Companies registered under the Companies Act, 2013 (or its predecessor Act) are inter-alia required to file their Annual Financial statements and Annual Returns with the Registrar of Companies and non-filing of such reports is an offence under the said Act.
Section 164(2) of the Act read with section 167 of the Companies Act,2013 [the Act], which provisions were commenced with effect from 01.04.2014, provide for disqualification of a director on account of default by a company in filing an annual return or a financial statement for a continuous period of three years.
No person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
The office of a director shall become vacant in case—
(a) he incurs any of the disqualifications specified in section 164;
[Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.]
Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 further prescribes that every director shall inform to the company concerned about his disqualification, if any, under section 764(2), in form DIR-8.
(1) Every director shall inform to the company concerned about his disqualification under sub-section (2) of Section 164, if any, in Form DIR-8 before he is appointed or re-appointed.
(2) Whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-section (2) of Section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the company during the relevant financial years.
(3) When a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the disqualification under sub-section (2) of Section 164, officers of the company specified in clause (60) of Section 2 of the Act shall be the officers in default.
(4) Upon receipt of the Form DIR- 9 under sub-rule (2), the Registrar shall immediately register the document and place it in the document file for public inspection.
(5) Any application for removal of disqualification of directors shall be made in Form DIR-10.
A Company Law Settlement Scheme was launched in the year 2014 to allow defaulting companies to clear their defaults within their specified time.
In September, 2017, the Ministry identified 3,09,614 such directors associated with the non-compliant companies and they were barred from continuing as directors.
Subsequent to this, a lot of hue and cry and representations followed from the industry, and as a result, Condonation of Delay Scheme, 2018 [CODS-2018] was proposed, and further put forward by the Ministry vide a Circular.
The scheme in brief:
1. The scheme has been made applicable to all defaulting companies (other than the companies which have been stuck off/ whose names have been removed from the register of companies under section 248(5) of the Act).
2. In the case of defaulting companies whose names have not been removed from register of companies–
A. The DINs shall be reactivated during the the validity of the scheme to enable them to file the overdue documents.
B. The defaulting company shall file the overdue documents by paying the statutory fee and additional fee payable.
C. After filing documents under this scheme, the defaulting company shall seek condonation of delay by filing form e-CODS attached to this scheme online on the MCA21 portal. The fee for filing application eform CODS is Rs.30,000/-.
D. The defaulting companies who do not file their overdue documents, their DINs shall be deactivated on the conclusion of this scheme, that is March 31, 2018. These directors shall continue to be disqualified in terms of section 164(2)(a)) r/w 167(1)(a) of the Act.
3. In the event of defaulting companies whose names have been removed from the register of companies under section 248of the Act and which have filed applications for revival under section 252 of the Act up to the date of this scheme, the Director’s DIN shall be re-activated only after NCLT order of revival subject to the company having filed all overdue documents. Therefore, the scheme does not provide any form of amnesty to the board of directors of companies that have been struck off.
4. Filing of only the following documents under CODS, 2018:
A. Form 20B/MGT-7- Form for filing company having share capital.
B. Form 21A/MGT-7- Particulars of Annual return Annual return by a for the company not having share capital.
C. Form 23AC, 23ACA, 23AC-XBRL, 23ACA-XBRL, AOC-4, AOC-4(CFS), AOC (XBRL) and AOC-4(Non-XBRL) – Forms for filing Balance Sheet/Financial Statement and profit and loss account.
D. Form 66 – Form for submission of Compliance Certificate with the Registrar.
E. Form 23B/ ADT-1- Form for intimation for Appointment of Auditors.
5. Once compliance is completed under this scheme, the Registrar of Companies shall withdraw the prosecution(s) pending if any before the concerned Court(s) for all documents filed under the scheme. However, this scheme is without prejudice to action under section 167(2)of the Act or civil and criminal liabilities, if any, of such disqualified directors during the period they remained disqualified.
The Condonation of Delay Scheme will be operational from 1st January 2018 to 31st March 2018 – a period of three months only. During this period, the DIN of disqualified directors will be re-activated temporarily to facilitate Directors of defaulting companies to file all overdue annual returns. After the end of the three month period, if the Director of a defaulting company fails to utilize the scheme and regularize compliance, his/her DIN will be deactivated and he/she would be disqualified for a period of 5 years. Hence, its advisable for all Directors of disqualified companies to utilize this scheme to regularize compliance. And in case of a struck off company, approach the NCLT for restoration of name of the company.
It seemed to be a New Year’s gift, but sadly,
A. Directors of struck off companies cannot avail this scheme.
B. With the workload at NCLT, it is under question, as to how many orders in relation to restoration of companies can be pronounced until March 31, 2018, so as to allow such companies to avail of CODS – 2018.
C. Last date of filing eCODS has not been specified. However, it seems like the maximum date is the validity of this scheme.
This step was an alarm, and as per recent news clippings, a list of another 1.20 lakh companies are ready to be struck off.
One pertinent question that arises ?????
What in case, if the directors are disqualified AND the company has been struck off? Two situations arise. One, where the directors and promoters are desirous of restoring an otherwise active company; then the promoters/ directors shall have to approach the NCLT. Second situation, where the promoters/ directors intend to get the disqualification removed, but not the company restored. In such a case, Writ Petition shall have to be moved before the High Court, seeking an order stating that Section 248(1) strike off be treated as Section 248(2) [As if the promoters/directors would have voluntary applied for strike off]. Further, in such a case, strike off documents under Section 248 shall be filed with the jurisdictional ROC in hard copy format, so as to fulfill compliance. The ROCs may, however, seek filing of all pending overdue compliance.