Condonation of Delay Scheme, 2018 – Who are the real beneficiaries?

Even before the calendar year 2017 is over, the Ministry of Corporate Affairs has issued a Scheme for 2018 – Condonation of Delay Scheme, 2018 – ‘CODS, 2018’. The Scheme has been introduced by issuing a Circular (No. 16 / 2017 dated Dec. 29, 2017). This article is an attempt to analyze the Scheme and its beneficiaries.

Background: In September 2017, the Ministry indentified 3,09,614 directors associated with the companies, wherein the companies defaulted in filing of Annual Accounts or Annual Returns for a continuous period of 3 Financial Years [2013-2014 to 2015-2016]. Further, these directors were also barred from filing e-Forms for the other companies in which they were directors. Several Writs were filed before High Courts by the aggrieved parties i.e. the directors, seeking relief from the disqualification. Based on the representations made by the industrial bodies, defaulting companies and directors, the Ministry has introduced the Scheme – CODS, 2018.

Following are some highlights of CODS, 2018:

Which Companies can file documents under CODS, 2018?

• Only defaulting Companies which have not been deregistered i.e. removed from Register of Companies by the Registrar of Cos,
• Such defaulting Company can file Annual Accounts or Annual Return which are overdue for filing till June 30, 2017.

Interestingly, the number of companies i.e. ‘Defaulted Companies’ but not ‘Deregistered Companies’ are very few. Also the rationale of the cut-off date (June 30, 2017) is not very clear.

Which Companies cannot file under CODS, 2018?: Companies which have been de-registered / removed from Register of Companies by the Registrar of Companies,

What is the procedure for filing under CODS, 2018?

• Deactivated DINs of defaulting directors will be activated for a temporary purpose only,
• Defaulting Companies shall complete pending filing by payment of additional fees, as prescribed,
• Defaulting Companies shall file an eForm ‘e-CODS’ along with a fees of Rs. 30,000/-. This fee is in addition to the statutory fees paid to the Ministry of Corporate Affairs for filing of the pending annual filing eForms.
• If Defaulting Companies does not file the requisite documents / e-Forms, the DIN of the directors will be deactivated,
• Where a Company has been restored after an application to NCLT, the DIN of such directors would be re-activated, subject to company filing all overdue documents.

Which eForms can be filed with activated DIN? Only the annual filing eForms and eForm for reporting the appointment of Auditors can be filed under the scheme i.e. e-Form relating to filing of Annual Return, Annual Accounts / Financial Statements, Submission of Compliance Certificate, Appointment of Auditors.

Liability & Prosecution: As per the Scheme, the Registrar of Companies shall withdraw the prosecution(s) pending, if any, before the concerned Court(s) for all documents filed under the Scheme. This Scheme is without prejudice to action u/s 167(2) of the Act, Civil and Criminal Liabilities, if any, of such disqualified directors during the period remain disqualified. The Registrar of Companies may take necessary actions against the defaulting Companies which have not availed the Scheme and continue to default in filing documents;

Key Features of eForm CODS, 2018: Following are the key features of the e-Form:

• Disclosure about whether any appeal was filed against any notice issued or complaint filed before competent Court for violating provisions of Act,
• Disclosure about prosecution pending before Court against the Company and its officers in respect of belated documents,
• Disclosure & details about any director who is declared as proclaimed offender or facing criminal case(s) for economic offences,
• Declaration that Company has withdrawn appeal(s)/writ(s) pending before Court,
• No certification for eForm e-CODS.

As discussed earlier, the Scheme is available for only defaulting companies, which have not been de-registered by the Government. At ground level, such class of companies would be 5 out 100 companies, as others have been de-registered by the Government. Interestingly, the Circular / Scheme does not mention anything about the removal of disqualification, if any company entirely complies with the Scheme. Maybe, the clarification on the same would be issued on. From the Ministry’s point of view, allowing de-registered companies to complete annual filing is also not appropriate, as a de-registered company ought to be revived first (based on the direction of the Tribunal).

Gaurav N. Pingle is a Practising Company Secretary from Pune. He handles various assignments of Secretarial Audits, Due Diligence, Quarterly compliance audit of listed companies, routine compliance (under Companies Act & FEMA) for private companies, wholly owned subsidiaries, joint venture companies.