RELIEFS IN PROVISIONS OF THE COMPANIES ACT IN LIGHT OF COVID-19
Updated: Jul 29, 2020
[Authored by Sharanya Gupta, a 3rd year B.B.A. LL.B. (Hons.) student at Vivekananda Institute of Professional Studies.]
The pandemic situation of COVID-19 is turning out to be a strong, testing time that has hit almost every sphere of our lives. From economic and business disruptions to obstacles in complying with regulatory plus statutory legislations in place such as those of The Companies Act 2013,companies and businesses have especially been bearing the brunt of the restrictions that have been imposed such as the unprecedented nationwide Lockdown. In light of this, the executive has taken notice of the plea of companies and several measures are being taken to offer a sigh of relief to companies.
The Hon'ble Finance Minister, Ms. Nirmala Sitharaman on the afternoon of 24 March 2020 announced a slew of fiscal and monetary stimulus measures. Continuing the theme of the Finance Minister, the Ministry of Corporate Affairs (MCA) in the evening of 24 March 2020 granted further relaxations from few statutory compliances under the Companies Act, 2013 to companies and Limited Liability Partnerships (LLP) vide a circular bearing no. 11/2020. These new relaxations are in addition to earlier relaxations granted by MCA on 19 March 2020.
The main issues which have been covered under the said circulars are-
1. Relaxation of the requirement for holding board meetings with physical presence of directors for approvals of restricted matters- As per MCA’s notification dated 19-03-2020, the Companies (Meetings of Boards and its Powers) Amendment Rules 2020 has been introduced whereby the requirement for holding board meetings with physical presence of directors for approval of restricted matters. For example matters related to amalgamation, mergers, acquisition, approval of prospectus/financial statements/board’s report and their likes has been relaxed. Now instead, companies may hold such meetings via video conferencing, other audio plus visual means in compliance with the aforementioned rules which will be valid from 19th March to 30th June 2020 which will prevent the otherwise smooth schedule of board meetings being hampered with.
2. Extension of the Interval Between Two Board Meetings- Originally as per the Companies Act 2013, a company is stipulated to hold a minimum of 4 board meetings in a year with the gap between 2 board meetings being a maximum of 120 days. However, in the wake of the current situation, the MCA extended this interval by 60 days making the permissible interval limit 180 days. This is a one-time relaxation which will continue till 30th September 2020. The main intention behind this is to encourage adherence to the social distancing protocol that has been mandated and suggested in dealing with the pandemic.
3. Meetings of Independent Directors- The Companies Act 2013 requires the independent directors (ID) of a company to hold a minimum of one meeting in a financial year sans the presence of non-independent directors and management members. Usually this meeting is held at the end of the year because most of the matters to discuss are related to the performance reviews of the non-independent managers, review of the Chairperson’s performance, assess the various aspects of the flow of information among management, etc. It is understood that the ID’s may not have sufficient time and resources to gather the required data and convene such a meeting, that’s why MCA has held that inability to convene this meeting will for this period not be considered as non-compliance of the statutory provisions. Furthermore, the ID’s have been encouraged to feel free to interact with each other about the relevant matters via other forms such as video conferencing, telephonic conversations, E-mails and more.The meeting itself can be held in the form of a video conference as this leniency is being interpreted as cutting slack with respect to the time period where the meeting is now allowed to be held even after the financial year has ended(as Lockdown was imposed and extended further till 31st of March making is not possible for the traditional meeting to take place). The requirement of the meeting in itself has not been waived off, the postponement has been allowed.
DELAY OF FINANCIAL YEAR-END AUDITS
1. Auditor’s Report Submission- The Companies (Auditor’s Report) Order 2016 had been replaced by The Companies (Auditor’s Report) Order 2020 in February of this year which brought in a new format of the report which is regarding the statutory audits of a company. It was supposed to be applied for the year 2019-2020 however, MCA has pushed its applicability now to the financial year of 2020-2021 as a way of reducing the burden on a company and its solicitors to deal with over 25 additional checks that were mandated in CARO 2020. Some noteworthy differences between CARO 2016 and CARO 2020 are that CARO 2020 (unlike CARO 2016) inserts new things to be included in the Auditor’s report such as-proper records showing full particulars of intangible assets, revaluations and its methods plus variations are to be analysed, adding GST under section 3 (vii) related to statutory dues among more changes/modifications.
2. Filing- Further extending a helping hand to law-abiding companies, Vide General Circular No. 12/2020 dated 30th March, MCA has introduced the Companies Fresh Start Scheme. It is a unique and unprecedented opportunity made available for companies to make good for any default in filing related matters. This would give them a chance to start afresh as a fully compliant company not keeping a limitation to the duration of default as prescribed in section 403 of the Companies Act 2013. This acts as a single time waiver for any fees that would have been due for the reason of delay in additional filings with the MCA for the period of 1st April 2020 to 20th September 2020. Within its ambit, even presently defaulting corporations can avail the benefits offered.
3. Reducing the Financial Burden- The above mentioned Scheme also gives longer timelines for corporates to keep up with the filing requirements mandated in the Companies Act by which the financial burden of hefty fees, imposition of penalties has been eased. A moratorium period has been announced from 1st April to 30th September 2020 on levying any late or additional fees with respect to filings of statements, reports, returns, other necessary documents, etc. The benefits of this moratorium extend to not just the given period but also take under its purview the filings which were due even prior to it. It is pertinent to note that these immunities are only against delayed filings with the MCA and no relief against any other substantive violation of law.
1. As per the provisions of the Act, newly incorporated companies are mandated to file a declaration of commencement of business within 180 days of incorporation. This time limit has now been extended by another 180 days for compliance.
2. Non-compliance of the requirement of minimum period of 182 days of residency in India for at least one director of every company as per the provisions of section 49 of the Act will not be considered as a violation for the current (2019-2020) financial year.
3. As far as deposit reserves are concerned, the Act requires corporations to create a deposit reserve consisting of 20 percent of the deposits maturing during the financial year of 2020-21 before the 30th April has been made lenient for the meantime and can now be complied with, by 30th June.
4. The requirement under the Share Capital and Debenture Rules regarding investment of 15 percent of debentures maturing in a given year in specified instruments before 30th March has also been allowed to be fulfilled by an extended date of 30th June.
The government and the community have to step up as a team to help our nation pull itself out of the uncertain conditions that have come up. These multiple and widespread relaxation on the timelines, compliances and more are thus welcome moves as the MCA is undertaking rampant initiatives and taking cognizance of the representations received for relaxations from some provisions of the Act. They have offered companies a much-needed flexibility in this turbulent period and also strive to ensure good handling of the liquidity, compliance crisis arising from this unprecedented situation. Especially, the waiver of additional fees will help long-standing non-compliant companies and LLPs to make a fresh start.
These steps, grants seem well-considered and planned and can be believed to ease the burden on the management of companies and LLPs for the coming few months.
[1 ]Section 173, The Companies Act 2013.  Clause VII of Schedule IV, The Companies Act 2013.  General Circular No. 12/2020 dated 30th March (Ministry of Corporate Affairs, India).  Supra note 1, Section 137.  Form 20A as per the Companies (Amendment) Ordinance 2018.  Supra note 1, Section 149 (3).  Supra note 1, Section 73 (2) (c).  Rule 18 of Companies (Share Capital and Debentures) Rules, 2014