Companies Act relaxation on account of Covid-19
The Current Covid-19 pandemic has created challenges in complying with the Companies Act compliances by various companies. To reduce the compliance burden, the Ministry of Corporate Affairs (MCA) has provided various relaxations and measures. Some of the key relaxations given by the MCA are listed in this article.
1. MCA vide General Circular no. 11/2020 dated 24th March 2020
2. MCA “Companies Fresh Start Scheme, 2020” vide General Circular no. 12 /2020 dated 30th March 2020
3. Relaxation on passing of Ordinary and Special resolution
4. Relaxation on Holding of AGMs by companies whose financial year has ended on 31st December 2019
5. Relaxation on Investor Education and Protection Fund (IEPF)
6. Relaxation in filing fees of FORMS DIR-3KYC, DIR-3KYC-WEB and ACTIVE
7. Other Measures
Details of Relaxations in Compliances under Companies Act 2013 Due to COVID 19
1. MCA vide General Circular no. 11/2020 dated 24th March 2020 provided the following compliance relaxations:
i. Additional filing fees waived: No additional fees shall be charged for late filing during a moratorium period from 01sr April to 30th September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due dates.
ii. Extension of gap between two board meetings: Temporary relaxation in the time gap between two consecutive meetings of the Board may extend to 180 days till the next two quarters i.e. till 30th September 2020, instead of 120 days as required under section 173 of the Act;
iii. Extension of Companies (Auditor's Report) Order,2020 Applicability: The Companies (Auditor's Report) Order,2020 shall be made applicable from the financial year 2O2O-2O21 instead of being applicable from the financial year 2019-2020. This will significantly ease the burden on companies & their auditors for the financial year 2019-20.
iv. Meetings of Independent Directors: Independent Directors are required to hold at least one meeting without the attendance of Non-independent directors and members of management. However, for the year 2019-20, if the Independent Directors of a company have not been able to hold even one meeting, the same shall not be viewed as a violation.
v. Deposit Provisions: Requirement under section 73(2)(c) of the Act to create a Deposit reserve of 20% of deposits maturing during the financial year 2020-21 before 30th April 2020 shall be allowed to be complied with till 30th June 2020;
vi. Debentures Maturing on 31 March 2021: Requirement under rule 18 of the Companies (Share Capital & Debentures) Rules, 2014 to invest or deposit at least 15% of amount of debentures maturing in specified methods of investments or deposits before 30th April 2020, may be complied with till 30th June 2020.
vii. Extension of deadline for declaration for Commencement of Business: Newly incorporated companies are required to file a declaration for Commencement of Business within 180 days of incorporation under section 10A of the Act. However, an additional period of 180 more days has been allowed for this compliance;
viii. Residential status for Indian Resident Director: Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company as required under section 149 of the Act, shall not be treated as a non-compliance for the financial year 2019-20.
2. MCA “Companies Fresh Start Scheme, 2020” vide General Circular no. 12 /2020 dated 30th March 2020:
In order to provide the opportunity to the defaulting companies to make a fresh start by filing all the belated documents Scheme has been introduced namely the Companies Fresh Start Scheme, 2020 notifying in Vide Circular No. 12/2020 dated 30th March 2020 of Ministry of Corporate affairs.
The benefits of the scheme is Immunity from the launch of prosecution or proceedings for imposing penalty shall be provided only to the extent as specified in the scheme and a “one-time waiver of additional filing fees” for delayed filings by the companies with the Registrar of Companies during the period starting from 1st April, 2020 and ending on 30th September, 2020.
The scheme is effective from 1st April, 2020 to 30th September 2020.
Defaulting company may file its belated compliance with the MCA within a period of 6 months starting from 01.04.2020 to 30.09.2020 without payment of any additional fees
The Defaulting companies required to Pay Normal Fees as prescribed under Companies (Registration offices and Fee) Rules, 2014, there will be no additional fees payable on the date of filing of belated documents
3.Relaxation on passing of Ordinary and Special resolution
The Ministry of Corporate Affairs (MCA) has issued the Circular No.14/ 2020 dated 8th April, 2020 which provides the clarifications with relation to passing of Ordinary Resolution and Special Resolution by companies under the Companies Act, 2013 and rules made thereunder. Through such circular, the MCA has encouraged the companies to take all decisions of urgent nature which requires the approval of members, other than items of ordinary business or business where any person has a right to be heard, through the mechanism of postal ballot or e-voting in accordance with the provisions of the Companies Act, 2013 without holding a general meeting, which requires physical presence of members at a common venue.
