Soon after coming into power, the NDA government led by Prime Minister Shri Narendra Modi Ji, has been focusing on the concept of “Ease of Doing Business”.

It has been making tremendous efforts in clearing backlogs/disputes/appeals under Direct and Indirect taxes through schemes like Vivaad se Vishwas Scheme or Sabka Vishwas Scheme. On similar lines, The Ministry of Corporate Affairs has come up with the scheme called Companies Fresh Start Scheme, 2020 (CFSS-2020) for one-time application of condonation of delay in filling of forms, documents and returns.

Introduction

In pursuance of the Government of India’s efforts to provide relief to law abiding companies in wake of COVID-19, The Ministry of Corporate Affairs has, in line with the circular dated March 24, 2020 introduced an amnesty scheme known as the Companies Fresh Start Scheme, 2020 (CFSS) under Section 460 of the Companies Act, 2013 (Act) read with Section 403 to provide a first of its kind opportunity to long defaulting companies 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 Companies Fresh Start Scheme (CFSS) 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. The idea behind this is to provide a clean slate to all the law-abiding companies, giving them dual benefits in terms of extended time limit to comply with various filling requirements under the Act and a certain level of financial relief with regard to those compliances considering the current global situation where the world, as a whole, is lockdown due to the unprecedented situation created by the Coronavirus (COVID-19) pandemic.

Important Definitions under the Scheme:

(a) “Act” means the Companies Act, 2013 and the Companies Act, 1956 (wherever applicable)

(b) “Company” means a Company as defined in clause (20) of Section 2 of the Companies Act, 2013

(c) “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.

(d) “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;

(e) “Designated Authority” means the Registrar of Companies having jurisdiction over registered office of the Company.

(f) “Immunity Certificate” means the certificate referred to in the para 6 of the scheme.

WHAT DOES CFSS 2020 INCLUDE?

As per the provisions of the Companies Act, 2013, all companies are required to follow statutory compliances annually. This includes filling of the Annual Return, Financial Statements and all the other necessary forms, documents and statements that are specified, within that particular time frame. Non – compliance of the same results in the imposition of penalties and fines. Often entrepreneurs who set up companies and LLPs for business ventures do not commence operations because of various genuine economic reasons and fail to ensure the regular statutory fillings. This adds up to the number of defaulting companies in the registry of Companies or LLPs. A company that fails to adhere to the compliances is called a defaulting company. This Scheme shall be applicable on any “Defaulting Company” and contains following:

1. For the Defaulting Companies:

  • Shall pay only the normal fees as prescribed by the Companies (Registration Offices and Fee) Rules, 2014 for all filings with the MCA 21 registry. No additional fees to be paid, whatsoever.
  • Immunity against prosecution and proceedings for imposing penalty to be provided only where:

– The prosecution and proceedings arose due to the delay in filing of belated documents.

– No other cases covered.

  • In case there is an existing appeal filed by the company against any notice, complaint or order issued by a court or an adjudicating authority under the Act, with regard to prosecution and proceedings related to the delay in statutory filing, the following steps are to be followed:

– Before registering under the CFSS 2020, the appeal filed by the company should be withdrawn.

– At the time of making the application for the scheme, the company must furnish a copy of such withdrawal along with the application as proof.

  • Where the order has been passed by the court and the company has not filed an appeal against the same as on the commencement of the scheme:

– The company is allowed 120 days to file an appeal before the Regional Director.

– During this period of 120 days, for the non – compliance of the order passed by the court with regard to the delay in filing of any documents for the same shall be condoned and no further action shall be initiated against the company.

  • 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.
  • The Defaulting Companies shall file the Form CFSS-2020 after making all default good.
  • The application for seeking immunity may be made electronically in Form CFSS – 2020 after closure of the scheme and after the documents have been taken on file or on record or approved by the Designated Authority as the case may be. The Form CFSS-2020 is entirely self-declaration-based form.

– The Form provides the companies with immunity for a period of 6 months after the date of closure of the CFSS 2020.

