The onset of the pandemic changed the calculus of the world opening up audacious possibilities like never before. Undeniably the extent of the damage caused to the world is enormous. Despite so, the big question now is “What Next?” Covid-19 while caused unimaginable disruptions worldwide, yet then it has offered unrivalled opportunities to plummet upon. In such given circumstances, companies are bailing for fortuity under the Companies Fresh Start Scheme announced by the Ministry of Corporate Affairs.
The legislative framework clearly mandates the companies to file requisite documents including annual returns and financial statement with the RoC. Failure to adhere to the guidelines as well as failing to file requisite documents calls in several penal action as well. However, the statistics of the past clearly reveal that a number of companies have been inoculant in complying with the filing requirement. This calls for unnecessary consequences for the directors facing penal sanction as well as the administration involved in the process. Additionally, the NCLT is burdened with compounding cases.
In an attempt to start a fresh and let companies evolve as compliant entities the CFSS has been introduced to mitigate the unnecessary implications called in. Such amnesty scheme was not introduced for the first time recently. There has been a decade of considerations to fix this scheme for building up a robust mechanism mitigating the lacunae herein. In light of the unprecedented circumstances put forth by the pandemic, the MCA has resolved to reduce the burden of compliance lingering over the doomed companies. It provides the much required breather for the defaulting companies to enable them start fresh post the pandemic.
Admittedly, the CFSS is veritable nature. It elucidates in detail the companies eligible to avail the benefits primarily amongst other things. Herein the scope of defaulting companies have been widened. There is no explicit mention of companies undergoing CIRP and the logical inference would be to realise that such companies could also avail the benefits provided under the scheme. Notably, the companies defaulting on filings have been allowed to file its pending documents with the registry without the payment of any additional fees.
The defaulting company has been granted immunity from any consequential proceedings, which comes in as a big sigh of relief for much of the distressed companies in the light of the current precarious ongoing. There has been a precise mention of condoning delays in compliance of statutory post completion of the filing process. There has been also provision made for appeal on grounds of violation of the Companies Act by the adjudicating authorities.
It further contemplates of situations where an appeal could not be preferred against an order of penalty imposed by the adjudicating authority given the circumstances prevailing in the country since early March. The limitation period for all such instances has been further extended by a period of 120 days. There has been detailed exclusions provided for all such companies dealing the turbulence of the pandemic and for the said purpose specific conditions have been put out.
CFSS is a beneficial scheme, specifically in the current pandemic scenario, providing an opportunity to non-compliant companies, to have a fresh start in terms of their statutory compliances. It also provides respite to inactive companies, who will have an option to either become a dormant company, or get their names struck off from the registers.
Additionally, since there is no additional fees to avail the benefit of CFSS, all defaulting and inactive companies, should definitely consider opting for CFSS and becoming compliant with statutory filings. However, if they fail to do so and continue to be in default, the concerned RoCs having jurisdiction over the companies may take action in terms of the Act.
Besides being beneficial to companies, it will provide significant relief to overburdened NCLTs and NCLATs by reducing the number of pending compounding cases and other cases for non-compliance. This will help in achieving the long-time objective of de-clogging these tribunals and other courts so that cases of more serious nature could be pursued expeditiously and with enhanced rigor.