Introduction

The new government at the Centre promised to say good-bye to retrospective changes in the law,  particularly when such changes are adverse to the interest of the subjects. The new penal provisions under the Companies Act, 2013, which have become effective from 1^st April, 2014, have not only substantially increased the penal consequences for delay in filing certain forms but has made them effective even for delays caused for the period prior to 1^st April, 2014.

However, upon industry representations the government has offered one time settlement scheme offering an opportunity to all the exiting companies to come forward to file all the pending forms without attracting the rigorous penal provisions under the new Act.

Validity Period of the Scheme

Company Law Settlement Scheme, 2014 (“the Scheme”) shall remain in force from 15^th August, 2014 to 15^th November 2014. The benefits of the Scheme shall be available only if the documents for which the benefit/immunity is sought are filed on or before 31^st  December, 2014.

A separate application for immunity under the Scheme is required to be made not later than 3 months from the date of closure of the Scheme (on or before 31^st  March, 2015).

Who can seek benefits under the Scheme?

• Public Companies
• Private Companies
• Dormant Companies (the companies without any activity)

For which defaults will the Scheme apply?

This scheme shall apply to any defaulting company for belated filing of the following documents (“Eligible Documents”) due till 30^th June, 2014:

 Other concessions offered by the Scheme

• Concession in filing fees for getting the company declared as “Dormant Company”.
• Concession in filing fees for getting the company’s name struck off from the Register of Companies (“Defunct Company”).

Non-applicability of the Scheme

This Scheme shall not apply to the companies,

• against which action for striking off the name under sub- section (5) of section 560 of Companies Act, 1956 (“CA 1956” or “Old Act”) has already been initiated by the Registrar of Companies or;
• who have already filed any application for action of striking off name from the Register of Companies or;
• who have filed applications for obtaining Dormant Status under section 455 of the Companies Act, 2013 (“CA 2013” or “New Act”) or;
• which are vanishing companies .

Penalties applicable, if the advantage of the Scheme is not taken

CA 2013 has laid down a stricter regime for the defaulting companies with higher additional fees. The quantum of punishment has been enhanced under the above mentioned provisions of the CA 2013 vis-a-vis  CA 1956.

Till March, 2014, the penalties for delay in or non-filing of Eligible Documents were capped at between Rs 5000 to Rs 6000 per instance of default. There were no criminal consequences against the officers of the defaulting companies. However from 1^st April, 2014, the maximum penalty amount has gone as high as,

• upto Rs 5,00,000 per instance for the company;
• upto Rs 5,00,000 per instance for each Officer in Default (“OID”);
• imprisonment upto 1 year per instance for each OID.

The above penalties can be doubled if the offence is repeated within a period of 3 years.

Non-filing of annual returns or financial statements for a consecutive period of 3 years would result into disqualification of a director of a public company for appointment as a director in any other public company under Old Act. This disqualification has been extended to all the directors of private companies as well under the New Act.

A comparative table of penalties under CA 1956 vis-à-vis CA 2013

Key features of CLSS, 2014

• Defaulting companies can file their pending Eligible Documents with normal filing fees along with only 25% of actual additional fees payable on the date of filing. Thus the Scheme grants waiver of 75% of the Additional Fees.
• In order to secure the full benefits under the Scheme, the defaulting companies are required to,
  • File their pending Eligible Documents within the Validity Period of the Scheme (on or before 31^st December, 2014). The Eligible Documents will be filed with concessional additional fees as per point 1 above.
  • Withdraw the appeal, if any, against the prosecution launched for the offences against which the immunity is sought under the Scheme.
  • File an e-application for immunity from Penalty and Prosecution after the Eligible Documents filed under the Scheme are taken on record or approved by ROC (Registrar of Companies), but not later than 3 months from the date of closure of the scheme (on or before 31^st March, 2015).
• Immunity shall not be applicable in the matter of any appeal pending before the court of law and in case of management disputes of the company pending before the court of law or tribunal.
• The designated authority shall consider the application and on being satisfied, shall grant immunity certificate in respect of Eligible Documents filed under the Scheme.
• If any prosecution in respect of the matters covered under immunity, is pending before the court or tribunal, then upon issuance of immunity certificate, the Registrar concerned shall withdraw such pending prosecution(s).
• Section 164(2) providing disqualification of a director in case a company has not filed financial statements or annual returns for any continuous period of three financial years, shall not be applicable, if the company has made its default good by filing the belated documents under CLSS 2014. Hence CLSS 2014 protects directors from disqualification. This disqualification provisions shall then apply only for the future defaults, if any, by the company.
• The defaulting inactive companies, while filing due documents under CLSS-2014 can, simultaneously, either:
  • apply to get themselves declared as Dormant Company under Section 455 of the CA 2013 by filing e-form MSC-1 at 25% of the fee for the  said form; or
  • apply for striking off the name of the company by filing e- Form FTE at 25% of the fee payable on form FTE.

On Conclusion of the Scheme

On the conclusion of the Scheme, the Registrar shall take necessary action under the Companies Act, 1956/2013 against the companies who have not availed this Scheme and are in default in filing these documents in a timely manner.