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AN IMPORTANT TOOL FOR NON COMPLIANT COMPANIES - Company Law Settlement Scheme, 2014

In order to give an opportunity to the defaulted companies enabling them to make their default good by filing belated documents, the Central Government launched a scheme known as 'Company Law Settlement Scheme, 2014'.   

Ø  Section 92 of the Companies Act, 2013 requires a company to file annual returns. 

 Ø  Section 137 requires that a copy of the financial statements, including all the documents which are required to be or attached to such financial statements under the Act, duly adopted at the time of Annual General Meeting of the company, shall be filed with the registrar within 30 days of the date of annual general meeting in such manner, with such fees or additional fees as may be prescribed under Section 403.   Section 403(2) provides that where a company fails or commits any default to submit file, register or record of any document, fact or information before the expiry of the specified period the company and the officers of the company who are in default shall, without prejudice to the liability for payment of fee and additional fee, be liable for penalty or punishment provided for such failure of default.

 Ø  The above said documents are to be filed electronically on MCA 21.   The annual accounts of the companies are treated very important in context of up-to-date Registry.   The Ministry of Corporate Affairs observed a large percentage of companies have not filed their statutory documents making them liable for penalties and prosecution for non such compliance.  The present Companies Act lays down a stricter regime for the defaulting companies  with higher additional fees.

Ø  Section 451 of the Act provides that if a company or an officer of a company commits an offence punishable other with fine or with imprisonment and where the same offence is committed for the second or subsequent occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.

Ø  Further Section 164(2) provides that no person who is or has been a director of a company which-

·         has filed financial statements or annual returns for any continuous period of 3 financial years; or

·         has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continuous for  one year or more

shall be eligible to be re-appointed as a director of that company or appointed to other        company for a period of 5 years from the date on which the said company fails to do so.

Ø  This Company Law Settlement Scheme, 2014 will be in operation from 15.08.2014 to 15.10.2014.  This scheme gives to such companies-

·         immunity for prosecution; and

·         charging a reduced additional fee of 25% of the actual additional fees  payable under Section 403 of the Act read with Companies (Registration Office and Fees) Rules, 2014.

·         This scheme also gives an opportunity to inactive companies to get their companies declared as 'dormant company' as under Section 455 of the Act by filing a simple application at reduced fees.

 The details of this scheme are as detailed below:

  • A defaulted company is permitted to file belated documents which were due  for filing till 30th July, 2014;
  • The company is to pay statutory fee along with 25% of the actual additional fee;
  • If a defaulted company files any appeal against any notice issued  or complaint filed before the competent court for violation of the provisions in respect of which application is made under this scheme, the applicant before filing for issue of immunity certificate, shall withdraw the appeal and furnish proof for such withdrawal;
  • The relevant application form CLSS 2014 may be made electronically annexing the following documents- 
    • Proof of withdrawal of any appeal(s) against any notice issued or complaint filed before the competent court;
    • Details in respect of prosecution(s) pending against the company and its officers in respect of belated documents filed under the scheme which requires withdrawal by the Registrar;
    • Details of Director(s) declared as proclaimed offender or facing criminal case(s) for economic offences;
    • Optional document(s), if any

are taken on file, or on record or approved by the Registrar of Companies as the case may be. 

  • The designated authority shall consider the application and upon being satisfied shall grant the immunity certificate in respect of documents filed under this scheme;
  • After that the Registrar shall withdraw the prosecution (s) pending if any before the concerned Court (s).

This scheme is not applicable to the filing of belated documents other than the following-

  • Form – 20B – Form for filing annual return by a company having share capital;
  • Form – 21A -  Particulars of Annual return for the company not having share capital;
  • Form – 23AC, 23ACA, 23AC-XBRL and 23ACA – XBRL – Forms for filing balance sheet and profit and loss account;
  • Form 66 – Form for submission of Compliance Certificate with the Registrar;
  • Form 23B – Form for intimation of appointment of auditors.

This scheme shall not apply to the companies as detailed below:

  • Companies against which action for striking off the name under Section 560(5)  has already been initiated  by the Registrar of Companies; or
  • Where any application has been filed by the companies for action of striking off name from the Registrar of Companies; or
  • Where applications have been filed for obtaining dormant status  under Section 455 of the Act; or
  • To vanishing companies.

Disclaimer – The above is our interpretation/understating of the applicable sections/rules/notifications/circulars/provisions & regulation etc., the contrary view is welcome.