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Alerts:

Regulatory Alert: Introduction of Companies Fresh Start Scheme, 2020 and modification to LLP Settlement Scheme, 2020

31 March 2020

In pursuance of the Government of India’s efforts to provide relief to law abiding companies and Limited Liability Partnerships (‘LLPs’) in the wake of COVID-19, the Ministry of Corporate Affairs (‘MCA’), has introduced the “Companies Fresh Start Scheme, 2020” (‘CFSS-2020’) and revised the “LLP Settlement Scheme 2020 (‘LSS-2020’) to provide opportunity to both companies and LLPs to make good any defaults related to statutory filing, irrespective of duration of default, and make a fresh start as a fully compliant entity.

The CFSS-2020 and LSS-2020 (together referred to as ‘Schemes’), apart from giving longer timelines to comply with various filing requirements under Companies Act 2013 (Cos Act) and Limited Liability Partnership Act, 2008 (LLP Act), significantly reduces the related financial burden, thereby giving them an opportunity to make a ‘fresh start’.

The Key features of the Schemes are summarised in table below:

Particulars CFSS-2020 LSS-2020

Applicability of the Scheme

  • Any ‘defaulting company’ which has made a default in filing of any documents, statements, returns etc. including annual statutory documents (‘documents’) on the MCA-21 registry is permitted to file belated documents which were due for filing on any given date in accordance with the provisions of CFSS-2020 Scheme.
  • Any ‘defaulting LLP’ registered under LLP Act which has made a default in filing of documents on the specified due date(s) is permitted to file belated documents which were due for filing till 31 August, 2020 in accordance with the provisions of LLS-2020 Scheme.
Period of the Scheme
  • The CFSS-2020 shall remain in force during the period commencing from 1 April 2020 till 30 September 2020.
  • The LSS-2020 shall remain in force during the period commencing from 1 April 2020 till 30 September 2020.

Key features of the Scheme

  • The CFSS-2020 is to condone the delay in filing of E-forms with Registrar of Companies (‘ROC’) insofar as it relates to charging of additional fees and thus, under the Scheme, only normal filing fees of documents will be payable and no additional fees shall be levied.
  • The CFSS-2020 grants an immunity from launch of prosecution or proceedings for imposing penalty on account of delay associated with certain filings on MCA-21 registry and not against any fundamental violation of law.
  • For cases, where the defaulting company has already filed an appeal against any notice, complain, order of court / adjudicating authority with respect to statutory filing, the applicant can withdraw such appeal and apply for granting of immunity under this scheme.
  • For cases, where the penalties were imposed by order of adjudication officer due to delay in filing of any document and no appeal is filed as on the date of commencement of this Scheme which is 1 April, 2020, the CFSS-2020 provides an additional time of 120 days for filing appeals before the concerned Regional Directors. During this extended time of 120 days, there will be no prosecution for non-compliance of order of adjudication officer.
  • Under the Scheme, the defaulting inactive companies can also declare themselves as ‘dormant companies’ by filing a simple application at normal fee. This will enable the inactive companies to remain on ROC with minimal compliance requirements. Further, such companies can also apply for striking off the name of the company at normal fee.
  • The LSS-2020 is to condone the delay in filing of documents with ROC insofar as it relates to charging of additional fees and thus, under the Scheme, only normal filing fees of documents will be payable and no additional fees shall be levied.
  • According to LSS-2020, the defaulting LLPs, which shall file their belated documents till 30 September 2020, shall not be subjected to any prosecution by ROC for such defaults. 

Application

  • An application for seeking immunity under CFSS-2020 shall be made electronically in the prescribed form after the closure of this Scheme & after all the documents are filed / taken on record but not later than six months from the date of closure of the Scheme which is 30 September 2020.
 

Exemptions to the Scheme

  • The CFSS-2020 shall not apply to the Companies which:
    • are under the process of strike-off;
    • are amalgamated;
    • are vanishing; and
    • have applied for obtaining dormant status.
  • The CFS-2020 shall also not apply to E-forms viz. SH-7 (form for increase in authorised share capital) and E-Form CHG-1, CHG-4, CHG-8 and CHG-9 (forms related to charge).
  • The LSS-2020 shall not apply to all those LLPs which have already made applications for striking off their name from the register.

Effect of Immunity granted

  • Under this Scheme, the ROC shall provide Immunity Certificate pursuant to which the designated authority shall withdraw the pending prosecution and proceeding in respect of defaults against which immunity would be granted.
  • Accordingly, all such defaults shall be deemed to have been completed without any further action.  
 

 

BDO Comments

The introduction of Companies Fresh Start Scheme, 2020 and revision in LLP Settlement Scheme, 2020 has come with the backdrop of the coronavirus pandemic that has also resulted in disruption of business activities. There have been various instances where the companies are indicted with heavy penalties and prosecution and directors / officer in defaults are prone to serious hardship due to reasons like non-filing / delayed filing of returns and forms. With a view to aid to all such companies and directors / officers in defaults, CFSS-2020 and LLS-2020 shall act as amnesty schemes. The Schemes have provided longer timeline of six months to corporates to comply with all the pending filing requirement under the Cos Act and LLP Act along with reduced financial burden specially for those having long standing default as there will be no additional fee levy on such filings. The provision of granting immunity from penal proceedings on account of delay associated with certain filings with MCA is another major relief.

This is an excellent opportunity for companies and LLPs to comply with all their pending filings and be spotless. It is advisable to revisit the past compliances of your company vide a due diligence exercise and complete the pending filings, if any, as there are no adverse consequences till 30 September 2020. We at BDO India LLP, can provide necessary assistance in carrying out the due diligence and complete the filing related requirements.