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Companies Fresh Start Scheme, 2020

June 4, 2020     by Pooja Dhiman

The Ministry of Corporate Affairs (MCA), during the last couple of years or so, has been on a spree of cleaning up the corporate field. In doing so, many private limited companies, which had not filed their financial statements and annual returns regularly with Registrar of companies (ROC), were struck off suo moto by the ROC from its records. This had a far-reaching impact on the directors of these companies as they became disqualified from the directorship and in some cases, even their DIN was deactivated. It is pertinent to note that the late filing fee for the said returns and statements amount to enormous figures as it is computed on ‘per day basis’ criteria. We receive many queries from companies where they missed out on their annual statutory filings, which resulted in the Registrar of Companies (ROC) initiating action of striking off against the company. Though they are fine with the company being struck off but the action comes with few stings, like directors attracting defaulters tag and are disqualified for a period of five years. This collateral damage has not gone down well with the business community who blame many other factors, which were beyond their control, and therefore, has resulted in such non-compliances. Well, there is nothing that can be done now for the companies where action has already been taken and acted upon. However, here is the limited window provided by the Government for those who are still in the fringes.

MCA vide Circular No 12/2020 on dated March 3, 2020, introduced the Companies Fresh Start Scheme, 2020 (“the Scheme” or “CFSS”) which intends to provide an opportunity to all the companies registered in India to make a fresh start on a clean slate. To be more specific, the main intent of this scheme is to condone the delay in filing of the statutory Annual Return, Financial Statements, various other statements, documents, etc., which are required to be filed with the Registrar within the prescribed timelines. It is a one-time opportunity for all the defaulting companies to make their compliances up to date.

You may also like to read our article on Spending of Funds for COVID-19- A CSR Activity.

The following are the key highlights of the scheme:

Validity

This Scheme commences from April 1, 2020, and will remain in force till September 30, 2020.

Applicability

It is applicable to all the ‘defaulting companies’ i.e. the companies which have failed to file any document, statement, return, etc., including annual filing documents, with the Registrar of Companies within the statutory timelines.

However, this scheme shall not apply to:

  • the companies against whom action for final notice for striking-off the name has already been initiated under Section 248 of the Act;
  • the companies which have already filed an application for striking-off its name from the Register of Companies;
  • the companies which have been amalgamated under the scheme of arrangement or compromise;
  • the companies which have filed an application for obtaining the status of ‘dormant company’ under section 455 of the Act;
  • the Vanishing companies;

Benefits of the Scheme

The following are the key benefits provided to all the companies participating in the scheme-

  • Waiver of all additional fees for filing of belated documents;
  • immunity from prosecution to the extent of default connected with non-filing of form; and
  • immunity from proceedings related to the adjudication of penalty under Section 454 of the Act.

However, MCA has clarified that companies which are taking benefit of the Scheme shall get immunity only against ‘delayed form filing’ and not against any substantive violation of the law, as the main intent of the Scheme is to allow one-time waiver of the additional filing fees only.

For instance; According to Section 42(8) of the Companies Act 2013, every company is required to file PAS-3 (Return of allotment) within the specified period. Further, section 42(4) also provides that the money raised through private placement shall not be utilized unless the return of allotment in Form PAS-3 is filed. In this case, the immunity under CFSS shall be provided only on account of delayed filing of return and not against the utilization of money raised through private placement prior to the filing of the return with the ROC, which is a violation of the law.

Forms covered under the Scheme

The Ministry has issued a List of 76 Forms eligible for waiver of additional fees under this Scheme. It includes forms related to IEPF, Annual Filing, BEN-2, DPT-3, PAS-3, INC-22A, MGT-14, etc. However, the following forms are not covered under this Scheme-

  • Form SH-7, as far as it relates to reporting of increase in authorized share capital of the company. It also implies that for other options available in this form (like the redemption of redeemable Preference Shares, consolidation or division of shares etc.) one can get the benefit of this Scheme.
  • Charge-related Forms (CHG-1, CHG-4, CHG-8, and CHG-9).

Process for availing Immunity under CFSS

The defaulting companies shall be required to file all the belated returns with the RoC during the validity of the Scheme. The next step would be to file e-Form CFSS-2020 after the closure of the Scheme but before the expiry of 6 months i.e. by March 30, 2021, (There is no fee for the filing of this form). After scrutiny of documents filed under this Scheme, the Designated Authority shall issue an Immunity Certificate to the defaulting company.

Effects of Immunity Certificate

After granting the Immunity Certificate, the Designated Authority concerned shall withdraw the prosecution(s) pending, if any, before the concerned Court(s). The proceedings of adjudication of penalties under section 454 of the Act shall be deemed to have been completed without any further action on the part of the Designated Authority.

Benefits to Inactive Company

CFSS shall especially benefit the companies who were not carrying any business operations and were contemplating to file for dormancy or striking off the name of the company but were reluctant to do so because of the hefty amount they would have to incur for filing all the belated returns with the RoC (as such companies are required to complete all their filings till the date of making an application for dormancy or strike off). This is a one- time opportunity for all such inactive companies.

Under this Scheme, all inactive companies can file their belated returns with the RoC with normal fees and thereafter, can make an application for obtaining dormant status under Section 455 or file an application for striking-off their names from the Register of Companies under Section 248 of the Companies Act, 2013.

Outlook

This Scheme essentially brings a win-win situation for the Department, Judiciary, and the stakeholders since it will lead to revenue generation and reduction of pending litigations.

MCA has come out with a number of circulars giving the much-required relaxations in view of Covid-19 to balance the confidence of the corporate sector and their smooth functioning. For more detail on relaxations provided by the MCA, please visit Relaxation to Companies Amidst Covid -19 Impact.

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