Recently, the Ministry of Corporate Affairs (MCA) vide General Circular No. 6/2020 dated March 4, 2020, introduced the ‘LLP Settlement Scheme, 2020’ to allow LLPs a one-time condonation of delay for filing statutory documents with the Registrar of Companies.. Likewise, the MCA vide General Circular No. 12/2020 dated March 30, 2020, launched the ‘Company Fresh Start Scheme, 2020’, to make a fresh start on a clean slate. In addition, the MCA vide General Circular No. 13/2020 dated March 30, 2020, amended the LLP Settlement Scheme, 2020.
The scheme permits defaulting companies and LLPs an opportunity to file belated documents, annual returns, financial statements, etc. without paying a higher additional fees. Furthermore, the scheme grants immunity from prosecution with respect to such delay. In this article I’ll discern and expound the salient features of both the schemes and how it’ll help ease compliance burden on companies and LLPs amidst a pandemic.
Topics Covered in this article
MCA vide General Circular No. 11/2020 dated March 24, 2020 introduced special measures under the Companies Act, 2013 and the Limited Liability Partnership Act, 2008 in view of the mushrooming Covid-19 outbreak. The circular announces measures taken to reduce compliance burden to further assist and facilitate business entities to tackle the Covid-19 threat. Salient features of the circular are enumerated hereunder:
- No additional fees to be debited: To reduce financial and compliance burden, no additional fees will be charged for late filing during a moratorium period from April 1, 2020 to September 30, 2020, in respect of any document, return, statement, etc. required to be filed in the MCA-21 Registry, irrespective of its due date.
- Relaxation on holding of mandatory meetings: The mandatory requirement of holding meetings of the board within the intervals as provided in Section 173 of the Companies Act, 2013 (120 days) stands extended by a period of 60 days till next two quarters, i.e. till September 30, 2020. Likewise, as a one-time relaxation, the gap between two consecutive meetings of the board may extend to 180 days till the next two quarters, instead of 120 days.
- Application of the Companies (Auditor’s Report) Order, 2020: To ease the burden on auditors for the financial year 2019-20, the Companies (Auditor’s Report) Order, 2020 shall be made applicable from the financial year 2020-21.
- Separate meetings on Independent Directors: As per para VII (1) of Schedule IV of the Companies Act, 2013, independent directors are mandated to convene at least one meeting without the attendance of non-independent directors and members of management. The circular vouches that inability to do shall not be treated as a violation. However, independent directors may share their views amongst themselves through telephone or e-mail or any other mode of communication they reckon to be favourable.
- Assuagement for Resident Directors: The inability to fulfil the prerequisite under Section 149 of the Companies Act, 2013 to stay in India for a period of at least 182 days by at least one director of every company shall not be treated as non-compliance for the financial-year 2019-20. This is a welcomed relief as with borders shutting down, many directors could not travel.
- Extended date for deposits: As per Section 73(2)(c) of the Companies Act, every company is required to create a deposit repayment reserve of 20% of deposits maturing during the financial year 2020-21 before April 30, 2020. To unburden companies, the same shall be allowed to be complied with till June 30, 2020. Similarly, the requirement under Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014 to invest or deposit at least 15% of amount of debentures maturing in specified methods of investment or deposits may be complied with till June 30, 2020 instead of April 30, 2020.
- Relief for new companies: Newly incorporated companies will be granted an additional period of 180 days to file a declaration of commencement of business sunder Section 10A of the Companies Act, 2013.
LLP Settlement Scheme, 2020
The global outbreak of Covid-19 culminated into a nationwide lockdown. This was done to flatten the curve however, the looming threat of Covid-19 resulted in several business disruptions. Several businesses shut down while others found it arduous to keep afloat. A majority of business entities were finding it difficult to adhere to the strict statutory compliances. In the wake of such a situation, several exemptions concerning corporate compliances were granted by the MCA vide General Circular No. 6/2020 dated March 4, 2020.
The circular stated that a large number of LLP’s had defaulted in filing annual returns, statement of accounts and solvency, statutory documents, etc. on time with the registrar. Section 69 of the Limited Liability Partnership Act, 2008 allows LLPs a period of upto 300 days from the date within which such document or return had to be filed with the registrar, on payment of an additional fee of ₹100 for every day till such delay recurs in addition to any fee as is payable for filing such document or return.
