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September 13, 2020

Companies Fresh Start Scheme, 2020 Fresh start for defaulting companies

by shivam jaiswal in Compliance Law

Companies Fresh Start Scheme, 2020 Fresh start for defaulting companies

The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. The lockdown though necessary has led to a disastrous impact on the economy. The Government of India announced a variety of measures to tackle the situation, from food security and extra funds for healthcare and for the states, to sector related incentives and tax deadline extensions. The RBI too had announced various measures to the curb the economic impact of the pandemic.

The Ministry of Corporate Affairs (MCA) too, in an attempt to ease matters for the companies, introduced a new scheme known as the Companies Fresh Start Scheme, 2020 (CFSS). According to the provisions of the Companies Act, 2013, all companies are required to follow statutory compliances annually.

These include the Annual Returns, Financial Statements and all the other necessary forms, documents and statements that are specified, within that particular time frame. Non – compliance of the same results in the imposition of penalties and fines.

A company that fails to adhere to the compliances is called a defaulting company. The Companies Fresh Start Scheme, 2020 shall be applicable to such defaulting companies from 1st April, 2020 to 30th September, 2020.

What is the manner of payment under this Scheme?

Defaulting companies shall pay only the normal fees as prescribed by the Companies Rules, 2014 for all filings with the MCA 21 registry. There will be no additional fees payable on the date of filing of belated documents.

What immunity is available under this Scheme?

Immunity will be available against prosecution and proceedings for imposing penalty only where:-

  • The prosecution and proceedings arose due to the delay in filing of belated documents.
  • any consequential proceeding including proceedings related to the interest of any person/director/KMP/shareholder are not covered under the Immunity under this Scheme

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After Granting the Immunity, the designated authority shall withdraw the prosecutions pending, if any, pending before the Concerned Court and Proceedings of adjudication of penalties, other than those whose order is already passed.

In respect of default against which immunity has been granted shall be deemed to have completed without any further action on part of the Designated Authority.

Can a person who has previously filed for appeal file an application for immunity under this Scheme?

If a Defaulting company or any of its Officer has filed any appeal against any notice issued/complaint filed/order passed by any court or adjudicating authority under act, then the applicant company has to withdraw such appeal before filing an application for Immunity & shall file the Proof of Withdrawal along with the application for immunity.

At the time of making the application for the scheme, the company must furnish a copy of such withdrawal along with the application as proof.

What measures are available for Cases where order was passed but appeal wasn’t filed?

Where the order has been passed by the court and the company has not filed an appeal against the same as on the commencement of the scheme:-

  • The company is allowed 120 days to file an appeal before the Regional Director
  • During this period of 120 days, for the non – compliance of the order passed by the court with regard to the delay in filing of any documents for the same shall be condoned and no further action shall be initiated against the company.

How shall one apply for issue of Immunity under this Scheme?

  • Application for seeking immunity regarding belated documents filed under the Scheme may be made in e-form CFSS-2020 without any fee.
  • Application should be made after closure of the Scheme and after the documents are taken on record or approved by the Designated Authority, but not later than 6 months from closure of the Scheme
  • Designated Authority shall issue an Immunity Certificate on the basis of declaration made in e-form CFSS-2020, in respect of the documents filed under the Scheme

In what situations will immunity not be granted under this Scheme?

Immunity is not granted where:-

  • An appeal is pending in court against the company.
  • In case of management disputes pending before any court of law.
  • Where an order is passed by the court and no appeal has been made before the scheme came into force

In what situation will this Scheme not be applicable?

The Scheme would not apply to the following companies:

  • Companies against which Final notice of “Strike off” Under Section 248 already initiated by Designated authority
  • Where the company has already filed the application for Strike off with Registrar of Companies
  • Companies which have amalgamated under the Scheme of arrangement or compromise under the act
  • Where a company has already filed the Application for obtaining Status of Dormant Company U/s 455 of the act
  • Vanishing companies
  • Forms Regarding Increasing in Authorized Capital Form SH-7, Charge Related forms, CHG-1, CHG-4, CHG-8, & CHG-9.

What Opportunities under this Scheme are available for inactive companies?

The Scheme provides an opportunity to inactive companies to get a dormant status under section 455 with minimal compliance requirements or Strike off the name under Section 248 of the Act by making simple application with the normal fees.

The defaulting inactive companies may apply for the Scheme so as to file the due documents. Additionally, they may also do the following:-

  • Submit an application for Dormant Status under Section 455 of the Companies Act, 2013 by way of filing of e-Form MSC – 1 along with the prescribed fees.
  • Submit an application for striking off the name of the company from the Register of Companies.
  • Extension granted to file e-Form ACTIVE: An extended timeline between 1st April 2020 and 30th September 2020 is provided by MCA for the ‘ACTIVE non-compliant’ companies to come forward and file e-Form ACTIVE. The filing fee of Rs 10,000 will not apply.

What Revisions are made to the LLP Settlement Scheme 2020?

  • The LLP Settlement Scheme 2020 is applicable between the 1st of April, 2020 and the 30th of September, 2020.
  • Applicable to the defaulting LLPs for the filing of belated documents that were due for filing till the 31st of August, 2020.
  • No additional fees charged on the filing of the belated documents other than the normal application fees.
  • No prosecution by the Registrar for those defaulting LLP’s who complete the filing of all the belated documents and dues by the 30th of September, 2020.
  • The scheme is not applicable to LLPs who have made the application for the striking off of the name of the LLP from the Registrar as per the LLP Rules, 2009.

Companies Fresh Start Scheme, 2020 is an excellent step to bring non-complaint companies under the legal fold. The scheme is a golden opportunity for the companies to make a fresh start and to clear their past defaults. This would lead to setting an example for E-governance in near future.

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