Ministry of corporate affairs rolls out relief measures

0
302

The Ministry of Corporate Affairs (MCA) has sought to ease the compliance burden of companies and limited liability partnerships (LLPs) facing challenges posed by COVID-19, with general circular No 11, dated 24 March 2020, addressing and relaxing certain routine compliance rules and requirements under the Companies Act, 2013.

The key relaxations under the circular are as follows:

  • Relaxations for late filing. No additional fees shall be charged for any late filings during a moratorium period from 1 April 2020 to 30 September 2020, in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date.
  • This relaxation was provided for the purposes of enabling companies and LLPs to make a “fresh start”. A separate set of detailed circulars were issued, being the Companies Fresh Start Scheme 2020 (vide general circular No 12, dated 30 March 2020) and the modified LLP Settlement Scheme 2020 (vide general circular No 13, which modified general circular No 6).
  • Frequency of board meetings. Under section 173(1) of the act, companies are required to conduct a minimum of four meetings in a year, in such a manner that there is an interval of not more than 120 days between two consecutive board meetings. The circular provides that the gap between two consecutive board meetings may extend up to 180 days for the next two quarters, i.e., up to 30 September 2020.
  • Deferment of CARO. The application of Companies (Auditor’s Report) Order (CARO), dated 25 February 2020, has been deferred. As per the MCA order dated 24 March 2020, the applicability of the CARO has been deferred to commence from 1 April 2020, instead of 1 April 2019 as was originally intended.
  • Meeting of independent directors. As per paragraph Vll(1) of schedule lV to the act, independent directors are required to hold at least one meeting without the attendance of non-independent directors and members of management during a financial year. For the financial year 2019-20, if the independent directors of a company have not been able to hold such a meeting, the same shall not be viewed as a violation of the act by the MCA.
  • Creation of deposit repayment reserve. Under section 73(2)(c) of the act, a company accepting deposits from the public is required to create a deposit repayment reserve of not less than 20% of the amount of its deposits maturing during the following financial year, on or before the 13th day of April each year. Under the circular, the requirement for creating the deposit repayment reserve for deposits maturing in financial year 2020-21 has been extended to 30 June 2020.
  • Application of monies raised through debentures. Under rule 18 of the Share Capital and Debenture Rules, 2014, a company that has issued debentures is required to invest or deposit a sum of not less than 15% of the amount of debentures maturing during the year, in accordance with the methods provided within the said rules, by 30 April of each year. Under the circular, the date of complying with the above-mentioned rule has been extended to 30 June 2020.
  • Declaration of commencement of business. The requirement to file a declaration of commencement of business by newly incorporated companies within 180 days of incorporation (as per section 10A of the act) has been relaxed, and an additional period of 180 days has been granted.
  • Residency requirements relaxed. Under section 149(3) of the act, every company shall have at least one director who stays in India for a total period of not less than 182 days during the financial year. This requirement has been waived by the circular for the financial year of 2019-20, and shall not be treated as a violation.

The business law digest is compiled by Nishith Desai Associates, a research-based international law firm with offices in Mumbai, New Delhi, Bengaluru, Singapore, Silicon Valley, Munich and New York. The firm specializes in strategic legal, regulatory and tax advice coupled with industry expertise in an integrated manner.