India’s Ministry Of Corporate Affairs To Help Businesses By Offering Them A Fresh Start For Compliance Matters Amidst COVID-19

Key Highlights

The novel coronavirus (or COVID-19) pandemic has hit businesses across India, prompting steps to be taken by the Ministry of Corporate Affairs to help them via relaxations in regulatory compliances
In our previous article, we highlighted a few of these steps taken by the Ministry (you can read it here); there have been further updates which are discussed below in this edition
The Ministry has provided relief to companies/LLPs by helping them with a scheme to start fresh on their compliance requirements, which seems to be a promising move
Further clarifications have been made on video conferencing, important documentation and forms, as well as classifying CSR expenditure

In furtherance to the government efforts of providing relief to the various companies/LLPs owed to the current situation of COVID-19, the Ministry of Corporate affairs (the “MCA” or the “Ministry”) has published a few notifications and relaxations which have been briefly explained below:

Companies Fresh Start Scheme, 2020 and LLP Settlement Scheme, 2020

The Ministry had initially announced that no additional fee shall be charged for late filing during the moratorium period of 1 April 2020 to 30 September 2020 in respect of any document, return, statement, etc. required to be filed on MCA, irrespective of the due date.

In this regard, they have introduced the Companies Fresh Start Scheme, 2020 (“CFSS”) and revised LLP Settlement Scheme, 2020 (“LSS”) in order to provide a one-time opportunity to both companies and LLPs to make good on any filing-related defaults, irrespective of the duration of the default, and make a fresh start as a fully compliant entity during the period of 1 April 2020 to 30 September 2020.

There is also a provision of immunity in both the schemes. The Ministry is giving immunity from launching of prosecution or proceedings for imposing penalty, only to an extent where such prosecution is related to the delay associated with certain belated filings.

In this regard, an application for seeking immunity has to be filed with the MCA within 6 months from the date of closure of respective schemes for granting immunity certificate from the Ministry. However, the immunity is only against delayed filings and not against any substantive violation of law.

Further, if any company has filed an appeal against any notice issued or complaint filed, or an order passed by a court or an adjudicating authority with respect to a default in statutory filings whose relief has been provided under the said scheme, needs to be withdrawn before applying for the certificate of immunity.

In case no appeal is filed against such order and the last date of filing appeal is between 1 March 2020 and 31 May 2020, a period of additional 120 days is allowed to file the appeal. Till such time, no prosecution can be initiated for non-compliance of such order.

The aforesaid schemes are not applicable in the following cases:

Companies/LLPs for which final notice for striking-off has been already issued
Where the company/LLP has made an application for striking-off its name
Companies which have been amalgamated
Companies which have been applied for the dormant status
Vanishing companies
Where the documents are related to increase in authorised share capital (Form SH-7) and charge (CHG-1, CHG-4, CHG-8 & CHG-9)
Any appeals pending in cases of management disputes
Cases where any prosecution/penalty has been ordered and no appeal has been made before the introduction of CFSS
Companies under Liquidation as per the provisions of Companies Act, 2013 (“the Act”) or as per Insolvency and Bankruptcy Code, 2016

The CFSS not only provides an opportunity for non-compliant companies to make a fresh start but also allows inactive companies to either obtain dormancy status by filing a simple application with the MCA and enable them to remain on the register of companies with minimum compliance requirements or apply for striking off the name of the company from the register of companies.

Filing of Form DIR-3KYC/DIR-3KYC-Web/ACTIVE without any filing fee

DIN holders whose DINs have been marked as “Deactivated” due to non-filing of DIR-3KYC/DIR-3 KYC-Web and those companies whose compliance status has been marked as “ACTIVE non-compliant” on MCA Portal due to non-filing of Active Company Tagging Identities and Verification (ACTIVE) form, can now once again file both forms as the case may be between 01 April 2020 and 30 September 2020 without paying the filing fees of INR 5000/- and INR 10,000/-, respectively, to become compliant once again.

