Commencement of Business (INC-20A) and Companies Fresh Start Scheme, 2020 (‘CFSS-2020’)
The concept of Certificate of ‘Commencement of Business’(COB) were earlier provided under Section 149 of the Companies Act, 1956 (Erstwhile Act). The provisions were only applicable to newly incorporated public companies having share capital.
It was also introduced by the Companies Act, 2013 (“the Principal Act”) under the Section 11 thereof. Section 11 of the Principal Act was introduced for providing declaration of COB and exercising of borrowing powers by the newly incorporated Companies.This time the provisions were applicable to all companies, whether private and public.
It is pertinent to note that under the Principal Act, no certificate of COB was facilitated by Registrar of Companies (“ROC”), but the documents filed in this regard were taken on record only, whereas in the Erstwhile Act a certificate of COB was issued by ROC.
The Government of India (“GOI”) had received several representations from industry stakeholders for amending various provisions of the Principal Act to ensure ease of doing business in India. For the promotion of ease of doing business in India the GOI came up with some relaxations to the corporate entities vide Notification dated 26.05.2015 and notified the Companies Amendment Act, 2015 (“the Amendment Act”).
The GOI is authorised to appoint different dates for implementation of different provisions in the Amendment Act. Accordingly, while most provisions have become effective from 29 May 2015.Consequent to the commencement of the Amendment Act, section 11 was omitted (deleted) by the Amendment Act w.e.f. 29 May 2015.
In the continuation of the Amendment Act, the Ministry of Corporate Affairs (“MCA”) has amended the Companies (Incorporation) Rules, 2014 (“the Principal Rules”) vide Companies (Incorporation) Second Amendment Rules, 2015 (“the Second Amendment Rules”) w.e.f. 29.05.2015. Accordingly, existing Rule 24 in the Principal Rules was omitted by the Second Amendment Rules w.e.f. 29 May 2015.
The GOI has come up with the Notification dated 02.11.2018 with regard to commencement of the Companies (Amendment) Ordinance, 2018 (“the Ordinance”). The Principal Act has further amended by way of passing of such ordinance on 2nd November, 2018. Declaration for COB is re-introduced by way of inserting a new Section 10A after section 10 of the Principal Act.
The text of Section 10A of the Principal Act are as follow;
1. A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2018 and having a share capital shall not commence any business or exercise any borrowing powers unless—
(a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and
(b) the company has filed with the Registrar a verification of its registered office as provided in subsection (2) of section 12.
2. If any default is made in complying with the requirements of this section, the company shall be liable to a penalty of fifty thousand rupees and every officer who is in default shall be liable to a penalty of one thousand rupees for each day during which such default continues but not exceeding an amount of one lakh rupees.
Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.
After the above amendment, the MCA has further amended the Principal Rules vide Companies (Incorporation) Fourth Amendment Rules, 2018 (“the Fourth Amendment Rules”) w.e.f. 18.12.2018. According to the Fourth Amendment Rules, a new Rule 23A shall be introduced by the MCA in Principal Rules, which is also reproduced below:
“23A’ Declaration at the time of commencement of business – The declaration under section 10A by a director shall be in Form No. lNC-20A and shall be filed as provided in the Companies (Registration Offices and Fees) Rules, 2014 and the contents of the said form shall be verified by a company Secretary or a chartered Accountant or a cost Accountant in practice:
Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or approval, as the case may be from such regulator shall also be obtained and attached with the declaration.”.
According to the provisions of section 10A of the Principal Act, as inserted by the Ordinance, the companies having share capital, which have been incorporated on after the date of commencement of the Ordinance, for the purpose of commencement of their businesses and exercise borrowing powers, are required to file a declaration within the period of 180 days from the date of incorporation by any of their director with regard to acceptance of subscription money from their subscribers.
