Companies Fresh Start Scheme, 2020 – A fresh start on a clean State

In order to provide relief to law abiding Companies, the Ministry of Corporate Affairs has introduced the Companies Fresh Start Scheme, 2020 [CFSS – 2020] on Monday, 30^th March, 2020. CFSS – 2020 will certainly provide a noble opportunity to all companies to make good any previous filing defaults without paying any additional fees and become a compliant company. As per the Press Release issued by the Ministry of Corporate Affairs, the USP of the CFSS – 2020 is a one-time waiverof additional filing fees for delayed filings by the companies with the Registrar ofCompanies during the currency of the CFSS – 2020.

“CFSS – 2020 provides an opportunity to companies to complete long standing compliances and also incentivize compliance and reduce compliance burden during the unprecedented public health situation caused by COVID-19.”

It is important to note that CFSS – 2020 contains the provisions for giving immunity from penal proceedings, including against imposition of penalties for late submissions and also provide additional time for filing appeals before the concerned Regional Directors against imposition of penalties, if already imposed. However, the immunity is only against delayed filings on MCA 21 and not against any substantive violation of law. CFSS – 2020 also gives an opportunity to inactive companies to get their companies declared as ‘dormant company’ under Section 455 of the Companies Act, 2013 by filing a simple application at a normal fee. The said provision enables inactive companies to remain on the Register of Companies with minimal compliance requirements.

“CFSS – 2020 shall come into force on the 1^st April, 2020 and shall remain in force till 30^th September, 2020”

Explanation of various Portions of CFSS – 2020

# Definitions:

The CFSS – 2020 provides various definitions which will help various Stakeholders to understand the CFSS -2020 effectively. Synopsis of the same is as follows;

TERMS		MEANING
Act	:	The Companies Act, 2013; and The Companies Act, 1956
Company	:	Companies as defined under Section 2(20) of the Companies Act, 2013.
Defaulting Company	:	Companies as defined under the Companies Act, 2013; and Which has made a default in filing of any documents, statement, returns etc. including annual statutory documents on the MCA 21
Designated Authority	:	The Registrar of Companies (ROC) having jurisdiction over the registered office of the company.
Immunity Certificate	:	A certificate in respect of documents file under CFSS – 2020 issued by the Designated Authority based on the declaration made in the Form CFSS – 2020.
Inactive Company	:	A company which has not been carrying on any business or operation, or has not made any significant accounting transaction during last two financial year, or has not filed financial statement and annual returns during the last two financial years; The above mentioned definition has been provided in Explanation (i) to sub-section (1) of Section 455 of the Companies Act, 2013.

# Applicability of CFSS – 2020:

The CFSS – 2020 is applicable to all defaulting companies to file belated documents which were due for filing on any given date which shall be in accordance with the provisions of the CFSS – 2020.

It can be understood that the CFSS – 2020 is applicable on various e-forms such as e-form AOC-4 [Standalone, CFS & XBRL], e-form MGT-7, e-form DIR-12, e-form ADT-1, e-form MGT-14 or any other e-forms EXCEPTe-form SH-7 [Increase in Authorized Capital], e-form CHG-1, CHG-4, CHG-8 & CHG-9 [any charge related documents].

# Manner of payment of normal fees and seeking immunity under CFSS – 2020:

• Every defaulting company filing belated documents under the provisions of the CFSS – 2020, shall be required to pay the NORMAL FEES as prescribed under the Companies (Registration Offices and Fee) Rules, 2014 and NO ADDITIONAL FEESshall be payable.
• The extent of immunity is to the prosecution or the proceedings for imposing penalty under the Act with relation to any delay associated with the filings of belated documents.
• Any proceedings involving interest of any shareholders or any other person qua the company or its directors or key managerial personnel shall not be covered under such immunity.

# Withdrawal of appeal against any prosecution launched or proceedings initiated:

• Where any appeal has been filed by the defaulting company or its officer in default against any notice issued or compliant 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 provision of the Act, in respect of which the application is made under CFSS – 2020 then before filing an application for issue of immunity certificate, the defaulting company or its officer in default shall withdraw the appeal and shall also furnish the proof of such withdrawal along with the application in form CFSS-2020.

# Special measures where the order passed but the appeal could not be filed:

• In the case where the penalties were imposed by an adjudicating officer under the Act for delay in filing of any documents, statements or return, etc. on the MCA 21 registry ANDno appeal has been preferred by the concerned company or its officer before the Regional Director under the provisions of the Act as on the date of commencement of the scheme, the following special measures would apply;

# Application for issue of immunity:

• An application for seeking immunity in respect of belated documents filed under the CFSS – 2020 shall be made electronically in Form CFSS – 2020.

• Such application shall be made after the closure of the Scheme and after the documents are taken on file or on record or approved by the Designated Authority but not after the expiry of six months from the date closure the CFSS – 2020.

• It shall be noted that NO FEE shall be payable on Form CFSS – 2020.

• Non-applicability of immunity;

√ 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;

√ Any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudicating authority and no appeal has been preferred against such orders of the court or of the adjudicating authority before the CFSS – 2020 has come into force.

# Order by Designated Authority granting immunity from Penalty & Prosecution:

• The Designated Authority shall issue an immunity certificate in respect of documents filed under the CFSS – 2020 based on the declaration made in the Form CFSS – 2020.

# Non-applicability of CFSS – 2020 in certain cases:

• The CFSS – 2020 shall not apply;

√ To companies against which action for final notice for striking off the name under Section 248 of the Companies Act, 2013 has already been initiated by the Designated Authority;

√ 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;

√ To companies which have amalgamated under a scheme of arrangement or compromise under the Act;

√ Where applications have already been filed for obtaining Dormant Status under Section 455 of the Companies Act, 2013 before CFSS – 2020;

√ To vanishing companies;

√ Where increase in authorized share capital is involved and also charge related documents.

# Effect of immunity:

• Once the immunity is granted, the Designated Authority shall withdraw the prosecution(s) pending, if any before the concerned court(s) and the proceedings of adjudication of penalties under Section 454 of the Companies Act, 2013, in respect of defaults 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.

# Provisions for Inactive companies:

• The inactive companies which are also defaulting companies, while filing due documents under CFSS – 2020 can, simultaneously, either;

√ 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

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

At the conclusion of the CFSS – 2020, the Ministry of Corporate Affairs has also instructed to the Designated Authority to take necessary action under the Act against the companies who have not availed the CFSS – 2020 and are in default in filing these documents in a timely manner. Such conclusion of CFSS – 2020 also indicates future austere steps which will be taken by the Ministry of Corporate Affairs and the Designated Authority against the defaulting companies which would not take the shelter of CFSS – 2020.

Thus, the CFSS – 2020 apart from giving longer timelines for corporates to comply with various filing requirements under the Companies Act, 2013, it significantly reduce the related financial burden on them, especially for those with long standing defaults,thereby giving them an opportunity to make a “fresh start”.

Disclaimer:

The entire contents of this article have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer the relevant existing provisions of applicable laws. The user of this information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. Further, in no event shall I be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.