Companies To Hold Extra-Ordinary General Meetings Through Video Conferencing

The Ministry had earlier allowed all the Board Meetings to be conducted through Video Conferencing (“VC”) or other audio-visual means (“OAVM”) up to 30^th June 2020, even on restrictive items where physical presence of directors is required.

The Ministry is now allowing the companies to hold Extra Ordinary General Meetings (“EGM”) through VC or OAVM up to 30^th June 2020 by following the prescribed procedure as laid down by Ministry in its circular dated 8^th April 2020 to pass the matters of urgent nature without holding a physical meeting of the shareholders, except items of ordinary business and items where any person has a right to be heard.

Through the said relaxation, the companies on which the provisions of e-voting and postal ballot as per the provisions of the Act are applicable, can not only take the advantage, but also all the companies can now avail the benefit of holding EGM without physical presence up to 30 June 2020.

The Ministry allows listed companies or companies with 1,000 shareholders or more which are required to provide e-voting facility under the Act to conduct EGM through VC/OAVM and e-voting. For other companies, a simplified mechanism for voting through registered emails has been put in place and in this case, where there are less than 50 members present in a meeting, the Chairman may decide to conduct a vote by show of hands.

Also, the companies are required to maintain a recorded transcript of the entire proceedings in its safe custody and for public companies, they are required to publish this transcript on their website.

The companies while opting for the aforesaid procedure shall ensure that all other compliances associated with the provisions related to EGMs, i.e., making of disclosures, inspection of related documents by members, authorizations for voting by Body Corporates etc. as provided under the Act and the Articles of Association of the Company are made through electronic mode.

As the meetings will be conducted over VC/OAVM, the facility for appointment of proxies has been dispensed with and all resolutions passed through this framework will be required to filed with the ROC within 60 days.

Further, the Ministry on request of the various stakeholders vide its circular dated 13^th April 2020 has provided few clarifications in this regard, the key points are as follows:

Notices of the EGM to the members need to be given through emails registered with the company or with the depository participant/depository, if applicable
If the email IDs of members are not registered with the Company, the management should call them or communicate with any other means and ask to register their emails so that the EGM notice can be circulated to them. And If contact details are not available, public notice by way of newspaper advertisement should be published immediately about the same (This is applicable in case of companies who are not required to provide e-voting facility)
The members of the companies who are required to provide the facility of e-voting are not allowed to cast their vote by show of hands in any case
The notice for the postal ballot shall be sent via emails and the communication of the assent or dissent of the members would only take place through the remote e-voting system
Poll by way of sending email will take place during the meeting only and shareholders should send their voting (assent or dissent) immediately on the designated email address provided by the company for the Poll. (This is applicable in case of companies who are not required to provide e-voting facility.

The aforesaid framework is applicable only for holding EGMs, not for holding Annual General Meeting of the Companies.

Clarification on CSR

The Ministry has been receiving several representations from various stakeholders seeking clarifications on the eligibility of CSR expenditure related to COVID-19 activities. In this regard, the below clarifications have been provided by the Ministry:

Contribution made to ‘PM CARES Fund’ for COVID-19 shall qualify as CSR expenditure under item no. (viii) of Schedule VII of the Act
Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ is not included in Schedule VII of the Act and therefore any contribution to such funds shall not qualify as admissible CSR expenditure
Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no. (xii) of Schedule VII of the Act
Funds spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII of the Act relating to promotion of health care including preventive health care and sanitation, and disaster management are eligible
Payment of salary/wages to employees and workers, including contract labour and payment of wages to casual/daily wage workers during the lockdown period cannot be adjusted against the CSR expenditure
Any ex-gratia payment made to temporary/casual workers/daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a one-time exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditors.

The Ministry is fully aware of the difficulties which companies are facing due to the nation-wide lockdown and making its best possible efforts to provide relaxations to the companies during this pandemic.

We expect that it will take further steps to support the companies so that they can function or transact their business transactions with less hassle in case the current situation continues.

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Written By

Amrita Deol

Amrita currently leads Coinmen’s Corporate Secretarial Services