Circumstances that Led to Strike-off:
1#: Political Agenda – Modi soon after occupying the office gave a clear message to the authorities is to take steps towards taming the ‘Demon’ of corruption, which was a poll promise of the PM.
2#: Financial Factors – The shadow economy was seen as an insurmountable hurdle in the way to economic progress. It was evident that until and unless this problem is tackled with iron fist policy there won’t be real progress.
3#: Public Pressure – The public expectations were very high and they were eagerly waiting for some substantial action.
4#: Global Image – The lax attitude of the previous govt. and numerous cases of corruption had driven the foreign investors from the Indian markets. Our global image had taken a beating.
Preparation for the Action:
As this was a mammoth task, the various wings under the guidance of Ministry of Corporate Affairs(MCA), started cooperating by sharing information and data of all companies.
The demonetization exposed many fraudulent companies which showed large amount of transactions, this gave a clue to Regulators to target them.
PMO formed a SIT to coordinate and guide all concerned wings.
Ambiguities and anomalies of 1956 Companies Act were removed and hence, the 2013 Companies Act became more comprehensive and gave clear guidance.
# The MCA till November 2017 struck off 2.24 lakh companies as defaulters.
# The Registrars of Companies(ROCs) took this step by exercising their rights under section 248 of the Companies Act.
# As a collateral damage, 3.09 lakh Directors Din were deregistered for 5 years, for being associated with such companies.
# As a cascading effect many companies were jolted as their directors had lost their DINs, causing them worries.
The Consequential Effect:
Effect 1#: The companies could not carry on with their business from the day of the publication of the Notice.
Effect 2#: The disqualified Directors were barred for 5 years.
Effect 3#: They were removed from the Board of other companies even if those companies were legitimate and active.
Effect 4#: They could not work in any other company.
Effect 5#: All bank accounts were frozen compounding the problems of the company and its directors.
Effect 6#: Penalties and fines were imposed as per the law.
Effect 7#: Penalties and fines were imposed as per the provisions of the Law.
The Industry was sitting on a ticking time-bomb which exploded in the form of ‘Mass Strike off’. The govt. has conveyed its intent in a strong way.
Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd)
Revival & Restoration Options:
1#: Appeal to the Tribunal Under Section 252(3) –
An aggrieved company or its member or creditor or workman can appeal to the Tribunal by the way of filing an application within twenty years of the name being struck off.
The Tribunal has the power to restore the Company and its Directors if it’s satisfied by the explanation and evidence.
2#: Appeal to the National Companies Law Tribunal Under Rule 87(A) (Amendment) 2017 –
An application can be filed by the affected company or its members or workmen with the NCLT within three years of publication of notice. Due documents have to be submitted, affidavit verified and stipulated fee paid.
The Tribunal will then hear the case as per the specified Act. At the end, if the Tribunal is satisfied by the documents and evidence, it will revive the company.
3#: File Writ Petition:
Aggrieved parties can take a legal recourse and file a writ petition in the concerned courts.
4#: Apply for Condonation of Delay Scheme, 2018: Relenting to the request of all stakeholders, the govt has opened a widow for fast redressal.
Understanding CODS Step by Step:
The Condonation of Delay Scheme, 2018, provides a one-time settlement to the defaulters if they comply by all the requirements. This was introduced via a General Circular 16/2017, Dated: 29.12.2017.
1#: Action Explained
Condonation of Delay Scheme, 2018. This provides a one-time settlement to the defaulters if they comply by all the requirements.
In a detailed circular of 915 words, the MCA has explained the need to introduce this scheme even when other measures were already in place.
The MCA has mentioned that all companies registered under the Companies Act, 2013/1956 are required to file their Annual Returns and Financial Statements with the Registrar of Companies.
Sections 164(2) and 167(1), under which provisions were made with effect from 01.04.2014, the non-compliance would lead to removal of a company and disqualification of a Director, if the company has not submitted the same for 3 years consequently.
It goes on to explain that Rule 14 of the Companies Rules clearly states that every Director needs to inform the concerned company of his disqualification under section 164(2) in the form DIR-8.
The MCA had provided an opportunity to defaulting companies under the scheme Company Law Settlement Scheme, 2014, to rectify their faults.
Yet there were many companies which did not comply and therefore 2,24,000 companies and 3,09,614 Directors were barred under section 164(2) and 167(1) of the Act.
The Annual Returns and financial statements from 2013-2016 were not filed on the MCA21 online portal.
2#: Why CODS was Introduced?
Although the MCA had taken action as per the provisions of the Companies Act yet there was a big uproar over the ‘Mass-disqualification’ of Directors.
The Industry, the defaulters and the affected people appealed fervently to the govt. to find a solution for fast redressal.
Some of the defaulters filed writ petitions begging instant relief.
Exercising its powers granted under sections 403,459 and 460, the Central Govt. took the step to introduce the COD Scheme, 2018.
The main aim of the Govt. was to provide an opportunity to the defaulters to rectify their mistake.
3#: Validity Of the Scheme:
The scheme duration mentioned is 01.01.2018-31.03.2018, later it was extended to 01.05.2018
4#: Definitions Used in the Circular:
‘Act’ means the Companies Act, 2013/1956
‘Overdue’ documents refer to Financial Statements and Annual Returns of the defaulter company.
