In light of the spread of COVID-19 and lockdown being declared by the government (now extended till May 03, 2020), there were several industry wise clarifications and notifications which have been issued by various ministries of the Government of India. In furtherance to the industry wise update by the specific ministries, Ministry of Corporate Affairs (“MCA”) has come up with several relaxations for Companies and LLPs, in respect of several compliances required under law.
Special measures under the Companies Act, 2013 And Limited Liability Partnership Act, 2008 (General Circular No. 11/2020 dated March 24, 2020)
MCA vide General Circular no. 11/2020 dated March 24, 2020 has granted several relaxations to Companies and LLPs registered under the Companies Act, 2013 (“Companies Act”) and Limited Liability Partnership Act, 2008 (“LLP Act”). The relaxations under the circular are as under:
1. The MCA has declared the period commencing from April 1, 2020 to September 30, 2020 as a moratorium period (“Moratorium Period”). Companies are not liable to pay any additional fees for late filings during such Moratorium Period.
2. The mandatory requirement of holding meetings of the Board of the Companies within the intervals provided in Section 173 of the Companies Act (120 days) stands extended by a period of 60 days till next two quarters i.e., till September 30, 2020.
3. The Companies (Auditor's Report) Order, 2020 shall be made applicable from the financial year 2020-21 instead of being applicable from the financial year 2019-2020.
4. Independent directors may share their views amongst themselves through telephone or e-mail or any other mode of communication, if the independent director(s) are unable to conduct the meeting mandatory under the Companies Act.
5. Requirement of the creation of deposit repayment reserve of 20% of deposits maturing during the financial year 2020-21 before April 30, 2020 shall be allowed to be complied with till June 30, 2020.
6. The time for compliance with Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014, which requires certain Companies to invest or deposit at least 15% of amount of debentures maturing in specified methods of investments or deposits before April 30, 2020, has been extended till June 30, 2020.
7. Newly Incorporated Companies are required to file a declaration for commencement of business within 180 days. The time period has been extended by an another 180 days.
8. Non – compliance of requirement of minimum residential period of at least 182 days for at least one director of the company would not be applicable to FY 2019-20.
Conducting meetings by way of video conferencing or other audio-visual means
1. The MCA has amended the Companies (Meetings of Board and its Powers) Rules, 2014 (“Rules”) vide notification dated March 19, 2020, i.e. Companies (Meetings of Board and its Powers) Amendment Rules, 2020. The amendment relaxes the requirement of physical meetings and allows the Companies to conduct board meetings through video conferencing or other audio-visual means, for purposes where physical meeting was mandatory, till June 30, 2020. The remaining provisions of the Rules continue to be applicable on all Companies. The relaxation is applicable for –
a) the approval of annual financial statements;
b) the approval of the Board’s report;
c) the approval of the prospectus;
d) the Audit Committee Meetings for consideration of accounts; and
e) the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
2. MCA relaxed the conditions of conducting extra-ordinary general meetings (“EGM”) vide General Circular 14/2020 dated April 08, 2020 stating that conduct of EGM would be allowed through video conferencing or other audio-visual means as per the terms mentioned in the circular. The circular further provides for the procedure to be followed while organizing meetings through e-voting.
Corporate Social Responsibility (CSR)
Considering the contributions by the Companies for COVID-19, there are several circulars and notifications by the MCA in respect of CSR. MCA vide its General Circular 10/2020 dated March 23, 2020, stated that spending the CSR funds for COVID-19 is a CSR activity. Funds spent for the purposes of eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swatch Bharat Kosh set up by the Central Government for promotion of sanitation and making available safe drinking water and funds spent on disaster management, including relief, rehabilitation and reconstruction activities, would be considered as CSR activities.
In addition to the Circular dated March 23, 2020, MCA issued a General Circular 15/2020 dated April 10, 2020, ‘Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR)- clarifications on CSR activities and eligibility of CSR expenditure’. MCA vide this circular cleared the ambiguity in respect of the CSR activity and CSR expenditure. It stated the following:
1. Contribution made to PM Cares Fund shall qualify as CSR expenditure.
2. Contribution made to ‘Chief Minister’s Relief Funds’ or ‘State Relief Fund for COVID-19’ shall not qualify as admissible CSR expenditure.
3. Contribution made to State Disaster Management Authority to combat Covid19 shall qualify as CSR expenditure.
4. Payment of salary/wages to employees and workers (including contract labour), and casual workers/daily wage workers during the lockdown period shall not qualify as admissible CSR expenditure.
5. If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as a onetime exception provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.
Fresh Start Scheme, 2020
In order to reduce the compliance burden further, MCA vide its General Circular 12/2020 dated March 30 ,2020 came up with the Companies Fresh Start Scheme, 2020 (“Scheme”). The Scheme is valid from April 1, 2020 to September 30, 2020. According to this Scheme, there is an opportunity for the defaulting Companies enabling them to file belated documents with the MCA and such delay will be condoned. Additional fees will not be charged for late filing. In addition to this relaxation, the key features of the Scheme include provisions pertaining to immunity from penal proceedings including imposition of penalties. The Scheme is not applicable to:
1. Companies against which action for final notice for striking off the name under Section 248 of Companies Act has already been initiated.
2. Companies which have already filed an application for action of striking off from the Registrar of Companies.
3. Companies which have amalgamated under a scheme of arrangement or compromise.
4. Companies which have already filed application for obtaining dormant status.
5. Where there is increase in authorized capital involved and also charge related documents.
Conclusion
The measures taken by MCA have been a positive approach in reducing the burden on entities. Considering that the time period of lockdown has been extended, it is possible that further circulars/notifications are issued during lockdown as well as post-lockdown.
Kindly treat this as an information update and the same shall not constitute as an advisory by the firm.
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