Amidst the ongoing pandemic of Covid 19, the Ministry of Corporate Affairs (MCA) has rolled out the Companies Fresh Start Scheme 2020 (Company Scheme) and modifications to the LLP Settlement Scheme, 2020 (LLP Scheme). The Company Scheme and the LLP Scheme seek to provide a fresh start to the companies and limited liability partnerships (LLP) granting them opportunity to sanitize the existing defaults in filing of forms, statements, documents, undertakings, returns etc. (collectively referred to as Document(s)) and get absolved from the penal consequences of such default under the Companies Act 2013 (CA 2013) and Limited Liability Partnership Act 2008 (LLP Act) and rules made thereunder by companies and LLPs during the moratorium period from 1 April 2020 till 30 September 2020. The Company Scheme further gives an opportunity to inactive company to get itself declared as ‘dormant company’ and minimize compliance requirements.
Below are the salient features of the Company Scheme and LLP Scheme for enabling the readers to understand the relaxations provided by the MCA:
§ Filing of the Document: Any company, which has defaulted in filing any Document with the MCA, is eligible to file such Document. The benefit is available not only to companies which may not able to file Documents in time during the lockdown, but also includes existing defaulting companies.
§ No additional filing fee: Companies will be required to pay normal filing fees and no additional filing fees will be levied by the MCA for late filing.
§ Immunity: Immunity granted against any prosecution or proceedings for imposing penalty associated with delay in filing the Document. However, no immunity is available from other consequential proceedings. For example, Section 42(8) of the CA 2013 mandate a company to file a return of allotment (in Form PAS 3) within 30 days of issuance of securities. However, Section 42(4) of CA 2013 stipulates that the money received under private placement cannot be utilised by the company before filing the return of allotment. Under the Company Scheme, immunity is available from penalties arising from delay of filing of return of allotment, but not for breaching Section 42(4) regarding utilisation of money raised through private placement route prior to filing the return of allotment by the company.
§ Withdrawal of appeal: If any company has filed any appeal against the notice, complaint or order passed by a court or adjudicating authority with respect to default in filing a Document under the CA 2013, then such company will have withdrawn the appeal before filing the application for receiving immunity under the Company Scheme.
§ Extension of time for filing appeal: If any company has not filed any appeal against the order passed by adjudicating authority imposing penalties due to delay in filing Document, and last date of filing appeal falls between 1 March 2020 to 31 March 2020, then such company and their officers will have an additional period of 120 days from such last date for filing the appeal before the concerned Regional Director. Till the expiry of such extended period, the MCA will not initiate any prosecution regarding non-compliance with the order of adjudicating authority relating to delay in filing the Document.
§ Application: The company will have to file an application in Form CFSS 2020 for seeking immunity certificate within maximum period of 6 months from the closure of Company Scheme. Thereafter, the MCA will issue an immunity certificate.
§ Exclusions: The Company Scheme cannot be availed in relation to following:
Ø Companies, against which action for final notice for striking off the name under Section 248 of CA 2013 has already been initiated;
Ø Companies, which have already filed an application for striking off its name from the register of companies;
Ø Companies, which have amalgamated under a scheme of arrangement or compromise under the CA 2013;
Ø Companies, which have filed applications for obtaining “Dormant Status” before the Company Scheme;
Ø vanishing companies;
Ø forms to be filed for increase in authorized capital; and
Ø charge related documents such as Forms CHG-1, CHG-4, CHG-8 and CHG-9.
§ Inactive companies: A defaulting inactive company can, simultaneously, apply for getting itself declared as ‘dormant company’ or for striking off its name from the register of companies.
MCA has issued the LLP Scheme on similar lines as the Company Scheme, to provide similar relaxations to LLPs. The MCA had issued a circular dated 4 March 2020 (Earlier Circular) for condoning delays in filing of Document by the LLPs (Erstwhile LLP Scheme). Further, by way of circular dated 30 March 2020, the MCA has replaced the Erstwhile LLP Scheme and brought in the new scheme with effect from 1 April 2020 and which shall remain in force till 30 September 2020.
Salient features of the LLP Scheme are:
§ Applicability: Any LLP, which has defaulted in filing any Document with the MCA, is eligible to file such Document. The benefit is available not only to LLPs which may not able to file Documents in time during the lockdown, but also includes existing defaulting LLPs.
§ No additional filing fee: LLPs will be required to pay normal filing fees and no additional filing fees will be levied by the MCA for late filing.
§ Immunity: The MCA will not initiate any prosecution against LLPs, if such LLPs file the Documents on or before 30 September 2020.
§ Exclusion: LLPs which has filed applications for striking off their name, are not eligible for the benefits of LLP Scheme.
Both the schemes will be warmly welcomed by the companies and LLPs during these difficult times and the schemes gives an opportunity to white-wash the non-compliances arising from filing Documents with the MCA and allow them to start afresh. Certainly, the industry will use these schemes to become more compliant and contribute to the ‘ease of doing business’ agenda of the Indian Government.
- Malav Shah (Principal Associate) and Amiyakumar Pati (Associate)
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