[The following guest post is contributed by Abhishek Dubey, who is a Senior Associate with BMR Legal. Prior to joining BMR Legal, Abhishek has worked with Amarchand & Mangaldas & Suresh A. Shroff & Co. and P&A Law Offices.]
The Ministry of Corporate Affairs has introduced a scheme for companies who have defaulted in making annual statutory filings with the Registrar of Companies (hereinafter “RoC”). The scheme offers to condone the delay in filing annual statutory documents with the RoC and grant immunity for prosecution in respect of such delayed filings. The scheme is named the “Company Law Settlement Scheme 2014” (hereinafter the “Scheme”). Under the Scheme, companies are permitted to file annual statutory documents that were due for filling until June 30, 2014.
The eForm CLSS-2014 for making filings under the Scheme was made available from September 1, 2014. The Scheme will remain in force up to October 15, 2014 and defaulting companies will have an opportunity to file their delayed filings until that date.
Objective of MCA for Introduction of the Scheme
The quantum of punishment (both penalty and imprisonment) for non-compliances under the Companies Act, 2013 (hereinafter “2013-Act”) has been considerably increased vis-à-vis the Companies Act, 1956.
Further, the 2013-Act contains a specific provision for higher penalty in case of subsequent offenses. Section 451 of the 2013-Act prescribes that if the offense is committed on a subsequent occasion within a period of three years, in addition to any imprisonment prescribed for directors, the penalty amount shall be twice the amount of fine prescribed for such offense.
Most importantly, the 2013-Act makes a person, who is a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years, ineligible for appointment as a director for a period of five years.
With the objective to provide the defaulting companies a prospect to escape the stricter provisions of the 2013-Act and provide the directors of such companies an opportunity to avoid disqualification, the Ministry of Corporate Affairs has rolled out the Scheme permitting delayed filing of annual compliances at a significantly reduced penalty amount.
Permitted Delayed Filings & Reduced Penalty
A defaulting company is not permitted to make all of its contraventions good through this Scheme. The Scheme offers an opportunity to the defaulting companies to make delayed filings in respect of the following documents only:
(i) Form 20B - Form for filing annual return by a company having share capital;
(ii) Form 21A - Particulars of Annual return for the company not having share capital;
(iii) Form 23AC, 23ACA, 23AC-XBRL and 23ACA-XBRL - Forms for filing Balance Sheet and Profit & Loss account;
(iv) Form 66 – Form for submission of Compliance Certificate with the RoC; and
(v) Form 238 - Form for Intimation for Appointment of Auditors.
While making the delayed filings under the Scheme, the defaulting companies have to pay the statutory filing fee as prescribed under the Company (Registration Offices and Fee) Rules, 2014 and, in addition, a reduced penalty of 25% of the total prescribed penalty for the contraventions (as opposed to full prescribed penalty amount).
Option of Obtaining Dormant Company Status or Striking-off the Name from Register of Companies
The defaulting “inactive” companies, while filing belated documents under the Scheme can also simultaneously either:
(i) apply for obtaining dormant company status for a maximum period of 5 years, under Section 455 of the 2013-Act by filing e-form MSC-1 at 25% of the prescribed fee. Once a company is declared a dormant company under the 2013-Act, it is not required to comply with all the compliance requirements of the 2013-Act and is only expected to make minimum annual filings with the RoC; or
(ii) apply for striking off the name of the company from the register of companies by filing e-Form FTE at 25% of the prescribed fee. However, for making an application to strike off the name of the company from the register of companies, inter alia, the following pre-conditions must be complied: (a) the company shall have NIL assets and liabilities (which may include NIL contingent liabilities); (b) the company shall not have any dues towards Income Tax or other government authorities. Therefore, companies having any outstanding tax demands or dispute/litigation with the tax department may not be able to file an application under the Scheme for striking its name off the register of companies.
The 2013-Act defines an “inactive company” as 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.
In conclusion, the Scheme offers a good opportunity to the defaulting companies to make their defaults good by paying only 1/4th of the prescribed penalty and an occasion to the directors of such companies to avoid disqualification. However, the time window of only 45 day (i.e., from September 1, 2014 to October 15, 2014) looks very narrow and must be extended to achieve the objective of the Scheme
- Abhishek Dubey