1. INTRODUCTION

In furtherance to the Ministry of Corporate Affair's (the "MCA") general circular dated March 24, 20201 and the powers conferred on it under the Companies Act, 2013 ("Act"), the MCA, vide general circular no. 12/2020 dated March 30, 2020, introduced the Companies Fresh Start Scheme, 2020 (the "Scheme")2. The Scheme is intended to allow companies registered in India, to make a fresh start with respect to their pending compliances without being subject to any prosecution or proceedings or imposition of any penalty on account of delayed filings.

This news alert analyses the applicability of the Scheme, the relaxations provided and summarizes the procedural requirements as mentioned therein.

2. HIGHLIGHTS OF THE SCHEME

2.1. Applicability of the Scheme

The Scheme shall remain in force from April 01, 2020 till September 30, 2020. Under this Scheme, a company which has defaulted in filing the necessary documents, statements, returns including annual filings on the MCA-21 registry in accordance with the provisions of the Act ("Defaulting Company"), is given a one-time opportunity to file such documents belatedly under the Scheme.

However, this Scheme shall not apply in the following cases:

  1. Where actions for final notice of striking off a company's name under Section 248 of the Act has already been initiated by the jurisdictional Registrar of Companies (the "RoC");
  2. To companies which have already filed an application with the RoC for striking off its name from the registry;
  3. To companies which have amalgamated under the scheme of arrangement or compromise in accordance with the Act;
  4. To companies where an application for obtaining a dormant status under Section 455 of the Act has already been made;
  5. To vanishing companies; and
  6. Where the form to be filed with the RoC relates to an increase in the authorized share capital or pertains to any charge related filings.

2.2. Key Provisions of the Scheme

  1. Waiver of additional fee and immunity from prosecution for delayed filings
    The Scheme provides that every Defaulting Company shall pay only the normal fees as prescribed by the Companies (Registration Offices and Fees) Rules, 2014 and no additional fees or penalty shall be levied while making such delayed filings. Immunity from initiating any proceedings for imposing a penalty shall be provided only in connection with such delayed filings. However, the MCA has clarified that such immunity does not exclude any consequential proceedings involving the interests of any shareholders, directors, key managerial persons, etc.
  2. Appeals by the Defaulting Companies
    With respect to any violations relating to statutory filings (under the Act or the erstwhile Companies Act, 1956), if a Defaulting Company or its officer in default, as the case may be, has preferred an appeal against any notice, complaint or order passed by an adjudicating authority or court, then the Defaulting Company or its officer in default, as the case may be, is first required to withdraw such appeal before filing an application for issue of immunity certificate under this Scheme. The proof of withdrawal should be filed along with the application made under the Scheme.
    In cases where an adjudicating officer under the Act has imposed a penalty for a delay in filing, but the Defaulting Company or its officer in default has not preferred an appeal against such order before the Regional Director by April 1, 2020, then in such cases:
    1. if the last date for filing such appeal falls between March 01, 2020 and May 31, 2020 (inclusive of both days), an additional period of 120 days from the last date on which such appeal should have been filed shall be provided; and
    2. during the additional period of 120 days, prosecution for non-compliance of an order in relation to any delay in statutory filing shall not be initiated against the Defaulting Company or its officers.
  3. Application for immunity
    An application for seeking immunity under the Scheme in respect of the delayed filings should be made electronically by the Defaulting Company in Form CFSS-2020. No fees shall be paid while filing this form. This form should be made only after closure of the Scheme, i.e. September 30, 2020, and once the statutory filings made by the Defaulting Company are taken on record or approved by the RoC, but before the expiry of 6 months from the date of closure of the Scheme.
    This immunity will however not be available in respect of (i) appeals or any management disputes pending before a court or tribunal, or (ii) conviction by a court or penalty imposed by an adjudicating authority against which no appeal has been preferred prior to the commencement of the Scheme.
    Based on the declaration made under the Form CFSS-2020, an immunity certificate in respect of documents filed under the Scheme shall be issued to the Defaulting Company. After granting such immunity, the RoC shall withdraw the pending prosecutions for adjudication of penalties or any proceedings pending before the concerned courts.
  4. Provisions for inactive companies3
    Inactive Defaulting Companies, while filing the application under this Scheme, also have the option to simultaneously:
    1. apply to get themselves declared as a 'Dormant Company' by filing e-form MSC-1 at a normal fee; or
    2. apply for striking off the name of the company from the registry by filing e-form STK-2 and paying such applicable fees.

3. INDUSLAW VIEW

In the wake of the COVID-19 pandemic, the MCA has released a series of relaxations addressing the concerns raised by several stakeholders in the corporate world. The timely introduction of this Scheme will go a long way in benefiting all defaulting companies which have previously failed to make the required filings under the Act. The Scheme grants them immunity from proceedings or additional penalties being imposed in connection with such delayed filings. However, it is pertinent to note that the immunity under the Scheme is only in connection with certain delayed filings and does not insulate companies against other substantive non-compliances under the Act.

Footnotes

1. MCA Circular available at http://www.mca.gov.in/Ministry/pdf/Circular_25032020.pdf

2. MCA Circular available at http://www.mca.gov.in/Ministry/pdf/Circular12_30032020.pdf

3. "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. "Significant Accounting Transaction" means any transaction other than (a) payment of fees by a company to the RoC; (b) payments made by it to fulfil the requirements of the Act or any other law; (c) allotment of shares to fulfil the requirements of the Act; and (d) payments for maintenance of its office and records.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.