– No fees to be paid on this particular form.

– Immunity Certificate shall be granted by the designated authority.

  • Immunity is not granted where:

–An appeal is pending in court against the company.

–In case of management disputes pending before any court of law.

–Where an order is passed by the court and no appeal has been made before the scheme came into force.

Extension granted to file DIR-3/DIR-3KYC: Extended timelines between 1st April 2020 and 30th September 2020 is provided by MCA for the directors’ whose DIN is deactivated to come forward and file DIR-3KYC/DIR-3 KYC-Web. The filing fee of Rs 5,000 will not apply.

2. For the Inactive Companies:

The defaulting inactive companies may apply for the CFSS-2020 so as to file the due documents. Additionally, they may also do the following:

  • Submit an application for Dormant Status under Section 455 of the Companies Act, 2013 by way of filing of e-Form MSC – 1 along with the prescribed fees.
  • Submit an application for striking off the name of the company from the Register of Companies.

Extension granted to file e-Form ACTIVE: An extended timeline between 1st April 2020 and 30th September 2020 is provided by MCA for the ‘ACTIVE non-compliant’ companies to come forward and file e-Form ACTIVE. The filing fee of Rs 10,000 will not apply.

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, or 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.

NON-APPLICABILITY OF THE CFSS 2020

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 amalgamated under a scheme of Arrangement or Compromise;
  • Companies which has already filed application for obtaining dormant status;
  • To Vanishing Companies;
  • Companies that are marked for the Corporate Insolvency Resolution Process or Liquidation.
  • Where the following are involved:

–Increase in the Authorised Capital (Form SH – 7)

–Charge related documents (CHG – 1, CHG – 4, CHG – 8, CHG – 9)

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 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”.

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) pending, if any, before the concerned court(s)  and the proceedings of adjudication of penalties under section 454 of the Act, other than the exceptions as provided under the scheme, and in respect of defaults against which immunity has been so granted shall be deemed to have been completed without any further action on part of Designated Authority

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.

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 e-forms under the Companies Act 2013, Companies Act 1956 and LLP’s.

REVISIONS MADE TO THE LLP SETTLEMENT SCHEME 2020

Over a decade ago LLP Act came into force, which provided an alternative way of doing business. An LLP provides the benefits of Limited Liability of a company and allows the flexibility of a partnership based on a mutually arrived agreement. Though the number of filling related compliances in case of an LLP are less as compared to a Company but it was noticed that there too exists a backlog of cases where regular statutory fillings are not being made. Consequentially, the electronic registry cannot be updated timely and made available for inspection to the stockholders.

Further such non-filling results into a financial burden on the Designated Partner(s)/ Partner(s) of the concerned LLP and they are also liable to criminal prosecution and hence it was decided to grant a One-time condonation of delay in filling pending documents and to serve as a compliant LLP in future through a scheme namely “LLP settlement Scheme, 2020”. Following revisions have been made to LLP settlement scheme introduced earlier

  • The LLP Settlement Scheme 2020 is now applicable between the 1st of April, 2020 and the 30th of September, 2020.
  • Applicable to the defaulting LLPs for the filing of all belated documents that were due for filing till the 31st of October, 2019.
  • No additional fees charged on the filing of the belated documents other than the normal application fees.
  • No prosecution by the Registrar for those defaulting LLPs who complete the filing of all the belated documents and dues by the 30th of September, 2020.
  • The scheme is not applicable to LLPs who have made the application for the striking off of the name of the LLP from the Registrar as per the LLP Rules, 2009.

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.

Disclaimer: Absolute Care is taken in compilation of this article however inadvertently if any errors occurs then the Author shall not be held responsible for any such cause. The Content published is only for educational purpose and shall not be construed as rendering of any Professional Advice in any manner whatsoever. The Readers must exercise their own Judgement and refer the original source before any implementation. Further the content is an original work of the author and may be used only after written permission.

References:

MCA General Circular No. 6/2020 dated 04/03/2020

MCA General Circular No. 12/2020 dated 30/03/2020

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

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