In view of the outbreak of novel COVID-19 / corona virus and in order to support and enable the companies and LLPs to focus on taking necessary measures to deal with this situation, including the economic disruptions caused by it, the Ministry of Corporate Affairs [MCA] has introduced a slew of measures with the objective to reduce the compliance burden and other risks for the companies and LLPs:
The significant measures are described here under:
I. Amendment in Companies (Meetings of Board and its Powers) Rules, 2014
Currently, as per the provisions of the Act, the Directors are allowed to participate in Board meetings either in person or through video conferencing or other audio visual means. However, for dealing with / approving certain matters, physical presence of at least such number of directors was mandatory, as required to meet the minimum quorum requirement prescribed under the Act.
In the above regard, considering the need to take precautionary steps to overcome the outbreak of the corona virus (Covid-19), the Ministry of Corporate Affairs has relaxed the requirement of holding Board meetings with physical presence of directors, as indicated above.
To give effect to this, the Ministry of Corporate Affairs, vide notification dated 19.03.2020, has notified the Companies (Meetings of Board and its Powers) Amendment Rules, 2020 [hereinafter referred to as “the amendment rules”], in order to amend the Companies (Meetings of Board and its Powers) Rules, 2014 [hereinafter referred to as “the rules”]. As per the amendment rules, a Board meeting in relation to those matters, for which physical presence of directors was required till now, can now be dealt with / approved by the Directors who are participating in the Board meeting through video conferencing or other audio visual means. Accordingly, in such cases, the company should comply with the procedures / requirements, as laid down in the Act for convening and conducting the Board meetings through video conferencing or other audio visual means. This relaxation is provided till 30th June 2020.
It may be noted that the matters which are prescribed for approval by physical presence of directors include inter-alia approval of the annual financial statements and Board’s Report and approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
II. Introduction of Companies Fresh Start Scheme 2020 [CFSS – 2020]
In order to provide a one-time opportunity to defaulting companies and to enable them to complete their pending compliances by filing belated forms / documents with the Registrar of Companies (ROC), including annual filings, without being subject to a higher additional fees on account of any delay, the MCA has introduced Companies Fresh Start Scheme 2020 [CFSS – 2020] (hereinafter referred to as “the Scheme”], vide Circular no. 12/2020 dated 30.03.2020. Under the Scheme, no additional fees shall be charged for belated filing in respect of any document, return, statement etc., with ROC, irrespective of its due date, which will not only reduce the compliance burden, including financial burden of companies/ LLPs at large, but also enable long-standing non compliant companies/ LLPs to make a fresh start. The filings can now be done only on payment of normal fees, as prescribed under the Act.
The Scheme is in force w.e.f.01st April 2020 and shall remain in force till 30th September 2020.
Further, the Scheme also provides immunity from launch of prosecution or proceedings for imposing penalty under the Act, on account of delayed filing of forms / returns, as filed under the Scheme. After closure of the Scheme, an online application in e-form CFSS-2020 shall be filed for seeking immunity with respect to belated filings made under the Scheme. The application shall be filed within 6 months of the closure of the Scheme. Upon such filing, an immunity certificate shall be issued by the designated authority.
After granting of immunity, the designated authority shall withdraw the prosecution pending, if any, before the concerned court, and the adjudication proceedings shall be deemed to have been completed.
It may be noted that no immunity has been granted from any other prosecution / proceeding in following cases:
involving interest of any shareholder or any other person related to the Company
prosecution which can be initiated for any delayed filings, not made under the Scheme
in the matter of any appeal pending before the court of law
in case of management disputes of the company pending before any court of law or tribunal
in case where any court has ordered any conviction in any matter, and no appeal has been preferred against such orders of the court, before the date of coming into force of this Scheme i.e. 01.04.2020
an order imposing penalty has been passed by an adjudicating authority under the Act, and no appeal has been preferred against such orders of the adjudicating authority, before the date of coming into force of this Scheme i.e. 01.04.2020 .
Further, if any defaulting company or its officer in default has already filed any appeal against any notice issued or complaint filed or an order passed by a court or by any adjudicating authority with respect to filings made under the Scheme, in that case, the defaulting Company is first required to withdraw that appeal and furnish the proof of such withdrawal before filing an application under this scheme for granting immunity.
Also those cases, where due to delayed filing, penalty has been imposed by an adjudicating authority, and no appeal has been filed by the company or its officer in default, as on the date of commencement of the Scheme, shall be dealt with in following manner:
(i) if the last date of filing the appeal against the order of adjudicating authority falls between March 01, 2020 to May 31, 2020 (both days included), then an additional period of 120 days shall be allowed with effect from such last date, for filing of an appeal before the concerned Regional Director;
(ii) during such additional period, prosecution proceedings shall not be initiated against the companies or their officers in default.
