Companies Fresh Start Scheme, 2020 – An opportunity to regularize delinquency

Astha Srivastava & Sayli Petiwale

The Ministry of Corporate Affairs (“MCA”) has introduced the Companies Fresh Start Scheme, 2020 (“Scheme”) on March 30, 2020.[1] This Scheme has been introduced in furtherance of the steps undertaken by the government for providing relaxations to businesses from statutory and regulatory compliance matters amidst COVID-19.[2] The Scheme allows the defaulting companies to make a fresh start by enabling filing of belated documents at the MCA Registry without incurring any additional fee and/ or prosecution charges as may be prescribed under the Companies Act, 2013 (“Act”).

This is a unique Scheme introduced by the MCA, which provides an opportunity to the defaulting companies to avail a one-time waiver on imposition of additional fees on filling of belated documents. Considering the unprecedented pandemic and slowdown in the economy due to preventive measures taken by the government, this Scheme would ease out the financial burden on the companies. Moreover, the Scheme would provide applicant companies immunity from prosecution/ penal proceedings with respect to filing of belated returns/ documents. The Scheme also covers inactive companies within its ambit and provides certain relaxations, which would enable them to remain on the register of companies with minimal compliance requirements. This Scheme would indeed enable the companies to start afresh and be compliant.

An overview of the provisions of the Scheme is provided hereunder:

  1. Applicability:

The Scheme is applicable on ‘defaulting companies’ i.e. a company which has made a default in filing of any: (i) document; (ii) statement; and (iii) return, etc. including annual statutory document on the MCA 21 registry. The Scheme can be availed irrespective of duration of default. Currently, the MCA has issued a list of 76 forms (for companies and Limited Liability Partnership Firms) covered under this Scheme.[3]

  1. Tenure:

The tenure of the Scheme is from April 1, 2020 to September 30, 2020. Therefore, the pending fillings must be completed within this period to avail benefits provided under the Scheme.

  1. Payment of fee:

The fee applicable on belated filing of any document/ form with the Registrar of Companies (“RoC”) would attract normal fees for such filing, as per section 403 of the Act read with Companies (Registration Offices and Fee) Rules, 2014. Additional fee towards delay in filing of such forms/ documents would not be applicable.

  1. Immunity under the Scheme:

An immunity from prosecution or proceedings against imposition of penalty would be provided to the defaulting companies on account of delay in filing of documents/ forms. The Scheme however does not provide immunity for any other consequential proceedings including proceedings involving the interest of shareholders or any other person qua the company or its directors or key managerial personnel etc. Thus, immunity is against delayed filing of documents/ forms and not for violation of substantive provisions of law.

  1. Withdrawal of appeal preferred by the defaulting company:

If an appeal has been preferred by the defaulting company/ its officer in default against: (i) issuance of notice; (ii) filing of complaint; or (iii) passing of an order, in relation to statutory filings, by a competent court/adjudicating authority the applicant would be required to withdraw such appeal before filing an application under this Scheme. A proof of such withdrawal is required to be furnished along with the application seeking issuance of immunity certificate.

  1. Extension of time for filing appeal:

Additional time of 120 days has been granted for filing appeal with the Regional Director against the order of adjudicating authority imposing penalty for delay in/ non-filing of any document. This extension is available for appeals falling due within March 1, 2020 to May 31, 2020 enabling defaulters to avail of the scheme without having the need to file the appeal within the statutory period of 60 days. During the additional period no prosecution for non-compliance of order related to non-filing of document/ form shall be initiated.

  1. Application for issuance of immunity certificate:

An application seeking immunity from filing of belated documents is required to be filed with the RoC in Form CFSS-2020. The application is required to be made after closure of the Scheme and filing of documents (taken on record or approved by RoC) but before the expiry of 6 months from date of closure of the Scheme. Therefore, Form CFSS-2020 is required to be filed by March 31, 2020. Pertinently, no fee is payable on filing of Form CFSS-2020. An immunity certificate would be issued by the RoC on the basis of declaration made in this Form.

It is important to note here that immunity shall not be granted where any appeal is pending before any court or in case of management disputes of the company pending before any court or tribunal. Further, immunity shall not be provided if any court has ordered conviction, or any adjudicating body has imposed penalty and no appeal has been preferred against such orders before the commencement of this Scheme.

  1. Exclusions from the Scheme:

The Scheme shall not be applicable in following cases:

  • RoC has initiated final notice of strike off under section 248 of the Act;
  • An application for strike off under section 248 of the Act has been filed by a company;
  • Companies which have been amalgamated under a scheme of compromise or arrangement under the Act;
  • Application has been made for obtaining dormant status under section 455 of the Act;
  • Vanishing companies;
  • Where an increase in authorized capital is involved (Form SH-7) and charge related cases (Forms CHG-1, CHG-4, CHG-8 and CHG- 9 for creation and satisfaction of charges);
  1. Effect of immunity:

Upon granting immunity, the RoC would be required to withdraw any pending prosecutions before the concerned court(s) and any pending penalty proceedings under Section 454 of the Act (except where appeal has not been preferred against conviction order/ imposition of penalty before commencement of the Scheme). The grant of immunity would be deemed as completion of action on behalf of the RoC with respect to defaults for which immunity is sought under the Scheme.

  1. Scheme for inactive companies:

The inactive companies[4] while filing Form CFSS-2020 can simultaneously:

  • Apply for dormant status by filing Form MSC-1 at a nominal fee; or
  • Apply for striking-off by filing Form STK-2 and paying the applicable fee.
  1. Implications on not availing the Scheme:

The RoC would take appropriate action under the Act against the companies which fail to avail the benefits under the Scheme and are in default with respect to statutory filings.

[1] Circular bearing No. 12/2020 dated March 30, 2020 issued by the MCA. This circular could be accessed here.

[2] The Notification could be accessed here.

[3] This list could be accessed here.

[4] Section 455 (1) (i) of the Act, “inactive company means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years”.