Analysis of the Condonation of Delay Scheme, 2018 of the Ministry of Corporate Affairs 

The Scheme is by way of a General Circular No.16/2017 dated 29 December 2017. It is in exercises of powers u/Ss. 403, 459 and 460 of the Companies Act, 2013.

Who can avail the scheme?

A company registered under the Companies Act (1956 or 2013), which has defaulted in filing its financial statements or Annual Returns for a continuous period of three years with the Registrar of Companies (ROC).

It is either document, i.e. either financial statement or annual return.

Who can not avail the scheme?

1. Companies whose names are struck off the register of companies u/s.248(5) of the Companies Act, 2013.

2. Companies which is not a ‘defaulting company’, i.e., companies who have made default in filing its annual return or financial statement for less than three years.

It suggests that there are companies whose names are NOT struck off the register u/s.248(5) of the Companies Act, 2013 despite their failures to file annual returns or financial statements for a continuous period of three years. And the anomaly is that the companies who have failed to file the said documents for only two consecutive years are strikes off by ROC u/s.248(5) of the Companies Act 2013 !!!

This is so because according to Section 248(1)(d) of the Act, where ROC has reasonable cause to believe that, among other things, a company has not done any business or operation for a period of two immediately preceding financial years AND has not applied for a status of dormant company u/s.455 of the Act.

What is the position of Directors of defaulting companies?

Since the default of the documents stated is for a continuous period of three years or more, it implies that directors of such companies are disqualified u/s.164(2)(a) of the Companies Act, 2013 (the Act). It means such directors are not eligible to be re-appointed in the defaulting company or appointed as a director in another 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.

And due to disqualification of a director u/s.164(2)(a), such directors cease to be directors u/s.167(1)(a) of the Companies Act, 2013.

What documents can be filed with the ROC?

Only the following documents as were due for filing till 30.06.2017 under the Companies Act 1956/2013 can  be filed under the  scheme with the ROC:

1. Annual Return
2. Financial Statement (including XBRL)
3. Compliance Certificate (as was required under Companies Act 1956)
4. Particulars of appointment of auditors

Procedure:

1. MCA will temporarily, for the duration of the scheme, activate DINs of concerned directors of defaulting companies, if the same were blocked. However, where a Director is associated with any company whose name is struck off, cannot avail the scheme.
2. Defaulting companies shall file overdue documents by paying filing fees and additional filing fees u/s.403 of the Act. It is relevant to note that by the Companies (Amendment) Act, 2017 the provisions of Sec.403 are substantially modified and prescribes minimum additional filing fees for delay in filing any document of Rs.100 per day and for different types of companies, MCA may prescribe different additional fees.
3. The second proviso to Section 403(1) of the Act permits filing beyond due date as well as beyond further 270 days [as provided under the first proviso to Section 403(1)]. However, in such cases, MCA reserves its right to take legal action against company/directors/officers. And Section 460(b) of the Act authorises MCA to condone the delay in filing of documents beyond the time prescribed. Thus seeking condonation in e-form CODS would absolve companies and its officers from possible action under Section 403(2) of the Act. 
4. The scheme provides that after filing documents, a company need to apply for condonation of delay in filing overdue documents new e-form e-CODS with fees of Rs.30,000/-.

It is relevant to note that by the Companies (Amendment) Act, 2017 the provisions of Sec.403 are substantially modified and relaxation of 270 days under the first proviso to Section 403(1) is being omitted. Thus, upon commencement of modified Section 403 (which MCa may notify after the CODS) any delay in filing after the prescribed period (and with no benefit of additional 270 days), not only need to pay additional fees @ Rs.200 per day for every document, but MCA would also be entitled to take legal action against  the Company and its officers (including Directors). Since filing fees are payable at the time of filing, it acts retroactively and for pending filings done after the bringing into force of the amendment to Section 403 by the Companies Amendment Act, 2017 would be very costly. It is well settled legal principle that procedural law can be retrospective or retroactive.

In view of above, it is advisable to avail the scheme and clean the non-filing sins.

What is the period of the scheme?

The scheme is open from 01 January 2018 to 31 March 2018.

What if the scheme is not availed?

MCA can ascertain from its records about companies and its Directors who have not availed the CODS. MCA can deactivate DINs of such directors. And one can presume that names of such defaulting companies would be removed u/s.248(5) by concerned ROCs. And MCA might take action against directors of such companies u/s.167(2) of the Act. The offence u/s.167(2) of the Act is not compoundable u/s.441 of the Act. And the benefit of an amendment being brought to Section 441 (i.e. making the said offence compoundable) would not be available as it operates prospectively and not retrospectively or retroactively.

Is filing of pending documents with ROC under the scheme is a solution to all problems?

Filing of documents under the scheme means you have regularised the pending filings of annual returns and financial statements.

Further, company and its officers would not be prosecuted for delayed filing of the said documents.

It also saves companies from payment of hefty additional filing fees under the Companies Amendment Act 2017.

What about companies which are strike off u/s.248(5) of the Act?

Such companies need to file appeal u/s.252(1) of the Act with the National Company Law Tribunal (NCLT). The scheme suggests that such companies need approach NCLT faster and get its pending documents filed after NCLT permitting the revival of a company.

Clarification needed from MCA:

If during the period when a director got disqualified u/s.164(2)(a) of the Act and as a consequence ceased to be a director and despite that if he continues to act as a director of such defaulting company then he shall be liable to fine and or punishment of imprisonment or both u/s.167(2) of the Act.

An interesting situation arises here i.e. for availing of the scheme, a director needs to ensure the filings of the said documents and for that purpose acts as a 'director'. This is supported by the fact that he would digitally sign documents for filings under the scheme using his digital signature. Thus, he would contravene Section 167(2) of the Act by acting as a 'director' when he signs documents for filing with ROC and invite action thereunder.

Hence, it is necessary that MCA clarify that those Directors for the purpose of availing the scheme if signs financial statements and annual returns etc. shall not attract action u/s.167(2).