The MCA in the General Circular No. 17/2020 dated 13th April 2020, has issued further clarification regarding:
Manner and mode of issue of notices to members before convening the general meeting;
Requirement for voting by show of hands;
Passing of certain items only through postal ballot without convening a general meeting; and
Sending of e-mails by members, where a poll on any item is required for companies.
4. Relaxation on Holding of AGMs by companies whose financial year has ended on 31st December 2019:
MCA has clarified vide its General Circular No. 18/2020 dated 21st April 2020 that if the companies whose financial year (other than first financial year) has ended on 31st December 2019, hold their AGM for such financial year within a period of nine months from the closure of the financial year (i.e. on or before 30th September 2020), the same shall not be considered as a violation.
MCA has issued circular on April 21, 2020 to give relaxation, that if the financial year of any Company ended on December 31, 2019 they can hold Annual General Meeting till September 30, 2020 instead of June 30, 2020.
5.Relaxation on Investor Education and Protection Fund (IEPF) :
As per General Circular No. 16/2020 dated 13th April 2020, it has been clarified that, the MCA has already allowed filing in MCA registry without additional fees till 30th September 2020. These relaxations apply to IEPF e-forms (IEPF-1, IEPF-1A, IEPF-2, IEPF-3, IEPF-4, IEPF-7) and e-verification of claims filed in e-form IEPF-5 as well.
6. Relaxation in filing fees of FORMS DIR-3KYC, DIR-3KYC-WEB and ACTIVE:
MCA has recently deployed in its ‘News & Important Updates’ section that the DIN holders marked as ‘Deactivated’ due to non-filing of form DIR-3KYC or DIR-3 KYC-Web and those companies whose compliance status has been marked as “ACTIVE non-compliant” due to non-filing of Active Company Tagging Identities and Verification(ACTIVE) e-form are encouraged to become compliant once again in pursuance of the General Circulars and file forms DIR-3KYC, DIR-3KYC-Web and ACTIVE as the case may be between 1st April 2020 to 30th September 2020 without any filing fee of INR 5000 or INR 10,000 respectively.
7. Other relaxations:
· Funds spent for various activities related to Covid-19 will get covered under CSR activity (General Circular No.10/2020).
MCA has provided a one-time opportunity to LLP’s as well to make good any filing related defaults. It was applicable only till 31st March, 2020. However, to extend the benefits, MCA has introduced revised scheme applicable from 1st April 2020 to 30th September 2020.As per the revised scheme no penalty and additional fees will be applicable for filing of pending annual returns and other applicable documents by defaulting LLP (General Circular No.13/2020).
AGM are allowed to be conducted through Video Conferencing or other audio visual means subject to certain procedures to be followed as mentioned in the circular (General Circular 20/2020).
Further, the companies which are unable to hold their AGM for the financial year ended on 31.03.2020, despite availing the relaxations provided in the above circular ought to file their applications in form No. GNL-1 for seeking extension of time in holding of AGM for the financial year ended on 31.03.2020 with the concerned Registrar of Companies on or before
29.09.2020 (General Circular 28/2020).
However, on 8th September 2020, the MCA issued fresh directions to all the ROC across the country to extend the time of holding AGM by companies without the filing of form GNL-1. As per the orders issued by respective ROCs the due date of holding of AGM for the financial year ended 31st March 2020 has now extended by 3 months i.e till 31st December 2020.
There is no extension of the time period for holding the first AGM of a company.
For rights issue opening up to 31st December 2020, in case of listed companies which comply with the SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/ 2020/78 dated 06th May 2020, inability to dispatch the notice to shareholders through registered post or speed post or courier would not be viewed as violation of section 62(2) of the Act (General Circular No 21/2020 and 27/2020).
These relaxations would avoid penalties on account of unavoidable delay in meeting their regulatory compliances and reduce the compliance burden of the various business entities.