Condonation of Delay Scheme 2018- A way out to restore the DINs of disqualified Directors

Background

The Ministry of Corporate Affairs (the MCA) on 26 December 2016 notified the process of strike-off of the company from the register of Registrar of Companies (the RoC). The strike-off can be either suo-moto by RoC or on an application made by the eligible company.

During 2017, RoCs in India issued a Show Cause Notices (the SCN) to the companies who are in violation of section 248(1) of the Act (i.e. not carrying on any business or operation for a period of two years immediately preceding financial year) with a timeline of 30days from the date of SCN with an appropriate reply to the same, failing which would result in strike-off of the respective company and necessary action would be taken against the Directors. Until the end of December 2017, around 2.4 lakh companies were struck-off.

In addition to the SCN, in the month of September 2017, in terms of section 164(2) and 167 (1) (a) of the Act, the MCA had disqualified more than 3.09 lakh directors of companies which failed to submit annual filings for last 3 years (the Disqualified Directors). With this effect, the Disqualified Directors had to step-down from all those companies in which they were acting as a director and their Director Identification Number (DIN) were also deactivated to ensure that they do not file any subsequent forms with the RoC or incorporate any new company. Following the move, concerns were raised that many directors of genuine companies have also been disqualified. Besides, some individuals moved courts against their disqualification and has obtained interim stay orders.

Considering the requests from various stakeholders and in view of giving an opportunity to the Companies who has not filed its Annual Financial Statements and Annual Return for the period of 3 years from 2013-14 to 2015-16 (the Defaulting Companies), to file all pending annual filings of the Defaulting Companies, the MCA vide its circular no. 16/2017 has notified Condonation of Delay Scheme, 2018 (the Scheme) effective for a period between 1 January 2018 to 31 March 2018 providing a window to Defaulting Companies to file all the annual forms with the RoC.

The Condonation of Delay Scheme, 2018

The process for availing the benefits of the Scheme has been divided into paragraphs as below:

Eligible Companies: The benefits of the Scheme shall be available only for existing Defaulting Companies. The companies whose name is struck off by the RoC under section 248(5) of the Act are not eligible under this Scheme.

Effective Period: This shall be in force effectively from 1 January 2018 up to 31 March 2018. Given this, the Defaulting Companies shall have to comply with this within the said period.

Eligible Forms: The Defaulting Companies can file only the following forms which are due for filing as on 30 June 2017 under the Scheme:

  1. Form 20B or Form MGT 7: Form for filing of Annual Return of the company having share capital;
  2. Form 21A or Form MGT 7: Form for filing of Annual Return of the company not having share capital;
  3. Form 23AC, ACA, AOC-4- XBRL, non- XBRL, CFS: Form for filing of Balance Sheet/ Financial Statement and Profit and Loss Account;
  4. Form 66: Form for submission Compliance Certificate;
  5. Form 23B or Form ADT-1: Form for intimation of appointment of statutory auditor.

Relief:

The jurisdictional RoC shall withdraw the prosecution(s) pending if any before the concerned Court(s) for all documents filed under the scheme. However, this scheme is without prejudice to action under section 167(2) of the Act or civil and criminal liabilities, if any, of such disqualified directors during the period they remained disqualified.Further, the DINs of Disqualified Directors continue to be active and their names shall be removed from the list of Disqualified Directors maintained by the MCA.

Step Plan to be followed:

  • Activation of Director Identification Number: Presently, the DINs of the Disqualified Directors are deactivated by the RoC. In terms of the Scheme, the DINs of these Directors shall be activated for the Effective Period to enable such Disqualified Directors to file all the pending Eligible Forms. As per the recent update of the MCA, the DINs shall be activated on or before 12 January 2018.
  • Filing of pending Eligible Forms: TheDefaulting Companies shall file pending Eligible Forms with the RoC within the Effective Period by paying prescribed statutory fees for each of the Eligible Forms under the Act.
  • Filing of Form e-CODS: Upon completion of the filing of Eligible Forms, the Defaulting Companies shall have to make condonation application in form e-CODS by paying the statutory fee of INR 30,000.

Effect Non-Filing of Eligible Forms under the Scheme: TheDefaulting Companies which doesn’t file the necessary forms as prescribed under the Scheme, shall continue to be in default under the respective provisions of the Act and the DINs of the Disqualified Directors associated with these companies shall be deactivated and appropriate actions would be taken against these directors.

The position of Struck-Off Companies:

In terms of the Scheme, the struck-off companies are not eligible to avail the benefits, the option available now is to make an application to National Company Law Tribunal (the NCLT) to obtain the approval to restore the company, make non-compliance good (all pending annual filing forms to be filed). Post-filing these forms, the DINs of Disqualified Directors continue to be active and their names shall be removed from the list of Disqualified Directors maintained by the MCA.

Conclusion

While there is a big relief for the Disqualified Directors, the Scheme continues to exclude the directors of the struck-off companies. These struck-off companies shall have to follow a lengthier and time-consuming process of NCLT approval to restore the companies. Further, there is no clarification to those Disqualified Directors of the struck-off companies who do not wish to continue the business or alternate mechanism to restore the DINs of the Disqualified Directors without restoring the struck-off companies. Given this, the question that still persists is, merely to file these forms, should you restore the company à file the pending annual forms(most likely NIL figures, as there wouldn’t be any transactions for these years)àshut down the company.

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