Condonation of Delay Scheme, 2018

Purpose of the Scheme:

The Condonation of Delay Scheme, 2018 has been notified vide General Circular No. 16/2017 dated 29.09.2017. The Scheme  has been in force since 01.01.2018 and shall be in force until 31.03.2018. The motive behind the Scheme is to provide relief to the defaulting companies and disqualified directors. As is evident from the time period of the Scheme provided, a period of 3 (three) months has been granted to such companies and directors to file their overdue documents or reports or annual returns.

Companies which shall be unable to avail the Scheme shall be the ones whose names are struck off the Register of Companies under section 248(5) of the Companies Act, 2013. Also, any company which is not a "defaulting company", i.e. a company which has made default in filing its annual return or financial statement for less than three years.

Despite defaulting to file annual returns or financial statements for a continuous period of three years, there are companies whose names are not struck off from the register under section 248(5) of the Companies Act, 2013 whereas there are instances that there are companies which have failed to file the requisite documents for a meagre two years in a row are struck off by the Registrar of Companies under section 248(5) of the Companies Act, 2013. This occurs because according to section 248(1) of the Act, where ROC has reasonable cause to believe that among other things, a company has failed to carry out any business or operations for a period of two years immediately preceding financial years and has not applied for the status of dormant company under section 455 of the Act.

Directors' status of defaulting companies

Directors of defaulting companies for three years or more are implied to be disqualified under section 164(2)(a) of the Act. In other words, such directors are not eligible for re-appointment in the defaulting company or in any other company for a period of five years from the date on which the defaulting company failed to file said documents, i.e. last due date for filing of annual return or financial statement for the third consecutive year. Due to disqualification of a director under section 164(2)(a), such directors cease to be directors under section 167(1)(a) of the Act.

Documents to be filed with the ROC

The following documents as were due for filing till 30.06.2017 under the Companies Act, 1956 and the Companies Act, 2013 could be filed under the scheme with the ROC:

1. Annual Returns
2. Financial Statement (including XBRL)
3. Compliance Certificate (as was required under the Companies Act, 1956)
4. Particulars of Appointment of Auditors

Procedure

1. MCA, for the duration of the scheme, activate DINs of concerned directors of defaulting companies in the event of the same being blocked. But, if a director is associated with any company which is struck off, he cannot avail the scheme.
2. Defaulting companies shall be responsible to file overdue documents by paying filing fees and additional filing fees under section 403 of the Act. Under the Companies (Amendment) Act, 2017, the provisions of section 403 are modified to a large extent and minimum filing fees for delay in filing any document of Rupees 100 per day for different types of companies has been prescribed. MCA may prescribe additional fees.
3. The second proviso to section 403(1) of the Act allows filing beyond due date as well as a period of further 270 days (provided in the first proviso to section 403(1)). However, in such cases, MCA does reserve its right to resort to legal action against the company/directors/officers. Section 460(b) of the Act authorizes MCA to condone the delay in filing of documents beyond the time prescribed. To conclude, seeking condonation in e-form CODS would absolve companies and its officers from possible future actions under section 403(2) of the Act. The scheme provides that post filing of documents, a company is mandatorily shall apply for condonation of delay in filing overdue documents along with new e-form e-CODS with fees to the tune of Rupees 30,000.

It should be noted that by the Companies (Amendment) Act, 2017, the provisions of section 403 are largely amended and the relief of 270 days under the first proviso to Section 403(1) is omitted. Hence, upon commencement of the modified section 403 (MCA shall notify after CODS) any delay in filing after the prescribed period and with zero benefit of an additional 270 days, not only an additional fees of Rupees 200/- per day need to be paid per document but also MCA shall be entitled to resort to legal action against the Company and its officers including directors. Filing fees are paid at the time of filing thereby acting retroactively. For pending filings made post amendment of Section 403 of the Act by the Companies Amendment Act, 2017, it would be an expensive affair. Procedural law could be retrospective or retroactive. Ideally, it is beneficial to avail the scheme and clear filing rituals.

When the scheme is not availed

MCA bears the power to ascertain from its records about companies and its directors who have not availed the CODS. MCA may also deactivate DINs of such defaulting directors. Names of such defaulting companies could be struck off under section 248(5) by the concerned ROC. MCA could commence legal proceedings against directors of such companies under section 167(2) of the Act. The offence under section 167(2) of the Act is not subject to compounding under section 441 of the Act. The benefit of an amendment being brought to section 441 of the Act shall be redundant since it operates prospectively and not retrospectively or retroactively.

Filing: the panacea?

Filing of documents under the scheme is nothing but regularization of impending filings of annual returns and financial statements. Also, the company and its officers would not be prosecuted for delay in filing of the documents in question. Additionally, it saves the companies from paying huge sums in the form of additional filing fees under the Companies Amendment Act, 2017.

Struck off companies

Companies which are struck off under section 248(5) of the Act need to file appeal under section 252(1) of the Act with the National Company Law Tribunal (NCLT). The scheme advises that such companies should approach the NCLT as swiftly as possible and get its pending documents filed post NCLT giving its permission for revival of the company.

Clarification from MCA

In the event when a director is disqualified under section 164(2)(a) of the Act thereby ceasing to be a director but still acts in the capacity of a director of such defaulting company, he shall be liable to monetary fine and/or punishment of imprisonment or both under section 167(2) of the Act.

But, for instance, for availing of a scheme, a director needs to make sure the filings of the said documents and for that purpose acts in the capacity of a director. This makes us conclude that he would digitally sign documents for filings under the scheme using his digital signature thereby contravening section 167(2) of the Act by acting in the capacity of a "director" when he signs documents for filing with the ROC thus attracting punishment. Hence, to avoid the same, it shall be necessary on the part of the MCA to clarify that such directors for the purpose of availing the scheme shall not attract any action under section 167(2) if they sign financial statements and annual returns.

Link to the General Circular on the MCA website: http://www.mca.gov.in/Ministry/pdf/Generalcircular16_29122017.pdf