companies with minimal compliance requirements.

Accordingly, this Scheme, though rolled around the same time when several other relaxations are being provided amid the lockdown to contain the spread of Covid-19 virus, however CFSS-2020, apparently is not rolled out as a measure amid Covid-19 only, in fact it is an Amnesty Scheme of the MCA to help long defaulting companies to complete filing related compliance without any additional fees/ penalty / prosecution.

Total 9 pager Circular  No. 12/2020 dated 30th March, 2020 contain the provisions with respect to CFSS-2020 as to who can avail the scheme, who cannot, for what non-compliance, until when etc; the form to avail the scheme and the proforma of the immunity certificate to be granted to companies on availing of the scheme.

The said CFSS-2020 is applicable between the 1st of April, 2020 and the 30th of September, 2020. Not only to the Companies, the MCA has also given a bit of relief spree to the LLPs by making certain necessary changes to the LLP Settlement Scheme, 2020(issued on March 04, 2020 under Circular No. 6/2020) under Circular No. 13/2020, dated 30th March 2020.

The said Scheme CFSS-2020 is a golden opportunity for the defaulting companies to clear their slate and to make good any filling related defaults, irrespective of the duration of defaults, without any additional fees/ penalty / prosecution and make a fresh start as a fully compliant entity. The key objective of this Scheme includes the following:

  • Condone the delay in filing documents in relation to charging of additional fees and grant immunity from launching of prosecution or proceedings for imposition of penalty on account of delay associated with such filings;
  • Additional time of 120 days will be allowed to file appeal for those cases where the last date for filing appeal under section 454 of the Act falls between 01.03.2020 and 31.05.2020
  • Permit the inactive companies to declare as ‘Dormant Companies’ under section 455 by filing e-form MSC-1 at normal fee on said form; or
  • Apply for strike off under section 248(2) of the Act after clearing backlogs

Applicability and duration of Scheme CFSS-2020

The said CFSS-2020 is applicable between the 1st of April, 2020 and the 30th of September, 2020. Therefore, company will be able to file remaining forms, compliances till 30 September, 2020.

Further, the said CFSS-2020 is applicable to Defaulting Companies. As per para 6(iii) of CFSS-2020, any ‘Defaulting Company’ is permitted to file belated documents which were due for filing on any given date in accordance with the provisions of this Scheme.”

Defaulting Company has been defined in para 6(ii)(c) of this Scheme as under-

“Defaulting Company” means a company defined under the Companies Act, 2013, and which has made a default in filling of any of the documents, statement, returns, etc including annual statutory documents on the MCA-21 registry”

The word used in the Circular is Company and Company is defined under section 2(20) of Companies Act, 2013 and excludes Foreign company. Thus, scheme CFSS-2020 is not valid on Foreign Companies. However, after list of Forms displayed on MCA portal it seems that MCA wants even Foreign Company to take benefit of this Scheme.

Note: All kind of Company can avail the benefit of the Scheme (OPC, Private, Public, Nidhi, Producer Company, NBFC and even Foreign Company etc).

Manner of Payment of Normal Fees for filling of belated documents and seeking immunity under the Scheme.

As per para 6(iv) of CFSS-2020, every defaulting company shall be required to pay normal fees as prescribed under the Companies (Registration Offices and Fee) Rules, 2014 on the date of filing of each belated document and no additional fee shall be payable.

Immunity from the launch of prosecution or proceedings for imposing penalty shall be provided only to the extent such prosecution or proceedings for imposing penalty under the Act pertain in any delay associated with filings of belated documents.

Any other consequential proceedings, including any proceedings involving interests of any shareholder or any other person qua the company or its directors or key managerial personnel would not be covered by such immunity.

For example, under Section 42(8), every company is required to file a return of allotment within the period provided therein. However, the proviso to Section 42(4) also requires that the utilisation of money raised through private placement shall not be made unless the return of allotment has been filed in the registry. Now, the immunity under the Scheme shall only be available in respect of the proceedings for imposing penalty on account of delay in filing the return of allotment, but not on account of utilisation of the money raised through private placement prior to the filing of the return with the registry.

For more understanding: The immunity shall be issued only in respect to filing of the belated documents under the Scheme. Filing of Annual Return and Balance Sheet under this scheme will give immunity with respect to penalty for filing these belated documents. However, if Annual General Meeting is not convened with in statutorily prescribed time, then it is violation of law for which prosecution or adjudication may be initiated. Similarly, non composition of CSR Committee as required under section 135 cannot be absolved under this Scheme.

