FRESH START—a new slate to Companies and LLPs in India – An opportunity to be a COMPLIANT ENTITY

Let’s discuss WHY,WHAT, HOW & FOR WHOM, on the closure of financial year on 30th March 2020 and in the mid of Nationwide Locked Out situation due to outbreak of Covid-19 pandemic, the Ministry of Corporate Affairs (MCA) came out with a Scheme of FRESH START namely ‘Companies Fresh Start Scheme, 2020‘ for companies and Modified LLP Settlement Scheme, 2020 for LLPs (Limited Liability Partnerships).

MCA has offered an opportunity to Companies & LLPs to start the next Financial year 2020-21 as a “COMPLAINT ENTITY ” by making good all pending and overdue filing of  documents, forms, returns , statements including Balance Sheet and Annual Returns with MCA irrespective of duration of default.

MCA on 24th March 2020 had issued Circular No. 11/2020 giving certain relaxation in compliances to companies and LLPs to enable it to focus on taking necessary measures to address the COVID-19 threat including the economic disruptions caused by it. Same are detailed as below:

a. 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’;

b. The mandatory requirement of holding meetings of the Board of the companies within prescribed interval provided in the Companies Act (120 days), 2013, shall be extended by a period of 60 days till next two quarters i.e., till 30th September;

c. Applicability of Companies (Auditor’s Report) Order, 2020 shall be made applicable from the financial year 2020-2021 instead of from 2019-2020 notified earlier. This will significantly ease the burden on companies & their auditors for the year 2019-20.

d. As per Schedule 4 to the Companies Act, 2013, Independent Directors are required to hold at least one meeting without the attendance of Non-independent directors and members of management. For the year 2019-20, if the IDs of a company have not been able to hold even one meeting, the same shall not be viewed as a violation.

e. Requirement to create a Deposit reserve of 20% of deposits maturing during the financial year 2020-21 before 30th April 2020 shall be allowed to be complied with till 30th June 2020.

f. Requirement to invest 15% of debentures maturing during a particular year in specified instruments before 30th April 2020, may be done so before 30th June 2020.

g. Newly incorporated companies are required to file a declaration for Commencement of Business within 6 months of incorporation. An additional time of 6 more months shall be allowed.

h. Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Companies Act, shall not be treated as a violation.

i. MCA has amended the Companies (Meetings of Board and its Powers) Rules, 2014 and allowed companies to hold the meetings for following matters through video conferencing or other audio visual means in accordance with rule 3 from 19th March 2020 being the date of the commencement of the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 and ending on the 30th June,2020.

(i) the approval of the Annual Financial Statements;

(ii) the approval of the Board’s Report;

(iii) the approval of the Prospectus;

(iv) the Audit Committee Meetings for consideration of Financial Statement including Consolidated Financial Statement if any, to be approved by the board and

(v) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.

j. MCA on 23rd March 2020 notified that addition of expenditure made towards fighting against COVID-19 is included in the list of permitted avenues for CSR expenses. While this is correct from an understanding perspective, technically the notification only communicates that since the novel coronavirus has been declared as a pandemic by the World Health Organization and subsequently Government of India has decided to treat this as a notified disaster, funds spent on various activities related to COVID-19 would automatically be covered under the existing items under Schedule VII of the Companies Act, 2013. The minor difference here being that the list has not changed, only one item now qualifies to be part of the list under already approved activities.

k. MCA had requested all Companies and LLPs to file one web based Form CAR-Covid-19, Company Affirmation of Readiness Towards COVID-10

MCA has again, effective from the first day of new FY 2020-21 that is from 1st April, 2020 gave two more relaxations,

(a) to Companies by announcing a new Companies Fresh Start Scheme, 2020 under Circular No. 12/2020 (CFSS, 2020) and

(b) to LLPs by modification in LLP Settlement Scheme, 2020 under Circular No. 13/2020 (Modification in LLP Settlement Scheme, 2020 issued on March 04, 2020 under Circular No. 6/2020).