MCA further stated that owing to the delay, the records available weren’t updated in the electronic registry and not open to stakeholders for inspection. Moreover, delay in filing can attract criminal prosecution for designated partners of the LLP.
It acknowledged that a large number of representations from various quarters for waiver of fee or condonation of delay and relaxations in additional fee on the ground of excessive financial burden were received. To promote ease of doing business, the government introduced the ‘LLP Settlement Scheme, 2020’ (Original Scheme) which allowed a one-time condonation of delay in filing statutorily required documents with the registrar. Thereafter, to provide relaxations to LLPs and to assist and enable the LLPs to focus on taking necessary measures to address the Covid-19 threat and reduce the compliance burden, the MCA vide General CircularNo. 13/2020 dated March 30, 2020 (Modified Scheme) brought about certain modifications to the original scheme.
The original and modified scheme shall hereinafter be referred as the scheme collectively for an improved understanding. The highlights of the scheme are enumerated hereunder:
- Details of the scheme: The scheme came into force on March 16, 2002 and shall remain in effect upto September 30, 2020. The scheme applies to any defaulting LLP as registered under the Limited Liability Partnership Act, 2008 which has made a default in filing of documents on the due dates as specified in the act and rules made thereunder.
A defaulting LLP is permitted to file belated documents, which were due for filing till August 31, 2020 in accordance with the provisions of the scheme.
The scheme shall apply to the following documents:
- Form-3: Information with regard to LLP agreement and changes, if any, made therein
- Form-4: Notice of appointment, cessation, change in name or address of partner/designated partner and his/her consent
- Form-8: Statement of account & solvency, either annul or interim
- Form-11: Annual return of LLP
- Method of payment of fee of filing belated documents: No additional fee shall be paid by any defaulting LLP for filing any belated documents under this scheme. A defaulting LLP may itself avail the scheme for filing documents which have not been filed or registered in time on the payment of fee as payable for filing of such document or return.
- Immunity from prosecution: A defaulting LLP which has filed its belated documents till September 30, 2020 and has made good the default, shall not be subjected to prosecution by the Registrar for such defaults.
- Non-applicability of the Act: The scheme shall not apply to a LLP which has made an application in Form 24 to the registrar, for striking of the name of the LLP from the register as per provisions of Rule 37(1) of the Limited Liability Partnership Rules, 2009. Furthermore, upon culmination of the scheme on September 30, 2020 the registrar shall take necessary action against LLPs which have not availed the scheme and are in default in filing of documents as per provisions of the Limited Liability Act, 2008 in a timely manner.
Company Fresh Start Scheme, 2020
The entire economy of the nation is stagnant due to the unprecedented situation regarding public health and safety caused by Covid-19. The MCA received several representations from various stakeholder requesting for grant of one-time opportunity to file their pending compliances without being subject to a higher additional fee on account of any delay.
Thereafter, the Central Government in discharge of its powers conferred under Section 460 read with Section 403 of the Companies Act, 2013 vide General Circular No. 12/2020 dated March 30, 2020 launched the ‘Companies Fresh Start Scheme, 2020’. The said scheme will enable to defaulting companies to file belated documents in the MCA-21 registry, without defraying an additional fee. Furthermore, it will also grant immunity from launching prosecution of proceedings or proceedings for imposing penalty on account of delay associated with certain filings. However, normal fees for filing of documents in the MCA-21 registry will be payable during the duration of the scheme.
Delay in filing various forms or documents can create a huge hole in one’s pocket owing to the levy of additional fees. With the Indian economy on a whole-time low, this could take a toll on small companies, start-ups, and MSMES’s. Hence, the Company Fresh Start scheme was announced to enable companies to make a fresh start on a clean slate. Highlights of the scheme are enumerated hereunder:
- Details of the scheme: The Company Fresh Start scheme came into effect from April 1, 2020, and shall remain in force till September 30, 2020. The scheme applies to any company registered under the Companies Act, 2013 which has made a default in filing of any of the documents, statement, returns, etc. including annual statutory documents on the MCA-21 registry.
A defaulting company is permitted to file belated documents which were due for filing on any give date in accordance with the provisions of the scheme.
- Fee payable for belated documents: No additional fees shall be payable on filing of belated documents. However, a defaulting company is required to pay normal fees as prescribed under the Companies (Registration Offices and Fee) Rules, 2014 on the date of filing of each belated document.
