Companies Fresh Start Scheme 2020: Golden Opportunity For Companies & LLP’s

Introduction & Brief Background:

In line with its circular dated March 24, 2020, the Ministry of Corporate Affairs (‘MCA’) has introduced Companies Fresh Start Scheme,2020 (‘CFSS Scheme’) vide circular no. 12/2020 and 13/2020 dated March 30, 2020 under Section 460 of the Companies Act, 2013 (“Act”) read with Section 403.

Important Definitions under the Scheme:

“Defaulting company” means a company defined under the Companies Act, 2013, and which has made a default in filing of any of the documents, statement, returns, etc. including annual statutory documents (AOC-4 & MGT- 7) on the MCA-21 registry on due time.

“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 financial years, or has not filed financial statements and annual returns during the last two financial years;

Applicability:

This Scheme shall be applicable on any “Defaulting Company” and shall be commenced from April 01, 2020 till September 30, 2020 and permitted to file all belated documents which were due for filing without any additional fees.

CFSS 2020 will not apply to the following:

• Where action for striking-off has already been initiated by the Designated Authority or STK-2 for strike off of Company with ROC has been filed by the companies;
• Companies which have amalgamated;
• Companies which has already filed application for obtaining dormant status;
• To Vanishing Companies;
• Where any increase in authorized capital is involved (Form SH-7) and all charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9);
• 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;
• 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 and no appeal has been preferred.

Following are the Features of CFSS 2020 which are mentioned below:

1. All necessary documents including annual documents of the company can be filed with normal fees only, as additional fees are waived off.

2. Inactive company can also take status of “Dormant Company u/s 455” by filing simple application in form MSC-1 or can also apply for striking off the name by filing e-form STK-2 with normal fees.

3. The Scheme grants immunity to the companies in relation to proceeding for imposing an additional penalty is only against delayed filings in MCA registry and it doesn’t provides immunity to any proceedings involving interests of shareholders or any other person qua the company or its Directors or KMP means not against any substantive violation of law.

4. It further clarifies that where penalties were imposed by an adjudicating officer due to delayed filing, and no appeal has been made before the Regional Director then

(i) If last date for filing the appeal falls between March 01 to May 31, 2020, additional 120 days shall be allowed for filing the appeal, and

(ii) During this additional period no prosecution shall be initiated against the company or its officers, insofar as it relates to delay in filing.

Procedure for availing the CFSS Scheme:

1. The defaulting company shall file their overdue documents/returns/other statements as well as statutory Annual Filing documents such as Financial Statements and Annual Returns in respective prescribed e-Forms by paying the normal statutory filing fee without any additional fee as payable as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014 within due immunity period.

2. The Defaulting Companies shall file the Form CFSS-2020 after making all default good as well as all filed document are taken on file or on record or approved by the Designated authority as the case may and after closure of the Scheme but not after the expiry of six months from the date of closure of the Scheme. The is no filing fees of Form CFSS-2020.

3. The Form CFSS-2020 is entirely self-declaration-based form. 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.

Crux of the CFSS Scheme: –

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 involving 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”.

For instance: Section 42(8) of Companies Act 2013 states that, every company is required to file PAS-3 (Return of allotment) within specified time period. But section 42(4) also states that utilization of money raised through private placement shall not be made unless return of allotment is filed. So, immunity under CFSS only provided on account of filing of delay in return of allotment, not in case of utilization of money raised through private placement prior to filing of return with ROC.

Outcome of Immunity under the CFSS 2020:

After granting the immunity, the ROC office shall withdraw the prosecution(s) and the proceedings of adjudication of penalties under section 454 of the Act, if any, in respect of defaults against which immunity has been so granted shall be deemed to have been completed without any further action.

It is pertinent to note that the immunity granted under the CFSS 2020, will cover only the related 76 forms only. Further, the immunity is granted only to the extent to filing good of the belated documents covered as per the list, and doesn’t cover / extend other provisions/ departments of law. So for instance, the CFSS 2020 cannot provide any immunity for condonation of delay, charge related matter; or Insolvency & Bankruptcy Code, 2016 or any other applicable law of the land.

Scheme for Inactive Companies:

The scheme gives an opportunity to inactive companies to get their companies 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)

May file e-form STK-2 for striking off the name of the company by paying the fee payable on form STK-2.

Kindly note that the Company until and unless is operative in nature for the very purpose it has been incorporated under the applicable laws of the land, otherwise, the management would be required either to apply for a Dormant status or Apply for suo motu strike off for the said Company & LLP during the said period of the CFSS 2020 scheme itself.

Disqualification of Directors:

The Disqualification of Directors can’t be resolved through the CFSS 2020.However, as per the MCA information available in the public domain, the DIN holders of DINs marked as ‘Deactivated’ due to non-filing of DIR-3KYC/DIR-3 KYC-Web and those Companies whose compliance status has been marked as “ACTIVE non-compliant” due to non-filing of Active Company Tagging Identities and Verification(ACTIVE) eform are encouraged to become compliant once again in pursuance of the General Circular No. 11 dated 24th March, 2020 & General Circular No.12 dated 30th March 2020 and file DIR-3KYC/DIR-3KYC-Web/ACTIVE as the case may be between 1st April, 2020 to 30th September, 2020 without any filing fee of INR 5000/INR 10000 respectively.

Key Acmes of the CFSS 2020:

♦ Immunity will be Granted only for those defaulting companies who file forms in the of period starting from April 01, 2020 to September 30, 2020 and immediately apply for obtaining immunity by filing the application of immunity through the respective form:

♦ The Scheme shall not have any ‘Retrospective Effect’;

♦ To avail the benefit of the scheme existing directors of defaulting companies compulsorily have to file form “DIR 3 KYC”;

♦ Only the companies whose status is “Active” will be eligible to take the benefit of the scheme. If, the status of the Company is not Active then company have to file form ‘INC-22A’ at the earliest;

♦ The Ministry has uploaded the list of 76 “Eligible Forms” in the public domain which waives off additional fees for belated filings which comprises of eforms under the Companies Act 2013, Companies Act 1956 and LLP’s.

Kindly click on the said link for the list of 76 eforms eligible for CFSS 2020:

https://taxguru.in/company-law/list-mca-forms-eligible-additional-fee-waiver-company-fresh-start-scheme-2020-llp-settlement-scheme-2020.html

Conclusion:

The MCA has earlier introduced Company Settlement Schemes in the year 2010, 2011, 2014, 2018 and now 2020.

Once the Scheme is over, the Designated Authority have power to initiate all necessary action against companies who have not availed this scheme and are still doing in default in filing documents and the weeding out exercise begins on the other end.

Hence, the current CFSS 2020 scheme is a one-time opportunity to clear the belated defaults and make a new beginning of the Financial Year 2020-2021.

How do we assist?

We at Jaya Sharma & Associates, will be happy to help and guide on availing the maximum value of the onetime CFSS 2020 scheme.

Bibliography:

https://taxguru.in/corporate-law/llp-settlement-scheme-2020.html

https://taxguru.in/company-law/covid-19-special-relief-measures-companies-llp.html

https://taxguru.in/corporate-law/mca-introduces-companies-fresh-start-scheme-2020revises-llp-settlement-scheme-2020.html

https://taxguru.in/corporate-law/mca-modifies-llp-settlement-scheme-2020.html

https://taxguru.in/company-law/companies-fresh-start-scheme-2020.html

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