The Ministry of Corporate Affairs received multiple representations from stakeholders who requested a scheme where defaulting companies could file the various forms, returns, and documents, without being fined for a late submission. Owing to COVID-19, the representations were thoroughly analyzed, and the Ministry came up with the Companies Fresh Start Scheme for the current year.

A large number of defaulting companies were ready to file the necessary forms, documents, and returns but were reluctant owing to the additional fees incurred due to belated/late fillings. Once the Scheme is launched, companies can comply better and start afresh, making it a welcome step for easier management.

The MCA has also given these companies breathing space by implementing specific changes to the LLP Settlement Scheme of 2020. The whole thought process behind this Scheme is to provide a clean slate for law-abiding companies by giving them extra time and a little financial relief to comply with their submissions owing to the current global condition.

Changes to the CFSS (2020) for defaulting and non-active companies:

Basis the provisions to the Companies Act of 2013, all companies must annually follow the compliances. This includes the Financial Statements, Annual Return, and the other necessary documents, statements, or forms specified, within a particular time frame. Any non-compliance of the same statutory compliances can result in fines and penalties. Companies that don’t adhere to compliances are deemed defaulting companies.

The Companies Fresh Start Scheme went live on April 1, 2020, and is valid till September 30, 2020. Here are the revised outlines of the schemes for –

  1. Defaulting companies –
  • All defaulting companies pay only standard fees prescribed as per the Companies Rules, 2014, for filings under the MCA 21 registry. There won’t be any additional fees.
  • Companies can get immunity against the proceedings and prosecution for imposing penalties only when:
    • The proceedings and prosecution arose because of delay in the filing of belated documents
    • No other cases allowed or covered
  • If there are existing appeals filed by a company without notice, the order or complaint issued regarding the proceedings and prosecution related to any delay in the filing sees the following steps:
    • Before the CFSS 2020 registration, the appeal filed by any company must be withdrawn
    • At the time of making the scheme application, the company must furnish any copy of withdrawal and proof of application
  • Once the court has passed the orders and companies have not filed any appeal after the commencement of the Scheme:
    • The company is given 120 days to file any appeals before the Regional Director
    • During the 120 days, any non-compliance passed by the court related to the delay in the document filing will be condoned, and there won’t be any further action initiated against the company.
  • Companies can file the CFSS-2020 Form under the Scheme:
    • The Form allows companies to have immunity for up to 6 months after the closure of the final date of CFSS 2020
    • A designated authority will grant the Immunity Certificate
    • No fees are to be paid for this particular Form.
  • No immunity is granted if:
    • An appeal is pending in the court against a company
    • If there are management disputes that are pending before any court of law
    • Where an order is passed by a court and no appeal is made before the Scheme coming live
  • Any Extension granted to file the DIR-3/DIR-3KYC: The extended timelines between April 1, 2020, and September 30, 2020, is granted by the MCA for directors who have their DIN deactivated to come forward and file the DIR-3 KYC/DIR-3 KYC-Web. There won’t be a penalty of Rs. 5,000.

 

Let’s take a look at the laws for inactive companies –

  1. For inactive companies –

Defaulting companies can apply for the CFSS 2020, so they can file the required documents. Additionally, the following can also be done –

  • Submit applications for Dormant Status under Section 455 of Companies Act, 2013 by filing an e-Form MSC -1 along with the necessary fees
  • Submit applications for the striking off of names of companies from the Register of Companies
  • Extensions for filing e-Form ACTIVE – There is an extended timeline provided between April and September for “ACTIVE non-compliant” companies to file their e-form ACTIVE. There won’t be a filing fee of Rs. 10000 incurred
  1. Non-availability of CFSS 2020 –
  • Where companies have filed for the FORM STK -2 and prescribed fees, for striking off the Register name from the Register
  • Where the action for the final notice is as per the Companies Act, 2013 and is already initiated by the necessary authority
  • Where companies are amalgamated under a compromise of arrangement
  • Where an application for Dormant Status is filed by way of Form MSC-1 with the prescribed fees
  • Companies marked for the Liquidation of Company Insolvency Resolution Process, including Increase in Authorised Capital as per the Form SH-7 and Charge related documents under CHG -1, -4, -8, -9
  • Companies that are vanishing

With the changes regulated in the Scheme, there might be questions that all stakeholders require an answer to. We’ve compiled a list of FAQs that can help clarify the queries you may have in and around this Scheme –

  1. Who is this Scheme for?

Any company which has not filed the mandatory Form with the ROC can avail of this Scheme.

  1. What forms should you file under this Scheme? 

The forms that require an additional fee under Section 403 of the Companies Act, 2013, can be eligible for the CFSS, 2020 filing. They are divided into

Annual Based – 

  • Annual Return – MGT-7
  • Financial Statements under the AOC-4

Event-based – 

Other forms required to be filed with ROC such as:

  • PAS-3
  • MGT-14
  • ADT-1
  • Any other form

Except for two other forms:

  • SH-7 Increase in Authorized
  • Charge related form (CHG-1, -4,-8,-9) Capital
  1. Under which cases does the CFSS not apply?

The Scheme will not apply if the final notices for striking off the name under Section 248 of the Companies Act, 2013 is already issued by the ROCs. Apart from this, the Scheme is non-applicable for:

  • Any companies making an application to strike off the name of the company from ROCs.
  • Companies which are also amalgamated under the Scheme of arrangement and compromise
  • A company applying for dormant status under Section 455 of the Companies Act, 2013 before the introduction of the Scheme and
  • Vanishing companies
  1. I want to apply for this Scheme, what’s the procedure? 
  • You need to file all pending forms and documents before September 30, 2020
  • The e-form of CFSS-2020 will require you to file within six months of closure
  1. What benefits do defaulting companies enjoy under this Scheme?

Defaulting companies can make their compliances better, and there is no penalties/prosecution for Companies filing pending forms by September 30, 2020.

  1. My company hasn’t applied for this Scheme, are there any consequences that my company can face? 

Yes, your company can face consequences, including –

  • The standard fees payable on the forms
  • Additional and extra fees which can go up to lakhs
  • Registrar strike-off action
  • Heavy Penalty/Prosecution for the Directors as well as any other officers defaulting
  1. Do I need to file any application before filing this Form?

No, there’s no need to file any application, but once the submission of the scheme form is completed, the company can obtain the e-form for CFSS-2020 (yet to be released) for free and obtain the immunity certificate.

  1. I am a director of the company, can I avail of the benefits of this Scheme?

The relaxation provided under the CFSS scheme to file the DIR-3KYC and DIR-3KYC-Web falling under the Scheme tenure can be done without any additional fees. After activating the DIN, the remaining forms can be submitted.

  1. Can a foreign company be eligible for this Scheme?

No, foreign companies are not eligible for the Scheme, as per Section 2(20) of Companies Act, 2013.

  1. Can inactive companies, or companies who are struck off and have a pending appeal before NCLT avail the CFSS scheme 2020?

Companies that are struck off the need to revive themselves during the scheme tenure, i.e., up to 30.09.2020 and only then avail the benefits of the Scheme. Otherwise, only Active Companies can avail of the benefits.

Thus, these are the changes being implemented by the Government for the Companies Fresh Start Scheme. Reach out to us if you want to get expert advice on filing and availing the benefits of this Scheme.