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Refusal to Extending the Companies Fresh Start Scheme, 2020

Refusal to Extending the Companies Fresh Start Scheme, 2020

Refusal to Extending the Companies Fresh Start Scheme, 2020

In a recent notification, the MCA has denied further prolong the benefits offered by the CFSS & the LLP Scheme any further despite several repeated representations being received with a view to seeking an extension of the facility, the MCA has answered the query in denial and provided that it will allow late applications for the Companies Fresh Start Scheme (CFSS) on a case-to-case basis now.

The Ministry of Corporate Affairs had in the past year provided a noble scheme for Companies and Limited Liability Partnerships (LLPs), with an intention to improve corporate compliances and as a one - time opportunity to rectify their mistakes and clear their unintentional defaults without having to go through any prosecution or payment of any hefty sum as a penalty by paying a nominal amount of fees in the month of March last year, allowing firms a one-time condonation for delays in regulatory filings. 

 However, later the Scheme was extended and a second chance was provided to the same entities to avail the scheme till December 31, 2020, owing to the difficulties created by the global pandemic around the world including India.

Let’s recapitulate a little about the Scheme and its Applicability- 

The scheme was worth- availing for the companies who had in past defaulted in filling necessary documents, statements & returns on the MCA 21 registry, and were seeking a one-time opportunity from the MCA to regulate their failed compliances. Such companies had been given a golden opportunity to file such belated documents in accordance with the provisions of the scheme, without having to go through any prosecution and any hefty penalty.

Features of the Companies Fresh Start Scheme, 2020 (CFSS)

a)    No additional fee was charged for delayed fillings 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) and subject to payment of normal fee amounts were required to be paid.

b)    Immunity against prosecution or proceedings and immunity from payment of a hefty sum as a penalty in delays associated with certain filings (such immunity was provided for delayed fillings and not for any intentional non-compliance). 

c)    Inactive companies were given the option to either declare themselves as a “dormant company” on submission of a simple form at a nominal charge to be paid to the MCA at a normal fee or make an application for striking off the name of the company from the MCA Registry on submission of an e-form STK-2.

Highlights of the LLP Settlement Scheme, 2020 (CFSS)

• A similar opportunity was provided to the LLPs under the LLP Settlement scheme to file the documents that are due submission till the date of 31st October 2019, on payment of a fee of Rs. Ten per day of to a maximum sum of Rupees Five Thousand, till 31st March 2020 along with immunity from prosecution for such delayed filing.

• Submission of documents that were due for filing without the requirement to pay any extra fee along with immunity from prosecution for such delayed filing. Thus, the CFSS & LLP Scheme also provided a significantly reduced the related financial burdens of hefty penalty payments apart from the opportunity to file belated documents.

What is the situation at present?

The CFSS and the LLP Settlement Scheme surely were such opportunities, which had never been announced or provided before to the companies. Accordingly, a total of 1.68 million applications were received by the MCA, out of which about 473,000 companies and 160,000 limited liability partnership firms availed the benefits, which included nearly 50% of active companies. 

However, despite several numbers professionals are seeking an extension of the CFSS & the LLP Scheme to avail their benefit, the Ministry has denied any further extension citing the reason that providing a blanket extension of the two schemes to all entities will have the potential to overthrow the primary purpose of providing a one-time opportunity and condoning delays without the prosecution. Further, the Ministry is also of the view that the COVID pandemic was not a sound excuse for delays in filings and should have been completed till December 2019 or earlier. 

Nevertheless, the Ministry still has decided to apply a certain amount of leniency for such companies/partnership firms who could not avail of the scheme as they had been struck off already during the commencement of the scheme and had applied to the NCLT (National Company Law Tribunal) for the restoration and received an order for the same in December. Hence, the MCA intends to condone the delay in filing for the CFSS and the LLP Settlement Scheme, for such companies on a case to case basis.

Impact of Denial in further Extension

a) DIN Activation 

The MCA has provided that such directors whose DIN has been deactivated and wish to re-activate the same will be able to do so, without the payment of any fee but such deactivation should not be due to meeting of any disqualification under Section 164 of the Companies Act 2013.

b) Additional Period to file Appeal to the “Company”

For the appeals to be filed by “Companies” and officers in between dates 1st March 2020 to 31st May 2020, the companies shall be allowed a further period of additional 120 days from the last date of appeal, for the purpose of submitting an appeal against an order passed by an adjudicating officer under section 454(6) of the Act before the Regional Director. 

And for ensuring the same, no prosecution proceeding shall be initiated for non-compliance of an order of adjudicating officer during such additional period of filling appeal.

Conclusion:

Therefore, it is clear that there are lesser probabilities of the MCA allowing further extension of the Companies fresh start scheme 2020 and the LLP Settlement Scheme simultaneously. Doing so has the potential to defeat the very purpose for which the schemes were implemented.

Author:

eStartIndia Team



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