A. Why – With power with Central Government u/s 460

1. To incentivize compliance

2. To reduce compliance burden during COVID-19 pandemic

3. To reduce financial burden in paying additional filing fees for delayed filings

4. To update the records with MCA

5. To give an opportunity before taking any stern action later on for non -compliant entities

B. Whomit is applicable

1. To Defaulting Companies–to file belated documents and become compliant

2. To Inactive Companies –to declare Dormant company or strike off

3. To LLPs – to file any kind of belated documents and become compliant (earlier it was only for Form -3, Form-4, Form- 8 and Form-11 only. In modified LLP Settlement Scheme it is for all kind of belated Documents). (Belated Documents are defined under LLP Settlement Scheme, 2020 but not defined under CFSS-2020)

C. Whom it is not applicable

1. to Foreign Companies in filing returns required under Chapter 22 of the Companies Act, 2013.

2. to Companies which has made application for strike off u/s 248

3. to Companies against which action for strike off has been initiated by RoC u/s 248 of the Companies Act, 2013

4. to Companies which is amalgamated under a scheme of arrangement or compromise under the Companies Act, 2013

5. to Companies which has filed application for dormancy u/s 455 of the Companies Act, 2013

6. to vanishing companies

7. to forms related to increase in Authorized Share Capital under Form SH-7

8. to forms related to Charges namely Form CHG -1, CHG 4, CHG-8 and CHG-9

9. to LLPs which has made application for strike off in Form 24as per Rule 37 (1) as per LLP Rules, 2009

D. How it allows to be a compliant entity

1. By allowing the Defaulting Active Companies:

(a) to file during 1st April, 2020 to 30th September, 2020 all types of delayed forms, statement, documents, returns including Financial Statement ( Balance Sheet) and Annual Return during April 01, 2020 to September 30, 2020 with normal filing fees and not charging any additional fees as prescribed under respective sections or u/s 403 of the Companies Act, 2013 ;

(b) to provide and give immunity from penal proceedings, including against imposition of penalties for late submissions ;

(c) to provide additional time of 120 days for filing appeals before the concerned Regional Directors against imposition of penalties,if already imposedby adjudicating officer u/s 455 of the Companies Act, 2013;

(d) to file Form CFSS-2020 without any fees maximum within 6 months from the closure of the Scheme but after the documents are taken on record.

2. By allowing Defaulting Inactive Companies to file Form CFSS-2020 and either apply for Dormancy status by filing Form MSC-1 u/s 455 of the Companies Act, 2013 at Normal Fees or apply for strike off of the name of the Company by filing Form STK-2 u/s 248 of the Companies Act, 2013 at Normal Feesduring 1st April, 2020 to 30th September, 2020.

3. By allowing such Defaulting Active Companies to file Form CFSS-2020 for immunity only after it withdraws the appeal if any filed, by itself or by its officers in default, with respect to such statutory filing, against any notice issued or complaint filed or any order passed by the court or by adjudicating authority for violation of the provisions of the Companies Act, 2013 for which application is made under CFSS 2020.

4. Designated Authority will issue Immunity Certificate. However immunity certificate is not issued in following cases :

(a) If Appeal is pending before the Court

(b) If Management Dispute pending before the Court or Tribunal

(c) If before this CFSS -2020 came into force, Court has ordered conviction or Adjudicating Authority has passed the Order and no Appeal has been preferred against such Order of the Court or the Adjudicating Authority.

(d) Also to note that no immunity is given for any other consequential proceedings including any proceedings involving interest of any shareholder or any other person qua the Company, its Directors or Key Managerial Personnel.

5. LLPs are allowed to file any kind of Belated Form (Under the Original LLP Settlement Scheme 2020 it was restricted to only Form -3, Form-4, Form -8 and Form-11) due for filing till 31st August 2020 (Under the Original LLP Settlement Scheme 2020 it was restricted to documents due for filing till 31st October , 2019).