The ordinance was come into force on 2nd November, 2018, therefore all the provisions of this section become applicable from 2nd November, 2018. Now, every company having share capital incorporated after 2nd November, 2018 has to file form 20A with 180 days i.e. before 1st May 2019.
Further, the companies are also required to ensure about the compliance of provisions of section 12(2) of the Act, which talks about filing of a verification of their registered offices.
In case the Company fails to file the declaration within the prescribed time, the Company shall be liable to penalty of Rs. 50,000/- and every officer in default shall be liable to a penalty of Rs. 1000/- for each defaulting day subject to maximum amount of Rs. 1 lac.
In addition to this, ROC may remove of name of the company from the ROC, if he has a reasonable cause to believe that the Company is not carrying on any business and operation.
Crux of the Provisions of Commencement of Business: –
1. The following companies are not required to file form 20A:
2. Every company required to file form 20A shall file the same within 180 days of its incorporation.
3. Non filling of form INC 20A allows ROC one additional ground to strike off the name of your Company from its Register.
4. The penalties for non-compliance are very high which has been done intentionally so as to curb out the number of shell companies incorporated. Following are the penalties for non-compliance:
Commencement of Business (INC-20A) and “Companies Fresh Start Scheme, 2020 (CFSS-2020)”
Due to the emerging financial distress faced by most companies on account of the large-scale economic distress caused by COVID 19, there is delay in filing of various forms which are provided under the Act. In view of this, Ministry of Corporate Affairs (MCA) has taken special measures under Companies Act, 2013 and Limited Liability Partnership Act, 2008 in view of the COVID -19 outbreak vide General Circular No. 11/ 2020 dated 24th March, 2020.
In order to support and enable Companies and Limited Liability Partnerships (LLPs) in India to focus on taking necessary measures to address the COVID-19 threat, including the economic disruptions caused by it, some measures have been implemented by the MCA to reduce their compliance burden and other risks. In Para I of the said Circular-
“No additional fees shall be charged for late filing during a moratorium period from 01st April to 30th September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date, which will not only reduce the compliance burden, including financial burden of companies/ LLPs at large, but also enable long-standing non-compliant companies/ LLPs to make a ‘fresh start’. The Circulars specifying detailed requirements in this regard are being issued separately.”
In view of the special measure provided by MCA vide General Circular No. 11/ 2020 dated 24th March, 2020, a moratorium period from 1st April, 2010 to 30th September, 2020, has been provided by MCA, by which no additional fess shall be charged for late filing during the said moratorium period.
It is submitted that as per Rule 23A of the Companies (Incorporation) Rules 2014, e-form INC-20A should be filed by the newly incorporated company within 180 days of its incorporation. Therefore, defaulting company can take the benefit of General Circular No. 11/ 2020 dated 24th March, 2020.
As per relaxation provided by MCA vide General Circular No. 11/ 2020 dated 24th March, 2020, belated e-form INC-20A, can be filed during a moratorium period from 1st April, 2010 to 30th September, 2020, without additional fees for late filing during the said moratorium period.
Further, it is mentioned in the said circular that the Circulars specifying detailed requirements in this regard are being issued separately. 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.
So, MCA came out with a detailed Scheme namely, “Companies Fresh Start Scheme, 2020 (CFSS-2020)”vide Circular No. 12/2020 dated 30th March, 2020. The said CFSS-2020 automatically override moratorium period provided by General Circular No. 11/ 2020 dated 24th March, 2020.
The MCA has uploaded a list of 76 forms (including for companies and LLPs) for which the benefit of the Scheme CFSS-2020 can be availed. E-Form INC-20A is also included in the list to avail the benefits under 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 30th September, 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.
However, under said Scheme CFSS-2020, there is one additional compliance which a company have to abide by i.e. company has to file a 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.
Conclusion:In view of the above, it is stated that company can file e-form INC-20 Aupto 30th September, 2020 without any additional fee, however, it has to be filed a FORM CFSS-2020 after closure of 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.