Amidst COVID-19 pandemic, the Ministry of Corporate Affairs (MCA) vide circular no. 12/2020, dated 30 March 2020, has introduced the 'Companies Fresh Start Scheme, 2020' (CFSS) under the Companies Act, 2013 (Act), and has modified the 'LLP Settlement Scheme, 2020' vide circular no. 13/2020 of even date. These schemes aim to provide an opportunity to the corporates and limited liability partnerships, to make good any filing related defaults, irrespective of the duration of default, and make a fresh start as a fully compliant entity.
The salient features of CFSS are discussed below:
Applicability
CFSS is applicable only to any Defaulting Company, which has made a default in filing of any of the documents, statements, returns, etc. including annual statutory documents on MCA-21 Registry.
Period of Scheme
CFSS shall be active from 1 April 2020 to 30 September 2020 (Filing period).
Manner of making payment
CFSS permits Defaulting Companies to file e-forms, documents, returns, financial statements, including annual filing forms with MCA Registry during the Filing period, by paying normal fees as prescribed under the Act. No additional fees shall be charged on such filing.
Immunity from prosecution
Once the Defaulting Company regularizes its compliances by making belated filings, immunity from the launching of prosecution or proceedings for imposing penalty associated with the filings of belated documents shall be granted.
However, if the Defaulting Company or any of its officers have filed any appeal w.r.t., filing of such belated document, then such an appeal has to be first withdrawn in order to seek immunity.
Special provisions are prescribed for Defaulting Companies against which adjudicating authority has imposed penalty in respect of belated filings, and no appeal is made against such adjudication. If the appeal period falls between 1 March and 31 May 2020, then effectively in such cases, the authority will not initiate action against the Defaulting Company, and they can avail CFSS.
Immunity Certificate
Under CFSS upon the filing of belated documents with MCA Registry, Defaulting Company is required to make an application to Registry in e-Form CFSS-2020 seeking immunity from prosecution. The said e-Form does not bear any filing fees.
The immunity certificate shall not be applicable in the matter of any appeal pending before the court of law and in case of management disputes of the company pending before court or tribunal. Further, no immunity shall be granted 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 against such order of the court conviction or of the adjudicating authority before CFSS coming into force.
Immunity certificate will absolve the Defaulting Company from probable prosecution as well as withdraw ongoing proceedings in respect of belated filings.
Scheme for Inactive Companies
Under the CFS-2020 Scheme a Defaulting Inactive Company (defined as companies not carrying on business or operations) has the following two options available which can simultaneously:
- Apply to get registered as a Dormant Company; or
- Apply for striking off the name of the Company from the MCA registry.
Non-applicability of the scheme
It is stated that CFSS shall not apply in the following cases:
- Companies where the action of final notice for striking off the name is already initiated;
- Where an application has been filed by Companies for the action of striking off the name from Register of Companies;
- Companies are amalgamated under a scheme of arrangement or compromise;
- Where an application is already filed for obtaining Dormant Status;
- To Vanishing Companies;
- Where an increase in authorized share capital is involved;
- In case of charge related documents.
Our Comments
As a one time waiver, MCA has granted an opportunity to corporates to regularize their pending filings at normal fees, which otherwise is significant along with late fees coupled with penal prosecution. CFSS also seeks to grant immunity to corporates to save them from penal prosecution in respect of delayed filings. This effectively allows corporates to make a fresh start. A similar modification has also been made to LLP Settlement Scheme by incorporating certain features akin CFSS. The scheme grants a longer period for making compliances, which is laudable. MCA has stated in a release that these schemes incentivize compliance, thereby reducing the compliance burden during an unprecedented public health crisis caused by COVID-19. It is expected that a large number of corporates are likely to benefit from CFSS.
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.
