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Condonation scheme - An opportunity to rectify default

CS DHANAPAL 
on 09 January 2018

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According to the Companies Act, 1956 / Companies Act, 2013, Companies are required to file certain documents every year like Financial Statements, Annual Return with the Registrar of Companies. However, in practice, there are many Companies which were not filing their yearly reports and returns due to several reasons which constitute an offence under the Act.

Such inaction by the company besides other consequence, also lead to serious impact like prosecutions and financial burden in the form of additional fees on the Company and its Directors. Section 164(2) read with section 167 of the Companies Act, 2013 [the Act], the provisions of which have commenced with effect from 01.04.2014, provide for disqualification of a director on account of default by a company in filing an annual return or a financial statement for a continuous period of 3 years.

Recently, in September, 2017, the Ministry of Corporate Affairs (MCA) identified over 3 lakh directors associated with Companies that had failed to file financial statements or annual returns in the MCA21 online registry for a continuous period of three financial years i.e. FYs 2013-14 to 2015-16. The MCA also struck-off names of many companies from the Register of Companies maintained by the Registrar pursuant to provisions of Section 248 of the Act on grounds of continuous failure to file financial statements or annual returns. Bank accounts of such 'struck-off' companies were also frozen for operations.

The Director Identification Number (DIN) of the disqualified directors was deactivated to the effect that such directors are barred from accessing the online registry and a list of such directors was published on the website of MCA.

There appear number of representations were made to the Ministry of Corporate Affairs in this matter by Corporate / industry / Chamber and other bodies seeking an opportunity to complete the pending filings and normalize operations.

On 29.12.2017, vide General Circular No. 16/2017, a Condonation of Delay Scheme, 2018 (CODS-2018/Scheme) has been introduced by MCA with a view to giving an opportunity to the defaulting companies to rectify the default and complete all their pending annual filings with the MCA.

HIGHLIGHTS OF CONDONATION OF DELAY SCHEME, 2018

1. Limited time opportunity has been given for defaulting companies to complete their pending annual filings.

2. Scheme is available only for 3 months, starting from 01.01.2018 and ending on 31.03.2018.

3. Scheme is applicable only to 'active defaulting companies'.

4. DIN of Directors associated with 'active defaulting companies' will be temporarily activated to facilitate the overdue filings. As per update available on MCA website as on 04.01.2018, the process for ‘reactivating’ the DINs in system in respect of disqualified Directors is in progress and status may be checked by 12th January, 2018.

5. Scheme is not applicable for those Directors who may have been associated with a company which was struck off under Section 248(1) of the Companies Act-2013 and such DINs shall be activated only upon receipt of orders for revival of the said company as per due process laid down under Section 252 of the Companies Act, 2013.

6. Only forms relating to annual filing such as Form AOC 4, Form 20B and other annual filing forms can be filed under this scheme.

7. Only forms such as AOC 4, 20B and other annual filing forms, due for filing till 30.06.2017 can be filed under this scheme.

8. After filing of all pending annual filings, e-form CODS has to be filed by each defaulting company with filing fees of Rs. 30,000/-.

9. The Registrar concerned shall withdraw the prosecution(s) pending if any before the concerned Court(s) for all documents filed under the scheme.

10. While filing form CODS, company has to make a declaration that the company has withdrawn the appeal(s)/writ(s) pending before any Court or NCLT/NCLAT or Regional Director or any other adjudicating authority.

11. This scheme is without prejudice to action under section 167(2) of the Act or civil and criminal liabilities, if any, of such disqualified directors during the period they remained disqualified.

12. At the conclusion of the Scheme, if the directors are still found to be disqualified (pending forms or eform CODS 2018 not filed / not approved), their DIN shall be liable to be deactivated again.

13. At the conclusion of the Scheme, the Registrar shall take all necessary actions under the Companies Act, 1956 / 2013 against the companies who have not availed themselves of this Scheme and continue to be in default in filing the overdue documents.

14. The e-Form CODS 2018 would be available from 20.02.2018 or an alternate date, which will be intimated by the ministry on MCA website.

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