‘Company’ refers to company as defined in clause20 of section2 of the Companies Act,2013.
‘Defaulting Company’ means a company which has not filed its Annual Returns or Financial Statements.
‘Designated Authority’ refers to the Registrar of Companies.
All defaulting companies except those which have been removed under section 248(5) of the Act, are eligible.
The DINs of the defaulting Directors will be reactivated temporarily so that they could file the overdue documents.
The defaulter company will have to pay the filing fee and the additional fee applicable under section 403 of the Companies Act.
After filing the documents can seek condonation of delay by filing e-CODS, 2018 and pay a fee of 30,000 rupees prescribed under the Companies Rule, 2014.
Forms to be duly filled:
Form No. 208/MGT-7
Form No. 21A/MGT-7
Form No. 23
Form No. 66
Form No. 23B
The DINs of the Directors of the defaulting companies that have not done the needful and their record does not exist on MCA21 portal and if they are found disqualified at the conclusion of the scheme, then they will be deactivated once again on the expiry of the scheme.
Those companies which have been removed under section 248 and have applied for revival under section 252 of the Act, the Directors’ DIN shall be reactivated only after NCLT order of revival.
Those companies which have not availed this scheme, the Registrar would take action in accordance with the Act.
7#: General Circular, 05/2018, Dated: 17.05.2018, Clarifications:
- The subject of this circular is Clarification as the MCA has tried to bring clarity on all ambiguities through this Circular.
- The Circular in the beginning states that the Ministry had received numerous doubts about the filing of e-CODS in cases where they have filed a plea under section 252 under Companies Act, 2013, to NCLT.
- They wanted clarity if they were eligible to file CODS after 01.05.2018.
- As a clarification, the Circular quotes para 4 (V) of the General Circular No. 16/2017, stating that such DINs can be reactivated only after the NCLT’s order of revival.
- It also directed that the Registrars of Companies can raise a ticket through Change Requirement Form (CRF) on the MCA portal.
They can then reactivate the DINs of affected Directors.
- However, these Directors should not be linked to any other company which has been struck off under section 248(1). This the RoCs can cross check before raising CRF.
- The ROCs were further instructed to be extra vigilant and cautious while dealing with such cases.
The Condonation of Delay Scheme is a well-thought out scheme which provides a golden opportunity to the defaulting companies to rectify their mistakes and come out clean.
Isha Malik (Company Secretary, MUDS Management Pvt Ltd)
CODS is the Simplest Way to Revive/Restore
It’s one-time settlement process; saves time and money.
It is a big relief to the Directors as their DIN is restored immediately, although temporarily.
It gives the genuine businesses a respite as they can rectify their mistake.
The provisions under this scheme are straight and simple.
Learning from the Episode:
1#: A warning bell has been rung for everyone to become cautious.
2#: Govt. is all out to penalize the defaulters.
3#: Companies need to follow the rulebook completely.
4#: Ethical and fair practice will keep them safe.
5#: Account books should be in proper order with full transparency.
6#: Checks and balances should be in place to deal with any wrong doing at the initial phase.
7#: Directors have to work with full accountability.
A PEEP INTO THE FUTURE:
Looking at the sequence of events the govt. and its agencies will continue to pursue the defaulters. Unearthing black money, fraudulent transactions, money- laundering, hoarding, etc. will be govt’s priority as we are progressing towards general elections in 2019.
The STF, NFRA, SEBI, IT, ED, SFIO – all such agencies are already working towards identifying the wrongdoers.
Early Warning System is being installed which will identify and report erring companies and individuals.
To deal with the problem of ‘Dummy Directors’ the MCA proposes to seed DIN with PAN and Aadhar.
To Do List for the Companies:
The companies should tighten their belts – transparency, compliance, due-diligence – all things should be the first priority.
- Directors should be well aware of their responsibilities as a custodian and guardian.
- Directors should be conversant with the laws, rules and amendments as per the Companies Law.
- Self-regulation is the demand of the hour which will save them from falling into trouble.
- Checks and balances should be in place so as to red-flag any irregularity.
- The Govt. should continue this fight with the same vigour.
- The common man should be convinced of ‘ease of doing business’.
- Level playing field and equal opportunities to all should be provided.
- Fast-track judgement of corruption cases.
- India should be able to match pace with other developed countries.
The combination of human intelligence paired with the advanced technological achievements, strengthens and helps in making any system foolproof. The Indian Govt. is trying its best to achieve the highest level of proficiency.
The economy is on the right track and the predicted GDP growth is positively poised. The confidence of Indians and foreigners is gradually returning in our markets.
In the present scenario the companies need to leave behind their manipulative ways and come out clean. Ethical, self-regulated, compliant companies will see a healthy growth.
The image of the country has improved by the present initiatives of the Govt. Going at the same momentum, we will certainly be recognized as an economic power in the coming years.
The best and fastest way, without wasting too much time and money, is to apply for CODS, 2018. If all overdue filing is done judiciously, then the companies will be revived by the Registrar.
Lack of understanding of intricacies of the Companies Laws has resulted in so many companies falling victim to the regulators. Therefore, it’s essential to consult and act accordingly.
Shweta Gupta (Founder and CEO, MUDS)
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