After the conclusion of the Scheme, the designated authority shall take action under the Act, against those companies, who have not availed this Scheme, and are in default of filing of prescribed forms / returns.
The other key highlights of the Scheme are as under:
(a) the Scheme shall not apply in following cases:
(i) companies against which action for final notice for striking off the name u/s 248 of the Act has already been initiated by the Designated Authority.
(ii) where an application has already been filed by the for action of striking off of the name of the Company from the register of companies
(iii) to companies which have amalgamated under a scheme of arrangement or compromise under the Act
(iv) where application has already been filed for obtaining Dormant Status under the Act, before the commencement of this Scheme
(v) to vanishing companies
(vi) forms / returns pertaining to Increase in Authorized Share Capital and charge related forms.
(b) The Scheme provides an opportunity to defaulting inactive companies to file due documents under the Scheme and simultaneously should apply for either:
(i) getting them declared as a Dormant company under the Act; or
(ii) apply for striking off the name of the company
(c) The scheme has also given an opportunity to those companies whose compliance status has been marked as “ACTIVE non-compliant” due to non-filing of Active Company Tagging Identities and Verification (e-form ACTIVE), to file ACTIVE form, without payment of any filing fees.
(d) Along with the companies, the scheme has also given an opportunity to those Directors / DIN holders whose status of DIN has been marked as ‘Deactivated’ due to non-filing of e-form DIR-3 KYC / DIR-3 KYC-Web, to file Form DIR-3 KYC without payment of any filing fees.
A similar scheme has also been introduced for Limited Liability Partnerships (LLPs).
III. Clarification on spending of CSR funds for COVID-19
Keeping in view that the spread of corona virus has been declared as pandemic by World Health Organization, and the decision of Govt. of India to treat this as a notified disaster, the MCA has clarified, vide Circular no. 10/2020 dated 23.03.2020, that spending of CSR funds for COVID-19 virus is an eligible CSR activity.
It may be noted that a list of CSR activities is laid down in Schedule VII of the Act. Accordingly, such spending of CSR funds by the companies towards COVID-19 will fall under the purview of following CSR activities as specified in Schedule VII:
Promotion of health care including preventive health care and sanitation
IV. Setting up of Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund)
On 28.03.2020, the Government of India has set up the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund’ (PM CARES Fund) with the primary objective of dealing with any kind of emergency or distress situation such as that posed by COVID 19 pandemic. One of the CSR activities as laid down in Schedule VII of the Act provides for contribution made towards any fund set up by the Central Govt. for socio economic development and relief. As the PM-CARES Fund has been set up to provide relief to those affected by any kind of emergency or distress situation, accordingly, any contribution made towards PM-CARES Fund shall qualify as CSR expenditure.
V. Extension of maximum time limit between two consecutive board meetings
Currently, as per the provisions of the Act, a maximum time gap between any two consecutive board meetings shall not exceed 120 days. Such period of 120 days has been further extended by a period of 60 days i.e. total 180 days, for the two quarters i.e. April – June 2020 and July – September 2020. Accordingly, as a one-time relaxation, the gap between two consecutive board meetings during these two quarters may extend to 180 days instead of 120 days.
VI. Postponement of applicable date of CARO 2020
The MCA, vide its earlier notification dated 25.02.2020, had notified Companies (Auditor's Report) Order, 2020, [CARO 2020] which would have applied to every audit report issued by the statutory auditor, for the F/Y commencing 01.04.2019 i.e. F/Y 2019-20. Now, vide MCA order dated 24.03.2020, the applicability of CARO 2020 stands postponed by one year and shall accordingly apply from F/Y commencing 01.04.2020 i.e. F/Y 2020-21.
VII. Resident Director
Currently, as per the provisions of the Act, every company shall have at least one director who has stayed in India for a total period of not less than 182 days during the financial year. However, for F/Y 2019-20, non compliance of minimum residency for at least 182 days by at least one director of the company, shall not be treated as a violation of the provisions of the Act.
VIII. Meeting of Independent Directors
As per Para Vll (1) of Schedule lV to the Act, lndependent Directors (lDs) are required to hold at least one meeting without the attendance of Non-independent directors and members of management. For the financial year 2019-20, if the lDs of a company have not been able to hold such a meeting, the same shall not be treated as a violation. The lDs, however, may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem it to be necessary.
IX. Deposit Repayment Reserve
Requirement under section 73(2)(c) of CA-13 to create the deposit repayment 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.
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.
XI. Declaration of 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. An additional period of 180 more days is allowed for this compliance.
