India’s Schemes to Ease Compliance Burden on Companies due to COVID-19

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  • Companies Fresh Start Scheme 2020 and revised LLP Settlement Scheme 2020 will facilitate entities to complete their filing requirements and payment of normal fees without incurring penalties.
  • Applicability period is between April 1, 2020 and September 30, 2020.
  • Due to the COVID-19 outbreak, the Indian government is providing a one-time relaxation for companies to save them from making additional fee payments on account of reporting delays.

India has introduced time-bound relaxations for companies burdened with compliance delays during the COVID-19 period. The Ministry of Corporate Affairs (MCA) has extended timelines for satisfying various filing requirements to enable corporate entities to make a ‘fresh start’.

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The two new schemes, ‘Companies Fresh Start Scheme 2020’ (CFSS 2020) and the revised ‘LLP Settlement Scheme 2020’, provide companies and LLP entities, respectively, with immunity from penal proceedings or paying penalties for a fixed period.

The Schemes are applicable irrespective of the period of default and enables long-term non-compliant companies to reduce their financial burden.

However, the immunity offered under the Schemes will not apply to any substantive violation of law.

It must be noted that authorities (Registrar of Companies) may take harsh measures if non-compliant companies do not take advantage of the schemes to complete their filings.

Companies Fresh Start Scheme 2020

This Scheme will be applicable between April 1, 2020 and September 30, 2020.

The MCA requires all companies to follow annual statutory compliance documents, such as filing annual return, financial statements, statutory documents, among others. Non-compliance results in penalties and the company is labeled a defaulting company.

The forms that are eligible for filing under CFSS 2020 are:

  • Annual Return – MGT-7
  • Financial statement – AOC-4
  • PAS-3
  • MGT-14
  • ADT-1
  • Any other form that must be filed with the RoC.

How does the Scheme work?

Defaulting companies

Upon applying for the Scheme, the company can pay the normal fees as stipulated under the Companies Rules, 2014 despite delayed filings with the MCA21 registry. The MCA21 is an e-governance initiative of the corporate affairs ministry, which enables companies in India to secure easy access to MCA services. The company will have immunity from any penal proceedings or prosecution due to delays in the filing process – during the window of time offered under the CFSS 2020.

If the company has appealed against an existing prosecution order, they need to withdraw the appeal and provide proof of such withdrawal before registering for the CFSS 2020.

Applications for immunity for late documents need to be separately submitted and can be made up to six months after the expiry of this Scheme by e-form CFSS-2020 through the MCA portal without paying fees.

Extension will also be granted to file DIR-3/DIR-3KYC between April 1, 2020 and September 30, 2020 for directors whose DIN is deactivated; the filing fee of INR 5,000 will not apply.

Inactive companies

Those defaulting companies that are inactive can also apply to the CFSS 2020 if they are delayed in meeting filing requirements. Additionally, through e-Form MSC-1, they can apply for Dormant Status under Section 455(1) of the Companies Act, 2013; however, they will need to pay the prescribed fees for this.

Where does it not apply?

CFSS 2020 is not applicable in the following cases:

  • Default in filing of Form SH-7 (Increase in the Authorized Capital) and charge-related forms (CHG-1, CHG-4, CHG-8, CHG-9);
  • For companies that have been amalgamated under a scheme of arrangement or compromise;
  • Where the entity has applied to strike off the name of the company from the Registrar of Companies (RoC) through e-form STK-2;
  • Where the entity has applied for Dormant Company status through e-form MSC-1; or
  • Where the company has been marked for insolvency or liquidation; or
  • In the case of vanishing companies (non-compliant for two years and more, directors not traceable etc.).

It must be noted that immunity will not apply in cases where there are pending appeals in court against the management of a defaulting company or any court ordered conviction (that has not been appealed before the CFSS 2020 came into effect).

Revised LLP Settlement Scheme 2020

This Scheme will be applicable between April 1, 2020 and September 30, 2020.

According to the MCA, a limited liability partnership (LLP) is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP is a separate legal entity in India, is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the LLP.

The modified LLP Settlement Scheme 2020 applies to LLPs that have failed to file their documents as required under the LLP Act, 2008. Once the defaulting LLP applies for this Scheme, they will only pay the normal application fees. The Registrar will not prosecute companies who complete the filing process by September 30, 2020.

Where does it not apply?

Again, the modified LLP Settlement Scheme 2020 will not apply in cases where the LLP has applied to strike off the name of the entity from the Registrar as per the LLP Rules, 2009.

For more information and assistance, please feel free to email us at india@dezshira.com.

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