- Immunity under the scheme: Immunity from launch of prosecution or proceedings for imposing penalty shall be granted for filing of belated documents. However, such immunity shall not be granted for other consequential proceedings, for e.g. proceedings involving interests of any shareholder or any other person qua the company or its directors or key managerial person.
- Withdrawal of appeal for grant of Immunity certificate: If a defaulting company has filed an appeal with respect to any statutory filing under the Companies Act, 2013, or its officers in default, against any notice issue or complaint filed or order passed by a court or authority for violation for provisions of the act. Thereupon, such defaulting company shall withdraw the appeal and furnish proof thereof before filing an application for the issue of an immunity certificate.
- Special measures where no appeal could be preferred against an order of the adjudicating authority: In cases where to due to delay associated in filing of any document in the MCA-21 registry, penalties were imposed on the company by an adjudicating officer under the act, and no appeal was preferred before the Regional Director under Section 454(6) as on the date of the scheme, the following would apply.
- A period of 120 days shall be allowed to all companies and their officers where the last date of filing the appeal against the order under Section 454(6) fell between March 1, 2020 and May 31, 2020.
- No prosecution shall be initiated against the company or its officers under Section 454(8) during such additional period of 120 days for non-compliance of the order, insofar as it relates to delay associated in filing of ant document.
- Application for issuance of Immunity Certificate: An application seeking immunity from prosecution under the scheme may be made electronically in the Form CFSS-2020, after closure of the scheme and after the documents are taken on record, but not after expiry of six months from the date of closure of the scheme. The said e-Form does not bear any filing fees. However immunity shall not be applicable in the following cases.
- Where an appeal is pending before the court of law and in case of management disputes of the company pending before any court or tribunal.
- Where no appeal has been preferred before the scheme has come into force, against an order of conviction in any matter, or an order imposing penalty has been passed by an adjudicating authority under the act.
Upon declaration made in Form CFSS-2020 and documents filed under this scheme, the designated authority shall issue the immunity certificate accordingly. Designated authority under the scheme refers to the registrar of companies having jurisdiction over the registered office of the company.
- Effect of Immunity: After issuance of the immunity certificate, the designated authority shall withdraw any pending prosecutions before the concerned court and the proceedings of adjudication of penalties under Section 454 of the Act.
- Provisions for Inactive Companies:An inactive company means a company as defined in Explanation (i) to sub-section (1) of Section 455(1) of the Companies Act, 2013. A defaulting inactive company, while filing due documents under CFSS-2020 can, simultaneously apply, either.
- To get itself declared as a dormant company under Section 455 of the Companies Act, 2012 by filing e-Form MSC-1 at a normal fee as mentioned on the form; or
- Apply for striking off the name of the company by filing e-Form STK-2 at a fee as mentioned on the form.
- The scheme shall not apply in the following circumstances:
- Where action for action final notice for striking off the name under Section 248 of the act has already been initiated by the registrar of companies.
- Where an application has been filed by the company for action of striking off the name from the register of companies.
- To companies which have amalgamated under a compromise under the act.
- Where application under Section 455 to obtain the status of a dormant company has already been filed before the commencement scheme.
- To vanishing companies.
- Where an increase in authorized capital is involved as well as charge related documents.
Upon conclusion of the scheme, the registrar of companies shall take necessary action against companies who are in default in filing documents in a timely manner and who have not availed the scheme.
To further reduce compliance burden, the Institute of Company Secretaries of India (ICSI) has urged the MCA to increase the scope of the ‘Fresh Start Scheme’ to include defaulting firms which had filed their documents along with late fess before the scheme was implemented.
Answers to FAQs regarding the Companies Fresh Start Scheme, 2020
Recently, the MCA published FAQs regarding the scheme on its website. Some of the clarifications are stated hereunder.
- Even foreign companies and its subsidiaries are eligible to avail the benefits of the scheme.
- A company can also file annual returns as old as 3-4 years without any late fee.
- The returns can be filed for a subsidiary company whose holding company is under liquidation.
- The scheme is applicable for defaulting companies to file the belated documents and does not extend to curing the disqualification of directors.
- A struck off company may approach the NCLT for revival. Once the company is revived, it may file its belated documents.
At present, the situation remains volatile with all office either working at minimal capacity or from home. There has been the least possible public dealing amidst the concern for public health and safety. The scheme is a welcomed move and will go a long way in benefitting all defaulting companies which have previously failed in making the required filings. Furthermore, the grant of immunity from prosecution will enable companies to start afresh on a clean slate.
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