Blog Details

Authors – Rashi Suri, (Managing Partner) and Dikshita Damodaran, (Associate)

Introduction

The Ministry of Corporate Affairs (hereinafter “MCA”) vide a general circular no. 12/2020 on March 30, 2020 introduced the Companies Fresh Start Scheme, 2020 (hereinafter “the Scheme”). The circular intends to give a ‘renewed life’ to the existing companies. As per the words of the circular, the Ministry intends to facilitate the companies registered in India ‘to make a fresh start on a clean slate’ by taking certain alleviative measures for their benefit.

Purpose of the Scheme

The MCA in its circular has stated that it has received various representations from stakeholders requesting another opportunity in order to complete their pending compliances, annual filings and other mandatory filings with the MCA Registry. In furtherance, to such representations, the Central Government while exercising the powers conferred to it by the Companies Act, has introduced the Scheme.

The Scheme in an intention to give the companies a ‘renewed life’ condones the delay in the filing of the necessary documents with the Registry without imposition of any additional penalties or subjecting the companies to any form of prosecution or proceedings on account of such delay in filings. The circular clarifies that the companies will only be required to pay the normal filing charges for the specific documents.

Further, the Scheme also intends to give an opportunity to inactive companies to get their companies declared as ‘dormant company’ under Section 455 of the Companies Act by way of filing an application. This move enables the company from getting their names struck off from the register of companies and remain in existence.

Key provisions of the Scheme

The Scheme came into effect from April 1, 2020 and will remain in force till September 30, 2020. Under the Scheme, a company which has defaulted in filing the documents, statements, returns on the MCA-21 Registry (hereinafter “defaulting company”) as per the provisions of the Companies Act has been permitted to file the belated documents.

a) No additional fee payable by the defaulting company for belated filings

The Scheme provides that the defaulting company is required to pay only the normal fees on the date of filing of the delayed documents in accordance to the provisions of the Companies (Registration Offices and Fee) Rules, 2014. The defaulting company shall not liable to pay any additional charges for the delay in filings as per the Scheme.

b) Immunity granted to the defaulting company from launch of prosecution or proceedings 

The Scheme grants the defaulting company, immunity from initiation of any proceedings for imposing a penalty in connection with such delayed filings. However, the Scheme clarifies that such immunity does not exclude any consequential proceedings involving the interests of any shareholders, directors, key managerial persons, etc.

c) Withdrawal of appeals by the defaulting companies

In case an appeal has been filed by a defaulting company against any notice issued or complaint filed or order passed by a court or adjudicating authority with respect to violations of any statutory filings in the Companies Act, the same shall have to be withdrawn by the defaulting company. This condition is a pre-requisite for the purpose of issue of an immunity certificate under the Scheme. The defaulting company while filing an application for the issuance of the immunity certificate, is required to provide proof of such withdrawal of appeal along with the application.

d) Application for immunity certificate

An application for seeking an immunity certificate under the Scheme is to be made electronically in the Form CFSS-2020 by a defaulting company. No fees is required to be paid by the defaulting company while filing this form. The form is to be made after the closure of the Scheme. This essentially means that the form is to be made only after September 30, 2020 and after the documents are taken on file or on record or approved by the RoC. However, the same has to be done before the expiry of six (6) months from the date of closure of the Scheme.

There are certain exceptions that have been provided wherein the immunity is not available. They are as follows:

1. appeals or any management disputes pending before a court or tribunal, or
2. conviction by a court, or 
3. an order imposing penalty passed by an adjudicating authority against which no appeal has been preferred prior to the commencement of the Scheme.

Based on the declaration made under the Form CFSS-2020, an immunity certificate in respect of documents filed under the Scheme shall be issued to the defaulting company. Once the immunity is granted, the designated authority shall withdraw the pending prosecutions for adjudication of penalties or any proceedings pending before the concerned courts under Section 454 of the Companies Act.

e) Additional provisions for inactive companies

The Scheme states that the inactive defaulting companies filing the Form CFSS-2020 can simultaneously,

1. apply to get themselves declared as a 'dormant company' under Section 455 of the Companies Act by filing e-form MSC-1 at a normal fee; or
2. apply for striking off the name of the company from the registry by filing e-form STK-2 and paying the applicable fees.

f) Exceptions to the applicability of the Scheme

The Scheme is not applicable to the following:

1. The companies against which an action for final notice for striking off a company's name under Section 248 of the Act has already been initiated by the designated authority;
2. Where an application has already been filed by the companies for striking off its name from the register of companies;
3. To companies which have amalgamated under the scheme of arrangement or compromise in accordance to the provisions of the Companies Act;
4. Where applications have been filed for obtaining a dormant status under Section 455 of the Companies Act before the Scheme;
5. To vanishing companies;
6. Where the form to be filed pertains to an increase in the authorized share capital or pertains to any charge related filings.

Conclusion

The introduction of the Scheme at the time of the COVID-19 pandemic crises has to be welcomed. It has been witnessed that during this crises, the MCA has taken several other initiatives that have given breathing spaces for the companies and several other stakeholders. As stated in the preceding paragraphs, the Scheme goes a long way to provide the ‘renewed lifeline’ to the defaulting companies by giving them the opportunity to save themselves from become non-existent.