Relaxation to Companies Amidst COVID -19 Impact
April 18, 2020 by Pooja Dhiman
Viruses know no boundaries! The novel COVID -19 virus has hit populations across the globe and has restricted free movement of people, thereby hampering businesses and day to day functioning of companies all around the world. The Coronavirus outbreak has presented an alarming situation and affecting the global economy, with which the world is grappling with.
In an attempt to slow down the spread of Coronavirus, the Government of India imposed a nationwide lockdown till 14th April 2020. Naturally, it has severe implications on the Companies and their normal course of business. Considering the need of the hour and to provide some relief amidst the chaos, various authorities including MCA, SEBI, NCLT, IBBI, Ministry of Finance, RBI, etc. have provided certain relaxations to the Companies to ease out compliance management. For the purpose of this article, we would restrict to the length of relaxations imposed by the MCA only.
Relaxations by MCA:
The Ministry of Corporate Affairs vide its circular dated 24th March 2020, implemented ‘Special Measures under Companies Act, 2013 and LLP Act, 2008 in view of COVID 19’ in order to provide the following relaxations:
Extension of interval in conducting board meetings:The Ministry has provided one-time relaxation to Companies from mandatorily holding the board meetings within the interval of 120 days. The said interval of 120 days stands extended by a period of 60 days till the next two quarters i.e., till 30th September. Therefore, the consecutive board meetings for the first and second quarter of the F.Y. 20-21 can be held with a maximum gap of 180 days instead of 120 days.
Implications: If a Board Meeting held on 15th March 2020, the due date of next board meeting will be 11th September 2020 i.e. 180 days from last board meeting.
Meeting of Independent Directors: As required under Para VII (1) of Schedule IV of the Companies Act, 2013, the independent directors (IDs) of every company under preview, are mandated to meet at least once in a financial year. As a general practice, the IDs meet once before the last board meeting of the F.Y. to evaluate the performance of the Board during the relevant F.Y. However, it has been clarified that for the F.Y. 2019-20, if the independent Directors of a company have not been able to hold such a meeting, the same shall not be viewed as a violation.
The independent Directors, however, may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem necessary.
Meetings with virtual presence of Directors:Pursuant to Section 173(2) of the Companies Act, 2013 read with Rule 4 of Companies (meeting of board and its powers) Rules, 2014 certain matters such as approval of financial statement, board report etc. are required to be transacted through physical board meeting only not through video conferencing (VC) provided that if requisite quorum is physically present, other directors may participate through VC. However, the MCA has dispensed with the requirement to conduct physical board meetings in relation to such matters i.e. directors participating through VC be treated as part of quorum for meetings to be held between 19.03.2020 to 30.06.2020.
Implications: If a board meeting are required to be held for the purpose of approval of financial statement, board report etc., the company may call meeting where all directors are attending through video conferencing till 30th June 2020.
- No Additional Fees:
Moratorium Period: In order to reduce the compliance and financial burden of the Companies/LLPs, no additional fees shall be charged for late filings of any document, return, statement, form etc. during a moratorium period starting from 1st April, 2020 to 30th September, 2020 irrespective of its due date.
Filing of Form DIR-3KYC/DIR-3KYC-Web/ACTIVE without any filing fee: MCA by issuing notification encourage DIN Holders and Companies to change their status from “Deactivated DIN” and “ACTIVE Non-Compliant” to “Activated DIN” and “ACTIVE Compliant Company” respectively once again. This can be done by filing Form INC 22A Active by Companies and Form DIR-3 KYC/ DIR-3KYC Web by directors, as the case may be, commencing form 1st April 2020 to 30th September 2020, without any filing fees of Rs 5000 / Rs 10,000 respectively.
- Extensions and Reliefs:
Filing of Form INC-20A: The Ministry has also provided relaxation of additional 180 days to newly incorporated companies in regards to filing of declaration of commencement of business in addition to timeline of 180 days for filing a declaration under Section 10A of the Companies Act, 2013. It is prudent that this declaration be always filed before actual commencement of business.
Implementation of CARO, 2020: The Companies (Auditor’s report) Order, 2020 shall applicable from the Financial Year 2020-2021 instead of being applicable from the Financial Year 2019-2020 notified earlier.
Deposit Repayment Reserve Account: Requirement under Section 73(2)(c) of the Companies Act, 2013 to create the Deposit Repayment 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.
Debenture Repayment Reserve Account: Requirement under Section 71 of the Companies Act, 2013 to invest or deposit at least 15% of amount of debentures maturing in specified methods of invest or deposit before 30 April 2020, may be complied with till 30th June 2020.
Requirement of Resident Director: As per Section 149(3) of the Companies Act, 2013, every company shall have at least one resident director who stays in India for at least 182 days in a financial year. The Circular grants relief from such requirement for the FY 2019-20.
- Clarifications and Reporting Requirement
Spending for CSR funds for COVID-19: Keeping in view the spread of novel Coronavirus (COVID-19) in India, the Ministry on 28.03.2020 clarified that contribution to Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) shall be eligible CSR activity.
Companies Affirmation of Readiness towards COVID-19: In the wake of the prevailing COVID-19 situation, the corporate sector is required to play a key role in implementing the strategic policy decision of social distancing, which is most crucial for reducing the rate and extent of the disease transmission at community level.
Considering the above, MCA has introduced a new form named CAR (Company Affirmation of Readiness towards COVID- 19) with effect from 23rd March, 2020. It is a simple web-based form should filed by all the companies and LLPs. This form has been deployed as a purely confidence building measure to assess the readiness of the companies to deal with COVID-19 threat in India. As such, no penalty or enforcement related action is applicable.
Development arisen due to the spread of Coronavirus have warranted the need for temporary relaxations in compliance requirement of companies. The relaxations granted by various authorities will definitely come as relief to the Companies by enabling and supporting them to remain compliant in these changed and difficult circumstances.