UNDERSTANDING THE BACKDROP OF AMNESTY SCHEME FOR DISQUALIFIED DIRECTORS:
After demonetization a huge number of companies were struck-off in 2017. This was a move to regulate this sector. Some of the companies were fraudulent, others lacked compliance and transparency. The newly implemented Companies Act,2013 roped in all private companies & this resulted in a major action by MCA. More than 2.4 lakh companies along with 3.1 lakh Company Directors were disqualified.
Every action has an equal & opposite reaction- the action was just but the industry thought it was way too stern, it saw a massive rise in number of appeals, applications & petitions.
The govt. taking cognizance of the grievances opened a window- Condonation Of Delay Scheme in the beginning of 2018. This helped in pacifying the rough feathers a little yet there were too many who went for legal recourse. As the offences of the aggrieved was mostly due to ignorance or oversight, the pressure to look for a simple solution was there on the govt.
GOOD NEWS FOR MANY:
The Economic Times dated 04 August, 2018, has published an article, ‘Govt mulls one-time settlement for minor, non-serious company law offences to help NCLT’ bringing cheer to those companies and directors who have been struck off due to non-compliance or others impacted adversely due to minor offences under Companies Act, 2013.
LET’S UNDERSTAND WHAT SHALL BE PROPOSED IN THE AMNESTY SCHEME:
#1: The govt. is looking to de-clog National Company Law Tribunal (NCLT) & Special Courts.
#2: The govt. has formed a 14-member committee to formalize decriminalization of minor offences under the Companies Act.
#3: It is likely that the cases which shall be withdrawn will fall under 16 categories of non-serious & minor offences that carry provision of both fines & penal punishments.
#4: This category shall include offences like –
- Delay in filing resolutions
- Non-compliance of Financial Statements & Annual Returns
- Violation related to Director’s DIN
- Matters relating to remunerations
- Delay in disclosing about changes in share capital
#5: The govt. may soon come out with a one-time settlement scheme which shall witness withdrawal of 60%/approximately 22,000 ongoing cases.
ANALYSIS #1: WHY IS AMNESTY SCHEME BEING PROPOSED?
#1: By minimizing the cases the govt. shall provide opportunity to NCLT & Special Courts by lessening their load so that they shall be able to expedite more serious cases like insolvency.
#2: Re-working on the various provisions by the 14-member committee shall lead to liberalization of the Act & consequently lesser cases.
#3: This action shall provide relief to aggrieved companies who are already facing penalization due to procedural lapses/non-compliance.
#4: The disqualified directors under section 164(2) of the Companies Act, 2013 shall get much needed reprieve.
ANALYSIS #2: WHAT GOVT. SHALL PROPOSE AS THE FUTURE ACTION:
#1: To deal with the 16 categories of minor violations the govt. proposes to introduce an in-house e-platform which shall deal with them.
#2: The e-platform shall be part of the Ministry of Corporate Affairs e-governance initiative, MCA-21.
#3: This shall also ensure greater transparency as notices, penalties, compliances, replies, all shall take place through this window.
#4: As most of such offences are either procedural violations or lapses in governance, they shall get a smooth & fast redressal system.
#4: The disposal of such cases shall be faster & smoother.
#5: The proposed Amnesty Scheme shall ensure that minor cases do not go to NCLT or Special Courts.
#6: If & when the Scheme shall come in existence it shall be the biggest law settlement scheme.
ANALYSIS #3: EXCEPTIONS TO THE SCHEME:
Serious violations such as fraud or factors adversely impacting public interest are unlikely to be dealt under this scheme. No dilution of criminalization shall take place for those who have committed major offences.
The concept of this Amnesty Scheme is based on improving the judicial infrastructure by providing a window for redressal of minor offences.
Isha Malik (Company Secretary, MUDS Management Pvt Ltd)
ANALYSIS #4: WHO SHALL BENEFIT FROM THIS AMNESTY SCHEME?
#1: THE COMPANIES STRUCK-OFF DUE TO NON-COMPLIANCE U/S 248(1) OF THE COMPANIES ACT:
Under section 248(1) of the Companies Act, 2013, the Registrar of Companies has the power to remove the name of the company from the Register of Companies if it has failed to file the Financial Statements and/or Annual Returns for consecutive three years. In 2017, nearly 2.4 lakh Companies were struck-off by the Registrar of Companies for non-compliance.
The companies were de-registered with immediate effect, all bank accounts frozen, all directors disqualified for five years- leaving them in a lurch.
Such Companies shall get reprieve under the Amnesty Scheme as they had erred in financial compliance due to procedural lapse or ignorance.
#2: THE DIRECTORS FACING DISQUALIFICATION U/S 164(2) OF THE COMPANIES ACT, 2013:
Under Section 164(2) of the Companies Act, 2013 any person who is a director shall cease to be so if –
- The company has not filed the Financial Statements and/or Annual Returns for three years continuously
- The company has failed to give back the deposits, not paid the interests on it or any such violation for one year
- The directors shall be disqualified for 5 years from the date of the strike off of the said company. The directors shall not be eligible to continue in any other company even if they are scrupulous.
