The author is Anumeha Agrawal, a student of Symbiosis Law School Pune. The article explains the details of the Companies Fresh Start Scheme launched by the Ministry of Corporate Affairs along with its benefits and its shortcomings.

Introduction

The Ministry of Corporate Affairs on March 30, 2020, introduced the Companies Fresh Start Scheme, 2020 to facilitate companies in completing their pending compliances without payment of penalties for such delay. As the name suggests, it allows the corporates to have a fresh start in terms of their compliances irrespective of the period of the default.

Purpose of the Scheme

The purpose of the Fresh Start Scheme is to increase the corporate compliance levels by providing a single opportunity to all the defaulting companies of waiving off additional fee payment which acts as a deterrent in late filings.

The Scheme introduced amidst the COVID-19 global pandemic, which inescapably has led to a severe crisis and defaults by corporates in disclosures, fillings and other compliances.

The Scheme is issued under Section 403 of Companies Act, 2013 which provides for charging additional payment in case of delayed filing and compliances, and, Section 460 of Companies Act, 2013 which enables the Central Government to condone such delay in compliance.

Applicability of the Scheme

The Scheme applies to the following companies:

Defaulting company

A defaulting company is a company as under the Companies Act, 2013 or older Acts, which has defaulted in filing any of the documents, statement, returns etc. on the online MCA registry.

Inactive company

An inactive company under Section 455 of the Companies Act has been defined as a company which,

1. has not been engaged in any business activities or its regular operations;
2. or has not undergone any significant transaction in the last two financial years;
3. or has not filed its financial statements and annual returns in the two previous financial years.

Foreign company

Foreign companies conducting business in India can also apply under this Scheme, it covers FC-1, FC-2 and FC-3 forms.

Key provisions of the Scheme

These are the key aspects of the Scheme:

CFSS-2020 Form filed

The companies applying under the Scheme to condone their delay in filing the various documents with the MCA shall fill Form CFFS-2020. 

The Scheme is only applicable between April 1, 2020, to September 30, 2020.

Eligible Filings

In total, there are 66 eligible filings under Companies Act, 1956 and Companies Act, 2013 which can be condoned under this Scheme: 

