Companies Fresh Start Scheme, 2020: Great Opportunity by Ministry of Corporate Affairs for Defaulting Companies

Introduction & Brief Background:

In line with its circular dated March 24, 2020, the Ministry of Corporate Affairs (‘MCA’) has introduced Companies Fresh Start Scheme, 2020 (‘CFSS, 2020’) vide circular no. 12/2020 under Section 460 of the Companies Act, 2013 (“Act”) read with Section 403. This initiative by MCA comes in line with its circular dated March 24, 2020.

Intent of the Scheme:

As per the provisions of the Companies Act, 2013, all companies are required to follow statutory compliances annually. This includes the Annual Return, Financial Statements and all the other necessary forms, documents and statements that are specified to be filed within a particular time frame. Non- compliance of the same results in the imposition of penalties and fines under Section 454 of the Companies Act, 2013.

Companies Fresh Start Scheme, 2020 is a great chance given by the Ministry of Corporate Affairs to the defaulting companies for completing their belated filings without paying any additional fees. The Scheme also provides for immunity to the defaulting companies from the proceedings of adjudication of penalties under Section 454 of the Act.

Let’s understand the Scheme in detail:

Important Definitions under the Scheme:

1. Defaulting Company: Defaulting Company means a Company as defined under the Companies Act, 2013 and which has defaulted in filing of any of the documents, returns, statements, etc. including annual statutory documents on MCA-21 registry.

2. Designated Authority: Designated authority means Registrar of Companies having jurisdiction over the registered office of the Company.

3. Immunity Certificate: Immunity Certificate means the certificate referred to in sub paragraph (viii) of paragraph 6 of the Scheme.

4. Inactive Company: Inactive Company means a company as defined in explanation (i) to sub section (1) of Section 455(1) of the Companies Act, 2013.

Effective Tenure of the Scheme: The Companies Fresh Start Scheme, 2020 is effective from April 01, 2020 till September 30, 2020.

Applicability of the Scheme:

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.

Non- Applicability of the Scheme:

1. Companies which have already filed application for strike off the name of the Company from the register of companies.
2. Companies against which action for final notice of Strike off has been already initiated by the Designated authority.
3. Vanishing Companies
4. Companies which have already filed application for obtaining status as a “Dormant Company” under Section 455 of the Act before this Scheme.
5. Where any increase in authorized share capital is involved (Form SH-7) and also charge related documents (CHG-1, CHG-4, CHG-8, CHG-9)
6. Companies which have amalgamated under a scheme of arrangement or compromise in accordance with the Act.

Features of the Scheme:

1. Any Defaulting Company can file belated documents without payment of any additional fees. Such companies would be required to pay only normal fees during the tenure of CFSS, 2020.

2. The Companies Fresh Start Scheme, 2020 further provides immunity from “launching of prosecution” or “proceedings for imposing penalty” only on account of delay in filing of necessary documents and returns with the designated authority and not against any substantive violation of law.

3. Application for seeking immunity regarding the belated documents filed under the Scheme may be made using e-form CFSS, 2020, after the closure of the Scheme and after the documents are taken on file or on record or approved by the Designated Authority, as the case may be, but not later than six months from the closure of the said Scheme. There is no fee for filing of e-form CFSS, 2020.

4. The Designated Authority shall issue an Immunity Certificate on the basis of declaration made by the applicant company through e-form CFSS-2020, in respect of the documents filed under the Scheme.

5. The immunity shall not be applicable in the following cases:

• In case any appeal is pending before any court and in case of management disputes of the Company pending before any court of law or tribunal.
• In case any court has ordered conviction in any matter, or an order imposing penalty has been passed by an adjudicating authority under the Act AND no appeal has been filed against such orders of court or adjudicating authority, before this Scheme has come into force.

6. On grant of immunity, the Designated authority shall, in respect of the defaults against which immunity has been so granted, withdraw the prosecution(s) pending before the concerned Court(s) and the proceedings for adjudication of penalties under Section 454 of the Act (other than those referred in the second proviso to sub paragraph(vii) of paragraph 6 of this Scheme) shall be deemed to have been completed without any further action on the part of the Designated authority.

7. On the conclusion of the Scheme, the Designated authority shall take necessary actions against the companies which have been in default in filing of these documents in a timely manner and have not availed the said Scheme.

Link for list of forms eligible under Companies Fresh Start Scheme, 2020: http://www.mca.gov.in/Ministry/pdf/CFSS2020_02042020.pdf

(Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Neither Author Nor Yes GST assume no responsibility therefore. In no event, we shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.)

Chanchal Khandelwal