16 April 2020

COMPANIES FRESH START SCHEME | LLP SETTLEMENT SCHEME

Acknowledging the plight of the companies and Limited Liability Partnerships (LLPs) due to the Covid-19 pandemic, the Ministry of Corporate Affairs (MCA) has introduced two schemes for Companies and LLPs: Companies Fresh Start Scheme, 2020 and LLP Settlement Scheme, 2020 respectively to reduce the burden of filing documents and giving a fresh start to defaulting companies and / or LLPs.

The said two schemes have been introduced by the MCA in order a) to condone the delay for filing belated documents; b) to give an opportunity to defaulting companies and LLPs to enable them to file belated documents; and c) granting immunity from launching prosecution or proceeding for imposing of penalty on account of delay in filing of certain documents. The nature and applicability of the said two schemes are enumerated below:

COMPANIES FRESH START SCHEME, 2020

• Applicability: The scheme is applicable to any defaulting company. The term ``Defaulting Company`` in the scheme means company defined under the Companies Act, 2013 (Act) which has made a default in filing documents, statements, returns, annual statutory documents etc. on the MCA-21 registry. The scheme shall be applicable from 1 April 2020 and shall remain in force up to 30 September 2020.
  
  The scheme shall not be applicable to the following companies:
  
  • Companies against which action for final notice for striking off the name under Section 248 of the Act has already been initiated;
  • Application has already been filed by companies for action of striking off name;
  • Companies which have amalgamated under a scheme of arrangement or compromise under the Act;
  • Application has already been filed for obtaining dormant status under Section 455 of the Act; and
  • Vanishing Companies.
• Forms and Fees: The scheme covers filing of relevant forms on the MCA-21. There shall be no penalty except the prescribed fees for filing forms under the Act.
  
  
• Immunity: A company who has filed belated documents under this scheme will have to make an application for seeking immunity under the prescribed form under the scheme. The belated documents will be taken on file or record or approved by the designated authority not later than 6 months from the date of closure of the scheme. Based on the declarations made, an immunity certificate shall be granted by the designated authority. However, immunity shall not be granted in few cases enumerated below:
  
  
  • Where an appeal is pending before the Court and / or management disputes are pending before the Court or Tribunal;
  • Court has ordered conviction or order imposing penalty has been passed by an adjudicating authority and no appeal has been made against such order, before this scheme has come into force.
  
  If the defaulting company has filed any appeal against notice issued or complaint filed or order passed, in respect of which application has been made under this scheme, the applicant shall before filing application for immunity, withdraw the appeal and furnish proof of such withdrawal along with the application.
  
  The designated authority shall withdraw the prosecutions pending, if any, before the Court and prosecution for penalties, on granting immunity to a defaulting company. In case, where defaulting companies have not availed this scheme then on conclusion of this scheme the designated authority shall take action against such companies.
  
• Extension for filing appeal: Due to any delay in filing documents if any penalty was imposed by an adjudicating officer and no appeal has been preferred by the company or its officer, before the regional director, in that case if last date of filing appeal falls within 1 March 2020 to 31 May 2020 then additional 120 days shall be allowed for filing appeal. The company or it’s officers shall not be prosecuted for such additional period.


• Inactive Company: This scheme also grants an opportunity for inactive companies to apply to get themselves declared as dormant companies or apply for striking off their names, while simultaneously filing belated documents.

LLP SETTLEMENT SCHEME, 2020

• Applicability: The scheme is applicable to any defaulting LLP. The term Defaulting LLP in the scheme means LLP defined under the LLP Act, 2008 (LLP Act) which has made a default in filing documents which were due to for filing till 30 August 2020. The scheme shall be applicable from 1 April 2020 and shall remain in force up to 30 September 2020. The scheme shall not be applicable to an LLP who has made an application for striking off its name from the register.
  
  
• Forms and Fees: The scheme covers filing of relevant forms with MCA. There shall be no penalty/ additional fees except the prescribed fees for filing forms under the LLP Act.
  
  
• Immunity: An LLP who has filed belated documents will be granted immunity and shall not be subject to prosecution for default. In case, where defaulting LLPs have not availed this scheme then on conclusion of this scheme the designated authority shall take action against such LLP.
  

MHCO Comment: The aforesaid schemes clearly incentivize compliance and reduce compliance burden during the unprecedented situation of Covid-19. Further, they significantly reduce the financial burden on the entities, thereby giving them an opportunity to make a `Fresh Start`. 

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.comfor any assistance