	Form No		Form Description
	Form 20B		Annual Return
	Form 21A		Form for Annual Return of the  Company not having a share capital
	Form 23ACA		Application form to file Profit and Loss statements and other financial documents
	Form 23AC XBRL		Form for filing XBRL document in respect of Balance Sheet and other documents with the Registrar
	Form 23B		Information by an auditor to Registrar
	Form 23 C		Application form to the CG for appointment of the cost auditor.
	Form 23 D		. Information by cost auditor to Central Government
	Form 66		Form for submission of Compliance Certificate
Form 1-XBRL		Application form to file XBRL document concerning cost audit report and other documents with the CG
Form A-XBRL		Application form to file XBRL document concerning compliance report and other documents with the CG
Form ADT-1		Application form to file Information to the ROC for appointment of Auditor
Form ADT-2		Application form to be filed for removal of auditors from its office before expiry of its ordinary term
Form ADT-3		Notice of Resignation by the Auditor
Form AoC-4		Application form to file financial statements and other financial documents with the ROC
Form AoC-4 CFS		Application form to file consolidated financial statements and other financial documents with the ROC
Form AoC-4 XBRL		Application form to file XBRL document concerning financial statements and other financial documents with the ROC
Form AOC-4 (NBFC) (IND-AS)		Form for filing FS and other documents with the Registrar for NBFCs.
Form AOC-4 CFS (NBFC)m(IND-AS)		Form for filing Consolidated FS and other documents with the Registrar for NBFCs.
Form AoC-5		Form to file notice of address at which books of account are maintained with the ROC
Form BEN-2		Form to file the return to the ROC in respect of declaration by significant beneficiary owner under section 90
Form CRA-2		Form of intimation of appointment of cost auditor by the company to Central Government
Form CRA-4		Application form to file Cost Audit Report with the CG
Form DIR -3C		Application form filed for allotment of DIN before appointment in an existing company
Form DIR-3 KYC		Application form to file intimation of DIN by the company to the Registrar
Form DIR -11		Application form to file a notice of resignation of a director to the ROC
Form DIR -12		Application form to file particulars of appointment and other changes concerning  Directors and different crucial managerial personnel.
Form DPT-3		Return of deposits
Form DPT-4		Statement regarding deposits existing on the commencement of the Act
Form FC-1		Information to be filed by a foreign company
Form FC-2		Return of alteration in the documents filed for registration by the foreign company
Form  FC -3		Annual accounts along with the list of all principal places of business in India established by a foreign company
Form FC-4		Annual return of a Foreign company
Form GNL-2		Form for submission of documents with the Registrar
Form GNL-3		Particulars of person(s) or key managerial personnel charged or specified for the purpose of sub-clause (iii) or (iv) of clause 60 of section 2
Form IEPF-1		Statement of amounts credited to the Investor Education and Protection Fund
Form IEPF-2		Statement of unclaimed or unpaid amounts
Form IEPF-3		Statement of shares and unclaimed or unpaid dividend not transferred to the Investor Education and Protection Fund
Form IEPF-4		Application form to file a statement of shares transferred to the Investor Education and Protection Fund
Form IEPF-6		Application to form a statement of unclaimed or unpaid amounts to be transferred to the IEPF
Form IEPF-7		Application form to file statement of amounts credited to IEPF due to shares transferred to the fund
Form IEPF-e-verification Report		Application form to the authority to claim unpaid amounts and shares out of IEPF – E-verification report
Form INC-4		One Person Company- Change in Member/Nominee
Form INC-5		One Person Company- Intimation of exceeding the threshold
Form INC-6		One Person Company – Application for Conversion
Form INC-12		Application for grant of a license under Section 8
Form  INC-20A		Declaration for the commencement of business
Form INC-20		Intimation to Registrar of revocation/surrender of license issued under section 8
Form INC-22		Notice of situation or change of situation of registered office
Form INC-22A		Active Company Tagging Identities and Verification (ACTIVE)
Form INC-27		Conversion of a public company into a private company or a private company into a public company
Form INC-28		Notice of order of the Court or Tribunal or any other competent authority
Form MGT-6		Persons not holding beneficial interest in shares
Form MGT-7		Annual Return
Form MGT-10		Form filed to notify the changes in shareholding pattern of the promoters and top ten shareholders of the company
Form MGT-14		Form filed to notify ROC of the Resolutions and agreements of the Company
Form MGT-15		Application Form filed to submit Report on Annual General Meeting to the ROC
Form MR-1		Return of appointment of key managerial personnel
Form MR-2		Application form to the CG for acquiring approval of appointment/  reappointment/ remuneration/ change in remuneration/ waiver of excess payment to MD or WTD or manager and commission or other directors
Form MSC-1		Application form to ROC to obtain the status of dormant company
Form MSC-3		Return of Dormant Companies
Form NDH-1		Return of Statutory Compliances
Form NDH-2		Application for extension of time
Form NDH-3		Application form to file return of Nidhi Company on the half-yearly basis
Form NDH-4		Application form for declaration of the applicant company as Nidhi Company or for updating of its status by Nidhi Companies
Form PAS-3		Return of allotment
Form SH-11		Return in respect of buy-back of securities

No late fee

The delayed filing is condoned under this Scheme with no late fee or penalties being charged for it. The standard fees payable to MCA is charged. However, no prescribed time limit tells about how old the impugned default can be for condonation under the present Scheme.

Withdrawal of prosecution launched

The Scheme also provides that where a legal action has already been initiated by the designated authority against a company, and no order has been passed by the adjudicating authority, upon application under CFSS, such prosecution shall be withdrawn.

Adjudicating authority order passed and appeal not filed

In case an order has been passed by the adjudicating authority on the occasion of the default in favour of the company, no appeal will be preferred by the designated authority if the company applies under the CFSS.

AA order passed and appeal is pending

On the other hand, if an appeal has already been filed before NCLT for any delay in the filing by the company if the company applies under CFSS the designated authority shall withdraw the appeal.

Immunity granted under the Scheme

An application for immunity regarding the documents annexed to the CFSS form filled can be made to the designated authority. Such an application has to be electronic and must be made within six months of closing the Scheme.

