Guest Post: Company Law Settlement Scheme – 2014

[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.]
Introduction
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

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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