Note: The basic thumb rule of the scheme is that the “Immunity will be provided to defaulting companies only in case of belated filings by waiving off additional fees however where proceedings involve interest of any shareholder or its director, or key managerial person or any other person belonging to the company than immunity shall not be provided”

Withdrawal of appeal against any prosecution launched or the proceedings for imposing penalties initiated.

As per para 6(v) of CFSS-2020, if the defaulting company, with respect to any statutory filing under the Act or its officer in default, as the case may be, has filed any appeal against any notice issued or complaint filed or an order passed by a Court or by an adjudicating authority under the Act, before a competent court or authority for violation of the provisions under the Companies Act, 1956 and/or Companies Act, 2013, in respect of which the application is made under this scheme, the applicant shall before filing an application for issue of immunity certificate, withdraw the appeal and furnish proof of such withdrawal along with application.

Special measures for cases where the order of the adjudicating authority was passed but the appeal could not be filed.

As per para 6(vi) of CFSS-2020, in all cases where due to delay associated in filing of any document, statement or return, etc. in the MCA-21 registry, penalties, were imposed by an adjudicating officer under the Act, and no appeal has been preferred by the concerned company or its officer before the Regional Director under section 454(6) as on the date of commencement of the Scheme, the following would apply:

(A) Where the last date of filing the appeal against the order of the adjudicating authority under Section 454(6) falls between the 1st March, 2020 to 31st May, 2020 (both days included), a period of 120 additional days shall be allowed with effect from such last date to all companies and their officers for filing the appeal before the concerned Regional Directors;

(B) During such additional period as stated in (A) above, prosecution under Section 454(8) for non-compliance of the order of the adjudicating authority, insofar as it relates to delay associated in filing of any document, statement or return, etc. in the MCA-21 registry, shall not be initiated against such companies or their offices.

Application for issue of immunity in respect of document(s) filed under the Scheme.

As per para 6(vii) of CFSS-2020, the application for seeking immunity in respect of belated documents filed under the Scheme may be made electronically in the FORM CFSS-2020, after closure of scheme and after the document(s) are taken on file, or on record or approved by the Designated authority as the case may be but not after the expiry of six months from the date of closure of the scheme. There shall not be any fee payable on this Form.

Provided that this immunity shall not be applicable in the matter of any appeal pending before the court of law and in case of management disputes of the company pending before any court of law or tribunal.

Provided also that no immunity shall be provided in case any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudicating authority under the Act, no appeal has been preferred against such orders of the court or of the adjudicating authority, as the case may be, before this Scheme has come into force.

Order by designated authority granting immunity from penalty and prosecution

As per para 6(viii) of CFSS-2020, based on the declaration made in the Form CFSS-2020, an immunity certificate in respect of documents filed under this Scheme shall be issued by the designated authority.

Scheme shall not apply in certain cases

As per para 6(ix) of CFSS-2020, this Scheme shall not apply:-

(A) to companies against which action for final notice for striking off the name u/s 248 of the Act (previously section 560 of Companies, Act, 1956) has already been initiated by the Designated Authority;

(B) where any application has already been filed by the companies for action of striking off the name of the company from the register of companies.

(C) to companies which have amalgamated under a scheme of arrangement or compromise under the Act.;

(D) where applications have already been filed for obtaining Dormant Status u/s 455 of the Act before this Scheme;

(E) to vanishing companies;

(F) where any increase in authorised capital is involved (Form SH-7) and also charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9).

Effect of immunity

As per para 6(x) of CFSS-2020, after granting the immunity, the Designated authority concerned shall withdraw the prosecution(s) pending, if any, before the concerned court(s) and the proceedings pending, if any, before the concerned Court(s) and the proceedings of adjudication of penalties u/s 454 of the Act, other than those referred in the second proviso to sub-paragraph (vii) of paragraph 6 of this Scheme, in respect of default against which immunity has been so granted shall be deemed to have been completed without any further action on the part of the Designated authority.

Scheme of in-active companies

As per para 6(xi) of CFSS-2020, the defaulting inactive companies, while filing due documents under CFSS-2020 can, simultaneously, either:

a. Apply to get themselves declared as Dormant Company under section 455 of the Companies Act, 2013 by filing e-form MSC-1 at a normal fee on said form; or

b. Apply for striking off the name of the company by filing e-form STK-2 by paying the fee payable on form STK-2.

