IMPACT OF NO EXTENSION OF CFSS & LLP SETTLEMENT SCHEME
What were the benefits of the MCA Scheme?
The Ministry of Corporate Affairs, Government of India (MCA), introduced a one of its kind “Fresh Start” Scheme for all companies and Limited Liability Partnerships (LLPs) as a one-time opportunity, in the backdrop of the widespread disruption caused by the COVID-19 pandemic, vide its general circular nos. 12/2020 and 13/2020 dated 30th March 2020.
Highlights of the Companies Fresh Start Scheme, 2020 (CFSS)
• No additional fee charged for late filing during a moratorium period from 1st April 2020 to 30th September 2020 irrespective of the due date (later extended to 31st December 2020 vide circular no. 30/2020 dated 28th September 2020). Only normal filing fees, depending on the form, is payable.
• Immunity granted from prosecution or proceedings for imposing a penalty on account of delay associated with certain filings (note that for the delay in filing only and not for other non-compliance). An immunity certificate shall be issued by the designated authority of MCA based on declaration in the form CFSS-2020.
• Inactive companies (having no operations during the last two financial years) may opt to be declared as a “dormant company” by filing a simple application at a normal fee, i.e., filing e-form MSC-1 or apply for strike off in e-form STK-2 at normal fee.
• Director, whose DIN has been deactivated but who is not disqualified under section 164 of the Companies Act, 2013 (“the Act”), can file KYC e-form without any fee payment for non-filing and activate his DIN.
• A period of additional 120 days from the last date of appeal falling between 1st March, 2020 to 31st May, 2020, allowed to a company and its officers for filing an appeal against an order of adjudicating officer (for adjudicating penalty) under section 454(6) of the Act before the Regional Director. Any prosecution for non-compliance of order of adjudicating officer related to delayed filing shall not be initiated against the company and its officers.
Highlights of the LLP Settlement Scheme, 2020 (CFSS)
• File documents that are due for filing, till 31st October 2019, on payment of an additional fee of Rs. 10/- per day of delay up to a maximum of Rs. 5,000/- per document, under the original scheme till 31st March 2020 with immunity from prosecution for such delayed filing.
• File belated documents due for filing till 31st August 2020 (later extended till 30th November 2020 vide general circular no. 37/2020 dated 9th November 2020) without payment of any additional fee and with immunity from prosecution for such delayed filing.
• If the statement of account and solvency for the financial year 2019-2020 has been signed beyond the period of 6 months from the end of the financial year but not later than 30th November 2020, the same shall not be deemed as non-compliance.
In the Ministry’s words, “In order to support and enable companies and Limited Liability Partnerships (LLPs) in India to focus on taking necessary measures to address the COVID-19 threat, including the economic disruptions caused by it, the following measures (CFSS, 2020) have been implemented by the Ministry of Corporate Affairs to reduce their compliance burden and other risks...”
Now, in view of the ongoing pandemic situation in the country and world over, the MCA vide its general circular nos. 30 and 31 dated 28th September 2020, extended the applicability of both the aforementioned schemes to companies and LLPs for a further period of 3 months till 31st December, 2020.
We know that the pandemic situation has far from ended and the corporate entities, who were given much needed relief from strict filing compliances, face numerous constraints even now which they had been facing since the beginning of the pandemic and consequent lockdown. However, against the general expectation for a further extension till at least the end of the financial year to set things right, the MCA did not issue any such extension notification to date.
Therefore now, with the time period for availing the crucial benefits by the corporates having expired, everyone is apprehensive of what actions are awaited against defaulting companies and LLPs.
What might be the immediate consequences of no extension of fresh start/ settlement schemes?
• Huge additional fee would be required to be paid by the defaulting company/LLP for filing the delayed e-form with ROC.
The general rule for charging additional fee depending upon the period of delay is: Period of delay Quantum of additional fee Up to 30 days 2 times of normal fees
- More than 30 days and up to 60 days - 4 times of normal fees
- More than 60 days and up to 90 days - 6 times of normal fees
- More than 90 days and up to 180 days - 10 times of normal fees
- More than 180 days - 12 times of normal fees
In addition, for any delay in filing of annual returns or balance sheet/financial statement under the Companies Act, 1956 or the Companies Act, 2013 beyond 30/06/2018: Form Period of delay Quantum of additional fee Annual Return MGT-7 Delay beyond 60 days from the date on which the annual general meeting is held Rs. 100 per day
Financial statement AOC-4 Delay beyond 30 days of the date of annual general meeting Rs. 100 per day
For instance, a small company that has not filed its financial statements since the year 2018, considering would have to shell out (Rs. 300 * 12) plus Rs.100/- for each day of delay, which adds up to approximately Rs. 80,000/- and another 80,000 approx to be paid for filing its annual return. Mind you, these are small companies with little capital and hence it would be a tremendous financial burden on such companies that too at a time when companies are struggling to cope up and thrive in this pandemic situation.
The very purpose of introducing these schemes was to reduce the compliance and financial burden especially of the numerous small companies and LLPs having long standing defaults. Hence, the purpose would be absolutely defeated if such companies are not given enough time to cope with the situation.
• As the immunity granted to defaulting companies/ LLPs would expire, action including levy of penalty and/or prosecution would be initiated against the defaulting company/ LLP and its officers. The circular no. 12/2020 dated 30th March, 2020 relating to CFSS, 2020, itself states that “At the conclusion of the Scheme, the Designated Authority shall take necessary action under the Act against the companies who have not availed this Scheme and are in default in filing these documents in a timely manner.”
• Payment of penalty imposed by an adjudicating officer of MCA as determined by them.
• Directors have to pay a fee of Rs. 5,000/- for eKYC of directors or the DIN of all those directors who have not filed DIR-3KYC would be deactivated by the Registrar. MCA has already informed us that “The process of deactivating the non-compliant DINs is in progress and will be completed shortly…the web service DIR-3 KYC shall not be available for filing during the pendency of this activity.” Thereafter, the form shall be available for filing on payment of a fee.
• It has also been informed by MCA that post 31st December 2020, an additional fee shall be applicable from the actual date of AGM or due date/extended due date of AGM + 30/60 days as the case may be and Rs.100 per day shall be charged starting from such day even if such date falls prior to 31st December 2020.
• Most companies that were struck off by the Registrar due to non – filing of statutory returns and awaited the order of the Hon’ble National Company Law Tribunal (NCLT), which under the pandemic situation wasn’t working regularly, would not be able to avail the benefit of the schemes now as it has “missed the bus”. If they are again not able to regularize their filings now due to huge compliance cost, is another strike off action awaiting them?
Conclusion
We all are well aware of how the business community, in general, has been grappling for survival since the past year due to the pandemic and consequent lockdown situation. What it needs the most at this dark hour is much needed breather from the government in the form of relaxations and concessions, which thankfully the government has been endeavoring to do.
The last thing that the corporates need in this bleak hour, where it is struggling for survival, is to be burdened with huge financial burden due to delayed filing related compliance. However, with the non-extension of the much popular CFSS, 2020 and the LLP Settlement Scheme, the government has done just that, regrettably.
Let’s face it, most companies would not be in a position now to meet it and in view of the stern action that the government is intending to take against the entities who have not yet availed the scheme, many will be put to an early grave. I Hope, the government can pull another rabbit out of a hat and save the business community!
The author is a practicing Company Secretary and can also be reached at: bidisha.a2704@gmail.com
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