ROMANTICISING CORPORATE (MIS)GOVERNANCE: COMPANIES FRESH START SCHEME 2020

ROMANTICISING CORPORATE (MIS)GOVERNANCE: COMPANIES FRESH START SCHEME 2020

ROHITH KAMATH,

ADVOCATE & CS, REX LAW CHAMBERS, BENGALURU

Erstwhile in 2017, the Ministry of Corporate Affairs[MCA], estranged lakhs of companies that failed to file financial statements or annual returns with the MCA portal for a continuous period of three financial years 2013-14 to 2015-16 and they disqualified them from accessing the online registry, and thereafter gave an opportunity to seek for restitution of conjugal rights in the form of the Condonation of Delay Scheme 2018″ [CODS 2018]. The CODS gave a onetime opportunity for the disqualified directors to remove their disqualifications from the companies by filing the e-CODS form along with fee of Rs. 30,000.Subsequent amendments to the Companies Act, 2013 provided for increased penalties, displaying the need for the protection from domestic abuse caused by Companies in the form of non-compliance of corporate governance and reporting requirements thereat.The Companies Fresh Start Scheme [CFSS] 2020, issued by the Ministry of Corporate Affairs in March 2020, vide Circular No. 11/2020 to allow non-compliant companies to start with a clean slate, to rectify all its failures and shortcomings.In the wake of COVID-19, that created global awareness for safety and security of loved ones, the CFSS shows that Love is in the Air, by allowing companies that have been indulging in what I choose to call the domestic abuse of the Companies Act, 2013, to mutually compromise the matter, before the same is escalated to the stage of divorce, where a defaulting company is left estranged. ELIGIBILITY FOR CFSS:

• Only Active Companies: The Scheme is applicable on all active companies which is a ‘defaulting company’, i.e. the companies which have any documents which are pending for filing on any given date, as per the provisions of the Scheme.
• Companies that have been struck off and where an appeal is pending before the NCLT, may avail the benefit of the CFSS 2020, only if the company is revived before 30th September, 2020.

However, Companies against which the proceedings for striking off has been initiated either by the ROC or by the company itself , where the final notice u/s 248 has been issued cannot avail the benefit;

• Non- Active Companies: As per the clarifications given by the MCA, the Scheme will also allow filing of INC-22A (Active form) without any additional fees. Once the said form is filed and duly taken on record, the rest of the pending forms can be filed.
• Defaulting Inactive Companies may simultaneously apply for either of the following options:

a. to be declared as a dormant company by filing e-Form MSC-1; or

b. apply for having its name struck off by filing e-form STK -2

In the absence of CFSS, defaulting inactive companies did not have any such resilience.

• Directors with deactivated DIN, on account of non-filing of DIR-3KYC/DIR-3 KYC-Web, are allowed to file DIR-3KYC/DIR-3KYC-Web within the currency of the Scheme without filing of any additional fees. Once the Din is activated, rest of the pending forms can be filed.

However Directors disqualified u/s 164 of the Companies Act, 2013 cannot make use of the CFSS 2020

• Companies undergoing Corporate Insolvency/Liquidation Process can also avail benefits under this Scheme.
• Companies that have been amalgamated or merged;
• Companies for which application has been made for obtaining dormant status u/s 455;
• Vanishing companies are not allowed to avail benefits of CFSS
• Any company seeking to file E-forms relating to Share Capital (SH-7), and those dealing with creation, modification and satisfaction of charges (CHG-1, CHG-4, CHG-8 and CHG- 9)

IMPACT ON COMPANIES THAT AVAIL THE CFSS SCHEME:As per the circular, immunity from prosecutions or proceedings shall only be applicable to the extent that the default is associated with any delay pertaining to the filing/ reporting of matters and the payment of late fees only with the RoC, under the Companies Act, 2013.However, there is no immunity that is provided in case of other compliances under any other law or against Stakeholders, or any prosecution for account of events or associated actions that arise thereof other than prosecution for late filing.VALIDITY OF FILINGS MADE THROUGH CFSS On completion of pending filings, the companies shall have to file e-Form CFSS-2020 within 6 months from the closure of the Scheme (i.e. by March 30, 2021), based on which an immunity certificate in respect of the documents filed, shall be issued by the designated authority.FAILURE TO AVAIL CFSS 2020. If Companies do not avail the CFSS 2020, on or before September 30, 2020 and e-form CFSS is not filed on or before March 31,2021; the companies will be subject to such additional fee and for prosecution on account of non-filing of returns/documents.

The CFSS 2020 has created a one-time window for eligible companies to avail the benefit and settle issues and concerns related to delayed filing and reporting requirements under the Companies Act, 2013 to avoid financial difficulty of extensive filing fees and forego the embarrassment of prosecution on account thereof.

On an overall, the CFSS 2020, is a welcome measure, and may further India’s initiative in Ease of Doing Business, by providing companies a breathing space, and may be regarded as the Eleventh-Hour move to set things right.

Image sourced from – https://www.caclubindia.com/articles/companies-fresh-start-scheme-2020-41057.asp