Immunity Scheme for Defaulting & Inactive Companies

Companies Fresh Start Scheme, 2020 Episode 2

An immunity scheme for defaulting Companies

The MCA has also given a bit of relief spree to the LLPs by making certain necessary changes to the LLP Settlement Scheme, 2020. The idea behind this is to provide a clean slate to all the law-abiding companies, giving them dual benefits in terms of extended time limit to comply with various filling requirements under the Act and a certain level of financial relief with regard to those compliances considering the current global situation where the world, as a whole, is lockdown due to the unprecedented situation created by the Coronavirus (COVID-19) pandemic.

Important Definitions under the Scheme

(1) “Defaulting company”means a company defined under the Companies Act, 2013, and which has made a default in filing of any of the documents, statement, returns, etc. including annual statutory documents (AOC-4 & MGT- 7) on the MCA-21 registry on due time.

(2) “Inactive Company”means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

WHAT DOES CFSS 2020 INCLUDE?

As per the provisions of the Companies Act, 2013, all companies are required to follow statutory compliances annually. This includes filling of the Annual Return, Financial Statements and all the other necessary forms, documents and statements that are specified, within that particular time frame. Non – compliance of the same results in the imposition of penalties and fines. Often entrepreneurs who set up companies and LLPs for business ventures do not commence operations because of various genuine economic reasons and fail to ensure the regular statutory fillings. This adds up to the number of defaulting companies in the registry of Companies or LLPs. A company that fails to adhere to the compliances is called a defaulting company. This Scheme shall be applicable on any “Defaulting Company” and contains following:

1. For the Defaulting Companies:

Shall pay only the normal fees as prescribed by the Companies (Registration Offices and Fee) Rules, 2014 for all filings with the MCA 21 registry. No additional fees to be paid, whatsoever.

Immunity against prosecution and proceedings for imposing penalty to be provided only where:

– The prosecution and proceedings arose due to the delay in filing of belated documents

– No other cases covered.

In case there is an existing appeal filed by the company against any notice, complaint or order issued by a court or an adjudicating authority under the Act, with regard to prosecution and proceedings related to the delay in statutory filing, the following steps are to be followed:

– Before registering under the CFSS 2020, the appeal filed by the company should be withdrawn.

– At the time of making the application for the scheme, the company must furnish a copy of such withdrawal along with the application as proof.

Where the order has been passed by the court and the company has not filed an appeal against the same as on the commencement of the scheme:

– The company is allowed 120 days to file an appeal before the Regional Director

– During this period of 120 days, for the non – compliance of the order passed by the court with regard to the delay in filing of any documents for the same shall be condoned and no further action shall be initiated against the company.

• The defaulting company shall file their overdue documents/returns/other statements as well as statutory Annual Filing documents such as Financial Statements and Annual Returns in respective prescribed e-Forms by paying the normal statutory filing fee without any additional fee as payable as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014 within due immunity period.

The Defaulting Companies shall file the Form CFSS-2020 after making all default good.

The application for seeking immunity may be made electronically in Form CFSS – 2020 after closure of the scheme and after the documents have been taken on file or on record or approved by the Designated Authority as the case may be. The Form CFSS-2020 is entirely self-declaration-based form.

– The Form provides the companies with immunity for a period of 6 months after the date of closure of the CFSS 2020

– No fees to be paid on this particular form.

– Immunity Certificate shall be granted by the designated authority.

Immunity is not granted where:

–An appeal is pending in court against the company

–In case of management disputes pending before any court of law.

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