6. LLP Settlement Scheme 2020 period and CFSS -2020 period is from 01st April, 2020 to 30th September, 2020 (The Original LLP Settlement Scheme 2020 was from 16th March 2020 to 13th June 2020)

7. LLP is not required to pay any additional filing fees other than normal fees. (Under the Original LLP Settlement Scheme 2020 it was to file normal fees and additional fees at Rs.10/- per day for delay subject to maximum Rs.5000/- additional fees, per documents)

8. Immunity Certificate will be issued for all such Belated Documents filed till 30th September, 2020 and no prosecution to be launched.

E. What Next

Upon conclusion of these Scheme after 30th September, 2020, the Registrar shall take necessary action under the respective acts, the Companies Act, 2013 and LLP Act, 2008 against such Companies and the LLPs , as the case may be, which has not availed this Scheme and are in default in filing of documents as required under the respective Acts in a timely manner.

There is possibility that MCA having power under Section 67 of LLP Act, 2008 notify that certain provisions like Section 77, 90, 117, 164, 165, 167, 206, 209, 210,211, 212, 216 , 228,230 to 233, 241 to 246, 247, 447 to 457 of the Companies Act, 2013 shall be applicable to LLP with such exception, modification and adaptation, as may be specified in the notification

F. Is it Enough and Is it Right Time

In the mid of Nationwide Locked Out with many uncertainty and disruption in economy, is it right time to bring such an offer or scheme? Is it Ease of Doing Business or Ease of Living?

This in fact brings additional burden on the Company, Compliance Officers and Company Secretaries in employment and in practice to revisit and review documents of past years to ensure that this opportunity is not missed out and if missed out it could be fatal for the Company or LLP as the case may be. As Post CODS Scheme, Corporate India has seen overnight Disqualification and Strike off of the Company by MCA. Business owners and professionals have similar fear what if this opportunity (although given at wrong time) is missed , what sever action can be taken by MCA.

Post COVID-19 there will be many issues for business, like finance, contracts, obligations, export and import, employee relations, banking and many more. The global outbreak of COVID-19 is significantly affecting economy, businesses and their employees.Government to realize that businesses of all sizes will need more support during the uncertainty. Many companies including SMEs risk default in repayment of loan, Insolvency or closure during these times.

Time bound activity during this period is uncalled for. This could have waited till 30th June 2020 and LLP Settlement Scheme 2020 could have ended by 31st March 2020 by just modifying Para No. 8 of Circular No. 6 / 2020 dated 4th March 2020 by stating the change of date to read as 31st March, 2020 instead of 13th June 2020.

There are few more relaxations expected from MCA in coming new FY 2020-21 like extension of  time for holding Annual General Meeting for FY 2019-20 to 31st December , 2020, time for filing all forms and returns to 365 days with no additional fees, clarity under Corporate Social Responsibility Rules , no adjudication for a year, speedy disposal of approvals and taking documents on record, allowing to conduct General Meetings also by video conference facilities, delaying CARO applicability for one more year and applicability from FY 2021-22, waiver in filing of various Forms like Form DIR -3 KYC, MSME  and DPT-3 etc.

We hope that with various representations from industry and Professional Institute, MCA will announce more flexibility and relaxation in compliances for one year to support the business and professionals.

Disclaimer*This brief article is not intended for solicitation or advertising This is of a general nature for knowledge sharing only.

Author Bio

Qualification: CS
Company: Amita Desai & Co
Location: Mumbai, Maharashtra, India
Member Since: 04 May 2017 | Total Posts: 37
Amita Desai is a Fellow Company Secretary and Insolvency professional in practice since 1995 Her expertise lies in following .She can be reached at 1. Business and Legal Advisory on Corporate Law 2. Foreign Exchange Management Act 3. Drafting and Appearance before Tribunal View Full Profile

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