- As the companies were struck off their directors faced automatic disqualification for next five years. Worst still they were barred from working in any other company. The Directors’ Identification Numbers were deactivated impacting nearly 3.2 lakh directors.
ANALYSIS #5: IMPLEMENTATION OF COMPANIES ACT, 2013 & ITS COMPLICATIONS:
The implementation of Companies Act, 2013 brought about massive implications in comparison to the previous Companies Act of 1956. The private companies were out of the ambit of these sections but after the implementation of Companies Act, 2013 from 01.04.2014 all private companies are covered now.
The strike off of companies & the disqualification of the directors opened a can of worms. The action is seen to be as retrospective but Ministry of Corporate Affairs has confirmed it to be prospective. The ambiguity or lack of clarity led to a spate of appeals in The Tribunal, NCLT and Writ Petitions in Courts all over the country.
In a recent judgement passed by Honorable Justice T Raja of Madras High Court on 03.08.2018 quashed the disqualification of thousands of directors by the ROC.
The Honorable judge opined that the non-filing of financial statements cannot be used retrospectively as at that time Companies Act 1956 was prevalent under which it was not an offence for the private companies, neither were the directors liable to any punishment for non-compliance.
Further Justice Raja concluded that the Article 164(2) shall be applicable from the financial year 2014-2015 onwards. This proves the MCA & ROCs stand as wrong because they have served notices & penalized them calculating from the year 2013-2014 i.e. before the implementation of the Companies Act, 2013.
The implications arising from the ambiguities of Companies Act, 2013, has led at a spurt in appeals & petitions leading to clogging of the judicial system.
Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd)
ANALYSIS #6: WHAT IMPACT SHALL THE PROPOSED AMNESTY SCHEME BRING:
IMPACT #1: It shall bring about a relief for those companies, directors who had committed procedural mistake but never had the intention to fraud or cheat.
IMPACT #2: A one-time settlement of the scheme shall save time along with quick redressal.
IMPACT #3: It shall give a much-needed breather to those who were ignorant of the new Companies Act & failed to comply due to lapse in governance.
IMPACT #4: It shall help lift the mood of the industry in general as many of the companies & directors were impacted.
IMPACT #5: It shall help in plugging the serious offences at a fast pace as NCLT & Special Courts will be having less cases to deal with.
IMPACT #6: It shall usher in a new era in transparency & efficiency through e-governance of MCA- 21 platform.
IMPACT #7: If introduced it shall save time & lead to fast disposal of cases in future.
IMPACT #8: It shall undeniably provide a healthy environment of growth.
In every aspect it will be beneficial for the industry as well as the govt.
ANALYSIS #7: POSITIVE TAKEAWAYS OF THE SCHEME:
#1: The most positive influence of such a scheme shall be the commendable thoughtfulness of the govt.
#2: The psychological upliftment of companies & directors getting reprieve under the scheme shall boost their moral.
#3: This shall provide lessons for the future, opening gates for new learnings.
#4: The proposed scheme shall provide best usage of modern technology too.
THE LAST WORD:
Every thought when translated to reality comes across unexpected hurdles. Likewise, every law when enforced, comes up with practical problems. The merit lies in not only overcoming those teething problems but also rectifying them for better future results. Step by step the elimination of obstacles will lead to perfection.
The demonetization, the strike off of erring companies & its directors, implementation of GST, all are efforts towards empowering our country towards economic prosperity. On one hand, demonetization sent a very strong message to the wrongdoers & black money hoarders at the same time it did bring to light our dependency on paper money. Panic stricken Indians finally started seeking paperless transactions.
The strike off of companies proved the govt’s intention to bring back faith in the system & parted a very useful message for all concerned that being aware & alert is always beneficial. The aftermath may have affected a few genuine companies for which govt. has provided options also.
The implementation of GST even after years of preparation faced several barriers. Different slabs complicated things for small & big businesses alike. The filing was a nightmare for many. The govt. is trying to spread awareness, has rationalized the rates too.
Criticism & comments provide insight to improve things and make them perfect. The Modi govt. is putting in all effort to achieve the destined goal, the larger picture. The stumbling blocks are there but the govt. is not being rigid. The first time it relented and gave a quick solution in the form of COD Scheme. This time when they come up with this Amnesty Scheme, they will be adding another feather to their cap as this will bring about a major change which will go a long way.
This action is yet another boon for disqualified directors and struck off companies. This action shall provide relief to the aggrieved companies suffering due to procedural lapses/non-compliance. Moreover, disqualified directors under section 164(2) of the Companies Act, 2013 shall get much needed reprieve.
By providing one-time settlement option within the scheme, this scheme shall undoubtedly give a new lease to the career of such directors by providing one-time settlement. The offence was procedural lapse with no intention of fraud, hence they shall get relief.
The message is loud & clear for all- govt. wants economic development to reach the international levels as well provide benefits to the rural population too. An overall development quotient can be met only when the entire country prospers.
A true leader is one who visualizes the needs of the future & acts upon it; Mr. Modi has been trying to achieve that consistently!
Shweta Gupta (Founder and CEO, MUDS)
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