The Scheme grants immunity to the applying companies for the following w.r.t. the condoned delay:

1. Launch of prosecution or any proceeding
2. Continual of an existing proceeding
3. Imposition of penalty

An immunity certificate with the same effect shall be issued to an applicant company after filling the CFSS form by the designated authority.

Importance of the Scheme

The Scheme has been launched at an optimal time where the companies are struggling to continue their ordinary business and earn profits. Amidst of encountering such difficulties the corporates would be subject to strict compliance standards required by the Ministry. 

Thus, the Scheme by condoning their past delays along with the several relaxations and extensions already provided by the Ministry, will reduce the operational and financial burden on them. The Scheme shall also reduce the regulator’s pending litigation.

Exceptions to the applicability of the Scheme

There are six cases in which the said Scheme is inapplicable, which are the following:

• Final notice for striking off the company’s name

The companies against whom a final notice for striking off has been initiated by the designated authority u/s 248 of the Companies Act are not eligible to apply under this Scheme.

• Application filed for striking off

The second type of companies who cannot benefit under this Scheme is the companies who have applied to strike their name from the register of companies.

• Amalgamated companies

Two or more companies that have undergone the process of amalgamation, arrangement or compromise under the Chapter XV of the Companies Act are not eligible to apply under this Scheme.

• Dormant company

A company which has applied to acquire the status of a dormant company cannot apply for waiving its default under the Scheme. 

A company can be declared a dormant company u/s 455 of the Companies Act as and when:

• a company with no significant business transaction makes an application to the Registrar or; 
• Registrar may make such a declaration if the company has not filed financial statements or annual returns.

The dormant company nonetheless has to maintain a minimum number of directors, pay the annual fees and file mandatory documents.

• Increase in authorised capital

The Scheme is also not extended to companies which have undergone an increase in its authorised share capital and charge related instruments.

Scheme for inactive companies

Defaulting inactive companies are also allowed to apply. Simultaneously they may get themselves declared a dormant company u/s 455 or apply for striking off the name of the company.

Areas of concern not covered under the Scheme

Does not apply to all the companies

As mentioned above, the Scheme does not allow the amalgamated companies or companies with an increased authorised capital to avail its benefits. Both the types should have been allowed to benefit from the Scheme to increase the scope of the corporates to make the best of this single opportunity.

Officer in default

In an instance of a corporate default the Scheme only condones the default of the companies, it does not apply to  the officer in default. The officers should also be allowed to apply under the scheme as the corporates’ default and the officers’ default are interrelated and should not be treated in a different manner.

Applicability time period

The scheme is only applicable from April 1, 2020 to September 30, 2020. In the wake of COVID 19 crisis and the increasingly deteriorating situation, the corporates may not be able to apply in the said time frame.

Suggestions for improvement

The following measures can be taken to widen the benefits availed by its applicants:

Applicability to all companies

To widen the number and category of applicants to benefit under the Scheme, the Government should also allow the amalgamated companies and the companies with an increased authorised capital to apply under it. 

Applicability to officer in default

The default in any compliance is attributable to the corporate as well as the officer in default, therefore, it is unfair to only condone the default of the corporates and not the individuals. In fact, the individuals should be punished in a more stringent manner for defaults, which further emphasise on the need for a one time opportunity like this.

Extend its time period

Considering the turmoil created by the COVID-19 crisis and the lockdown, the government should extend the applicability of the Scheme at least till the situation improves and the companies are able to return to their ordinary course of business.

Conclusion

The CFSS is an appreciated measure taken by the government to improve the status of corporate compliance and to terminate any proceedings against such delays leading to unnecessary public expenditure. However, the addition of the suggested steps could have improved the results achieved.

References

• https://www.mca.gov.in/Ministry/pdf/Circular12_30032020.pdf
• http://www.mca.gov.in/Ministry/pdf/FAQCFSS_15042020.pdf
• http://ebook.mca.gov.in/Actpagedisplay.aspx?PAGENAME=17898 
• http://www.mca.gov.in/Ministry/pdf/CFSS2020_02042020.pdf
• https://taxguru.in/company-law/cfss-2020-llpss-2020-list-forms-faqs-clarifications.html

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