India – Corporate & SCRA Snapshot- Condonation Of Delay Scheme, 2018.

 

30 January, 2018

 

 

The Ministry of Corporate Affairs (‘MCA’) has, by way of General Circular No. 16/2017 dated December 29, 2017, introduced the Condonation of Delay Scheme, 2018 (‘Scheme’) to permit defaulting  companies which have not previously filed their financial statements or annual returns as statutorily required under the Companies Act, 2013 (or Companies Act, 1956), and permitted such defaulting companies to rectify and file their overdue documents between the period from January 1, 2018 to March 31, 2018.

 

The law, as it currently stands, provides for disqualification of a director on account of default by a company in filing an annual return or a financial statement for a continuous period of three years. In September 2017, the MCA identified 309,614 directors associated with companies which had failed to file annual returns and/or financial statements for three financial years (or more), and these identified directors were disqualified and were barred from accessing the online registry. In view of various representations received by the MCA from the industry including from defaulting companies and disqualified directors, the Scheme has been introduced to give an opportunity to such defaulting companies to rectify their defaults.

 

The Scheme allows defaulting companies to make good their defaults and file overdue documents (which were due for filing till June 30, 2017), upon payment of the applicable statutory fee and additional default fee, as prescribed. After filing all overdue documents, the defaulting companies are required to formally seek condonation of delay. The relevant Registrar of Companies will then withdraw prosecutions pending, if any, for documents which are filed under the Scheme. However, civil and criminal liabilities of the directors under Section 167(2) of the Companies Act, 2013 would continue.

 

The Scheme is applicable only for curing defaults made in filing of the following types of documents and not to cure defaults regarding any other types of documents: 

 

i. annual returns by a company having a share capital; 

ii. particulars of annual return for a company not having a share capital;

iii. balance sheets, financial statements and profit and loss account statements;

iv. compliance certificate in Form 66; and

v. form for intimation of appointment of auditors.

 

At the expiry of the Scheme period, the Director Identification Numbers (‘DINs’) of all directors, who are associated with defaulting companies who have not cured their defaults pursuant to the Scheme shall be deactivated and the relevant Registrar shall take necessary actions for prosecution.

 

The Scheme is not applicable to defaulting companies whose names have been struck off from the Register of Companies. Such companies would have to make applications to the National Company Law Tribunal (‘NCLT’) for revival, and only on such revival being allowed would the DINs of the relevant directors be reactivated.

 

For further information, please contact:

 

Zia Mody, Partner, AZB & Partners

zia.mody@azbpartners.com