XII. Introduction of new web based form named CAR
Since Companies/ Limited Liability Partnerships are major employers, their full participation and cooperation is most essential to fully realize the object of social distancing as a means to contain the spread, morbidity and mortality due to the disease. As part of disaster management to meet this urgent and severe health exigency, all companies/ LLPs have been advised to put in place an immediate plan to implement the “Work from home” policy as a temporary measure till 31st March, 2020, after which the position will be reviewed by the appropriate authorities as per the evolving situation. All companies /LLPs have been advised to implement the “Work from home” policy in their headquarters and field offices to the maximum extent possible, including by conduct of meetings through video conference or other electronic/ telephonic/ computerized means. Further, even with the essential staff on duty, staggered timings have to be followed so as to minimize physical interaction.
Further, in order to generate greater awareness and confidence on our state of readiness, the MCA has introduced web form named CAR (Company Affirmation of Readiness towards COVID-19) on 23rd March, 2020 to be filed by an authorized signatory/ Director of all companies (including foreign companies having place of business in India) and LLPs. The form requires companies/ LLPs to confirm compliance of COVID-19 guidelines including implementation of work from home policy.
For ease of filing, no payment is required to be made for filing. Further, any authorized signatory of the company/ LLP can file the form online and no DSC is required to be affixed. An OTP shall be sent for verification to the authorized signatory or director’s mobile number.
MCA has also clarified that this CAR form is a purely voluntary filing and hence non-filing of Form CAR-2020 will not attract any penalty or enforcement action.
XIII. Permission to companies to hold Extraordinary General Meetings (EGMs) through VC or OAVM
In furtherance of the Government’s objective of facilitating corporate compliances during the current lockdown period and other restrictions on account of COVID 19, the Ministry had issued a circular dated 8th April, 2020 allowing companies to hold Extraordinary General Meetings (EGMs) for the period upto 30th June, 2020, through Video Conferencing (VC) or Other Audio Visual Means (OAVM) complemented with e-Voting facility/simplified voting through registered emails, without requiring the shareholders to physically assemble at a common venue. The Companies Act, 2013 allows ordinary and special resolutions to be passed through postal ballot/e-voting route without holding a physical general meeting. However, in present lockdown/social distancing conditions due to COVID 19, postal ballot facility cannot be utilized by the companies.
Accordingly, the General Circular No. 14/2020 dated 08.04.2020 issued by the MCA allows listed companies or companies with 1,000 shareholders or more which are required to provide e-voting facility under the Companies Act, 2013 to conduct EGM through VC/ OAVM and e-Voting. For other companies, a mechanism for voting through registered emails has been put in place for easy compliance.
As the meetings will be conducted over VC/ OAVM, the facility for appointment of proxies has been dispensed with, while representatives of bodies corporate will continue to get appointed for participation in such meetings.
As an additional check, all companies using this option are required to maintain a recorded transcript of the entire proceedings in safe custody, and public companies are also required to host this transcript on their website for greater transparency. Further, all resolutions passed through this framework will be required to be filed with the Registrar of Companies within 60 days, so that such resolutions may be viewed publicly. Other safeguards have also been included in the Circular to ensure transparency, accountability and protection of interests of investors.
MCA has now vide its circular dated 15.06.2020, allowed companies to conduct their EGMs through VC or OAVM or transact items through postal ballot in accordance with the framework provided in the aforesaid Circulars upto 30th September, 2020.
XIV. Permission to hold Annual General Meetings (AGMs) through VC or OAVM
In view of the continuing restrictions on the movement of persons at several places in the country, MCA has decided vide its circular dated 05.05.2020 that the companies be allowed to conduct their AGM through video conferencing (VC) or other audio visual means (OAVM), during the calendar year 2020, subject to the fulfilment of certain requirements.
This facility is extended to companies which are required to provide the facility of e-voting under the Act, or any other company which has opted for such facility and also for companies which are not required to provide the facility of e-voting under the Act but which has in its records, the email addresses of at least half of its total number of members, who in case of companies having share capital, represent not less than seventy-five per cent, of such part of the paid-up share capital of the company as gives a right to vote at the meeting and in case of companies not having share capital, who have the right to exercise not less than seventy-five per cent of the total voting power exercisable at the meeting.
The framework, manner and mode of issuing notices as provided in EGM Circular shall be applicable mutatis mutandis for conducting the AGM.
In such meetings, other than ordinary business, only those items of special business, which are considered to be unavoidable by the Board, may be transacted.
In view of the prevailing situation, owing to the difficulties involved in dispatching of physical copies of the financial statements (including Board's report, Auditor's report or other documents required to be attached therewith), such statements shall be sent only by email to the members, trustees for the debenture-holder of any debentures issued by the company, and to all other persons so entitled.
The companies shall, however, ensure that all other compliances associated with the provisions relating to general meetings viz making of disclosures, inspection of related documents/registers by members, or authorizations for voting by bodies corporate, etc as provided in the Act and the articles of association of the company are made through electronic mode.