Insights & Research

Companies Fresh Start Scheme 2020: A Golden Opportunity for Defaulted Companies

Companies Fresh Start Scheme 2020: A Golden Opportunity for Defaulted Companies


CS Muhammed Sahal
Partner & Head, Corporate Advisory

Companies Fresh Start Scheme 2020: A Golden Opportunity for Defaulted Companies

Introduction

A welcome move and a Golden Opportunity from Ministry of Corporate Affairs (MCA) that for the first time, this kind of scheme is put forth by MCA in which all additional fees are waived for all kind of forms, returns and documents for past many years. This offer is considering the difficult financial or economic conditions in the wake of outbreak of COVID-19 and also to incentivize Companies to become compliant and start fresh in this new FY 2020-21

Legal Provision & Extent of Operation

Central Government introduce a Scheme namely Companies Fresh Start Scheme, 2020 (CFSS-2020) vide General Circular No. 12/2020 dated 30/03/2020 and For the LLPs by modification in LLP Settlement Scheme, 2020 under Circular No. 13./2020  (LLPSS-2020, which is modification in LLP Settlement Scheme, 2020 issued on March 04, 2020 under Circular No. 6 /2020) condoning the delay in filing the specified documents with the Registrar, insofar as it relates to charging of additional fees, and granting of immunity from launching of prosecution or proceedings for imposing penalty on account of delay associated with certain filings. As per the scheme, total 76 Forms will be allowed to be filed with MCA under these two Schemes, out of which 10 forms are pertaining to the Companies Act, 1956, 12 forms are pertaining to LLPs and 56 forms are pertaining to the Companies Act, 2013.

Applicability 

  1. As per the circular any ‘defaulting company” is permitted to file belated documents which were due for filing on any given date in accordance with the provisions of this Scheme. 
  2. No additional filing fees will be required to be paid, however normal fees wherever applicable is required to be paid. 
  3. All kind of Company can avail the benefit of the Scheme ( OPC, Private, Public, Nidhi, Producer Company , NBFC and even Foreign Company etc)
  4. For company where all directors are disqualified, it has to appoint one Director through Backend process, file DIR -3 KYC, INC-22 and bring the Status of the Company as ACTIVE and then only it can avail benefit of this scheme
  5. This Scheme is not for any form for name availability or Incorporation related documents.
  6. For LLP filing of Forms due for filing till 31st August 2020 is only allowed


How to Avail Benefits

  • Board of Directors of the Company is required to pass resolution authorizing Director/ CFO/ CEO or CS to file the Form CFSS
  • Companies are required to file Form CFSS-2020 without any filing fees, after closure of the Scheme with in six months and after approval of Forms / returns filed
  • Form CFSS-2020 is a simple form giving details of CIN ( Corporate Identification Number) Name of the Company and its Registered Office address, email of the Company will be filled or may be prefilled and list of forms filed with SRN to be given.
  • As an attachment to the Form CFSS-2020 only two documents are required, if applicable (a) Proof of withdrawal of APPEAL, if any filed by the Company against any Notice issued or Complaint filed or an Order passed by a Court or by an Adjudicating Authority under the Act and (b) Details in respect of prosecution pending against the Company or its officers in respects of such belated documents filed under the Scheme which requires withdrawal by the Registrar.
  • Immunity to be given only for those forms filed under the Scheme and not for any previously filed Forms. This scheme is not from retrospective effect.

Exemptions

  • The Scheme does not absolve the Company or its Officers in Default from any substantial violation of law. 
  • The immunity is only with respect to filing of the belated documents under the Scheme. Example filing of annual return and balance sheet under the scheme will give immunity with respect to penalty for filing these belated documents. However if the Annual General Meeting is not convened with in statutorily prescribed time is violation of section/ law for which prosecution or adjudication may be initiated. Similarly non composition of CSR Committee as required under section 135 cannot be absolved under this Scheme.
  • The Company need to have ACTIVE status before availing the benefit of CFSS -2020 scheme. Hence the Company need to ensure bringing status from Dormant or Strike off to ACTIVE by following due process of law
  • Immunity certificate is not issued in case if Appeal is pending before the Court and if Management Dispute pending before the Court or Tribunal
  • If the Company fail to change its status as ACTIVE before closure of the CFSS-2020 Scheme, the Company cannot take benefit of the Scheme. The clear message is that first for availing the benefit of CFSS -2020 the status of the Company is required to be ACTIVE and secondly the belated documents are required to be filed during the period when the Scheme is in effect.

.What if already Notice/Order is Issued for such violation

  • In case any Company has received Notice or Order is passed by the Adjudicating Authority (RoC), keep in mind that there are three stages to understand (1) Adjudication (2) Appeal and (3) Immunity. Hence in such cases, Appeal is required to be filed before Regional Director (RD) and Company to request RD to relax the penalty, then  to file Form INC -28 and then avail benefit of CFSS-2020 and file all belated documents and then file Form CFSS-2020
  • If the Registrar has already launched prosecution against the Company, the Company can still file the Forms, returns or belated documents under CFSS-2020 scheme but Immunity is not given against such prosecution. The prosecution may continue as per process of law. This Scheme does not absolve Company or Officers in Default from violation of provisions of the sections , it can absolve only from the penalty or prosecution with respect to filing of documents under the Scheme
  • If the Company has not filed Form INC-20A after formation and not obtained Business Commencement, then such company can file INC-2). A under the Scheme and Registrar shall not adjudicate such violation
  • If company has delayed in filing RD Order under Form INC-28, the Company need to first get the condonation order from RD and then File Form INC-28 and then can avail the benefit of CFSS-2020 scheme.

Conclusion

This offer is during Nationwide Locked out position to relax the worry of business owners of financial burden of additional fees and giving them fresh start opportunity. Apart from that MCA also intends to clear all past non compliances in filing of documents. This will give opportunity to MCA to weed out Inactive Company and update its records to monitor and govern few compliant companies only and that too with all updated documents.