The Author, Harshil Vijayvargiya is a 3rd year student at Gujarat National Law University, Gandhinagar.

In furtherance of Government’s efforts to provide relief to law abiding Companies and Limited Liability Partnerships (LLPs), the Ministry of Corporate Affairs has recently rolled out the “Companies Fresh Start Scheme, 2020” and also revised the existing “LLP Settlement Scheme, 2020”. The schemes are introduced/revised in pursuance of Incentivizing Compliance and Reducing Compliance Burden on the entities. In this article, we would look into the intricacies of the scheme and know how it gives an additional chance to entities to make their default good.

The need for giving an Additional chance

The ongoing unprecedented situation created by COVID-19 saw several relaxations being provided by entities such as RBI, IRDAI, among others. Following the suit, MCA also introduced this CFSS. The scheme is brought out as an amnesty scheme where defaulting companies are enabled to file all the pending documents with the registry by condoning the delay in filing the same with the Registrar. Through the scheme, it is intended that the compliance burden on the companies be reduced and they’ll be provided a fresh start by clearing all the noncompliance(s) on account of non-filings made by them.

It’ll bring relief to several entities whose cost of compliances got higher as they had to pay additional fees/ penalties to make their defaults good. The ministry had received representations from various stakeholders to give an additional chance of filing all the requisite belated documents/returns without being subjected to a higher penalty. The Ministry brought this scheme by exercising the power conferred to them under section 460 read with section 403 of the Companies Act, 2013.

However it is not rolled out as a measure to contain the spread of COVID-19 only, but as an amnesty measure as many stakeholders had asked the Ministry for the same.

Working on the goal of Ease of Doing Business?

It is pertinent to note here that the government had introduced Companies (Amendment) Bill, 2020 just a couple weeks ago. The Statement and Objects of the Bill mentioned that it has been rolled out to provide ease of doing business to the law abiding corporate entities. The bill sought to decriminalise minor procedural lapses and technical issues. The present scheme could also be seen as one of those tools which are aimed at making it easier for corporate to do business in India. This is in consonance with Modi Government’s aim of making India break into the list of Top 50 Nations in World Bank’s Ease of Doing Business Index. India is making rapid strides in improving its ease of doing business and this move could be seen as one of the tools which would help India in achieving this target.

The other important features of the Scheme

The MCA has clarified that necessary actions would be taken against the Companies who have not availed the benefit of this Scheme and are default in filing the documents on time. Furthermore, there are several important of the schemes that are crucial to know-

  • The Scheme has come into force on 1 April, 2020 and shall remain in force till 30 September, 2020.
  • Every company would be required to pay normal fees as prescribed under the Companies Registration Offices and Fee Rules, 2014.
  • Immunity against prosecution or proceedings for imposing penalty shall be provided only to the extent such prosecution or the proceedings for imposing penalty under the act pertains to any delay associated with the filings of belated documents.
  • Application for issue of immunity in respect of documents filed under the scheme can be made electronically through a form that has been provided by MCA.
  • The scheme would not be applicable for several companies such as-
  1. Companies against which the proceedings for striking off has been initiated either by the ROC or by the company itself – in case by the ROC – the final notice should have been issued; in case by the company itself – the application should have been filed with the NCLT; - Which means the belated filing can be done only where the appeal against ROC is admitted and accepted by the NCLT vide its order;
  2. Companies which been amalgamated or merged; - It is to be noted that one cannot make any filing for a company which has been amalgamated / merged;
  3. Companies for which application has been made for obtaining dormant status u/s 455;
  4. Vanishing companies

Conclusion

Reform in the corporate law is considered the best method to promote business and increase the development of Nation’s economy. The move is an excellent step for the Companies Act and the LLP Act. The ongoing situations created by COVID-19 are unprecedented which require such actions to be taken. The corporates get diverted from their business functions while working on compliances and filing issues and sometimes such default may not even be intended. The Companies Fresh Start Scheme and LLP Settlement Scheme would help the corporates to focus on their essential business functions. Furthermore, as the scheme is extended till 30 September, the entities would have time even after the lockdown opens, to look at it comprehensively and apply for the fresh start scheme.

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Harshil Vijayvargiya