In-Active company has been defined in para 6(ii)(f) of this Scheme as under-

“Inactive Company” means a company defined in Explanation (i) to sub-section (1) of Section 455 of the Companies Act, 2013”

As per the Explanation (i) of sub-section (1) of Section 455 of the Companies Act, 2103,

“Inactive Company” means a company which

  • has not been carrying on any business or operation, or
  • has not made any significant accounting transaction during the last two years, or
  • has not filed financial statements and annual returns during the last two financial years;

It is submitted that belated documents can be filed under this Scheme except Form SH-7 and Charge related four Forms. However, total 76 Forms will be allowed to be filed with MCA under these two Schemes, out of which 10 forms are pertaining to the Companies Act, 1956, 12 forms are pertaining to LLPs and 56 forms are pertaining to the Companies Act, 2013. The list of these Forms is now available on MCA portal and link is as follow: http://www.mca.gov.in/Ministry/pdf/CFSS2020_02042020.pdf

Crux of the Scheme CFSS-2020:

1. The said CFSS-2020 is applicable for the period between 1st of April, 2020 and the 30th of September, 2020. Therefore, to take the benefit of CFSS-2020, belated documents can be filed only during the said period.

2. It is notable that all kind of Company can avail the benefit of the Scheme CFSS-2020 (OPC, Private, Public, Nidhi, Producer Company, NBFC and even Foreign Company etc).

3. To file any belated document, no additional filing fees will be required to be paid, however normal fees wherever applicable is required to be paid.

4. It is pertinent to mention that in lieu of filing of belated documents, Immunity will be provided to defaulting companies only. Immunities shall not be provided for proceedings involve interest of any shareholder or its director, or key managerial person or any other person belonging to the company.

5. For getting the immunities for filing belated documents, companies are required to file an application in prescribed Form CFSS-2020 without any filing fees, after approval of Forms / returns filed but not after the expiry of six months from the date of closure of the scheme.

6. The scheme CFSS-2020 is not applicable from retrospective effect, therefore immunity to be given only for those forms filed under this Scheme and not for any previously filed Forms.

7. It is a precondition that where the defaulting company has filed any appeal against the order passed by a court or by an adjudicating authority, the applicant shall withdraw such appeal and furnish proof of such withdrawal before filing an application for issue of immunity certificate.

8. Immunity Certificate shall not be issued in case if Appeal is pending before the Court and if Management Dispute pending before the Court or Tribunal.

9. This CFSS, 2020 scheme does not provide Immunity in following matters:

(i) Matters where appeal is pending before any Court;

(ii) Where any management dispute is pending before the Court or NCLT;

(iii) Where an order of conviction has been issued by the Court & no appeal preferred against such order as on 01 April, 2020;

(iv) Where an order imposing penalty has been made by the Adjudicating Authority & no appeal preferred against such order as on 01st April, 2020.

10. The effect of this Scheme will be as follows:

i) No Need to pay any additional fees on any return of Company during Scheme.

ii) Authority shall provide immunity certificate to Company.

iii) Company shall withdrawal of appeal against any prosecution launched.

iv) ROC Shall withdrawal all the prosecution pending regarding such forms/ returns.

v) ROC shall withdrawal the proceedings of adjudication of penalties u/s 454.

11. The Company need to have ACTIVE status before availing the benefit of CFSS -2020 Scheme. If any company is a Strike offed Company, then first it has to be revised u/s 252 of THE Act by obtaining an order of NCLT and make the status as ACTIVE. Thereafter, such Company can avail the benefit of this Scheme.

12. If the Company fail to change its status as ACTIVE before closure of the CFSS-2020 Scheme, the Company cannot take benefit of the Scheme. The clear message is that first for availing the benefit of CFSS -2020 the status of the Company is required to be ACTIVE and secondly the belated documents are required to be filed during the period when the Scheme is in effect.

13. If a company has already filed Application to Registrar for Strike off but the Final Order of strike off is not yet given, such company is not required to file any form, return under this scheme.

14. The Scheme allow filing of any forms except Form SH-7 and Charge related four Forms, that means all event-based forms are also allowed to be filed under the CFSS-2020 scheme.

15. For Active- Non-Compliant Company, first the status to be changed to ACTIVE, by filing Form INC-22, DIR 3 KYC then avail the benefit of this Scheme.

Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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