The much awaited relief to disqualified directors was given by government through Condonation of Delay Scheme, 2018 notified by the MCA on December 29, 2017.
The introductory paras of the Scheme says that Ministry of Corporate Affairs (MCA) had received numerous representations from industry, defaulting companies and disqualified directors seeking an opportunity to become law compliant and removal of disqualification.
This assumes more importance in the light of the fact that no remedy is provided under companies Act 2013 for removal of disqualification incurred by directors for non filing of financial statements and Annual Return under Section 164(2) of Companies Act 2013, except waiting for five long years and then making application for removal of Disqualification.
Stakeholders were very optimistic about this scheme as this was supposed to be a golden opportunity to remove the disqualification of Director, But as the Scheme is being unfolded, it turns out that this scheme is not for every disqualified director.
For example, the disqualified directors of a Struck off Company can not avail this scheme unless the company is not revived. This assumes more seriousness in the case that if a disqualified directors do not want to revive their struck off company but they are only interested in removal of disqualification.
Even if the disqualified directors want to revive the Company they may not be successful in their endeavors, because defunct companies cannot be revived. Therefore the disqualified Directors are caught in a vicious circle of Revival and removal of Disqualification.
In such cases Role of High Courts assumes more importance. The Disqualified directors can move the high court by filing a writ petition for stay/ removal of disqualification.
Time limit of this Scheme i.e. three months seems very less for those defaulting companies whose names have been removed from the register of companies under section 248 of the Act and which have filed applications for revival under section 252. As per the Scheme the Director’s DIN shall be re-activated only after NCLT Order of revival subject to the company having filing of all overdue documents.
Example suppose a struck off company has been revived and all the default made good by disqualified directors, even after taking efforts for revival, such directors will still continue to remain disqualified, for removal of default such disqualified directors will then have to avail scheme but till the revival order is passed by NCLT the time limit of scheme may have already expired, in such situation the original Sin of disqualification will still remain unpardoned. In the light of above discussions one can only hope that MCA comes out with some relief for disqualified Directors of Struck off Companies which is not improbable considering the need of the hour.
It seems from the above that companies which have been struck off and want to revive themselves should, without wasting even a day’s time, file the application for revival and obtain a favourable order soon enough to have sufficient time to avail benefits under this Scheme. Such revived entities should also be required to file their overdue documents (including e-Form CODS 2018) under this Scheme up till March 31, 2018 only.
Despite all of these limitations, MCA has notified this Scheme with a sole intent to provide an opportunity to non-compliant, defaulting companies to rectify their default by completing their pending annual filings up to 30.06.2017 in a limited window period from January 1, 2018 to March 31, 2018.
FAQ’s of the CODS Scheme 2018:
1. What is the purpose of this scheme?
The purpose of this Scheme is to give an opportunity to the non-compliant, defaulting companies to rectify their defaults pertaining to non-filing of overdue documents.
2. What is the Eligibility to avail the benefits of CODS?
The following are eligible to avail benefits of this Scheme:
- Defaulting companies which are still active for filing but cannot file their financial statements due to disqualification of directors whose DINs are blocked
- Companies which had made or will make application u/s 252 during the validity of this Scheme (subject to NCLT’s order for revival of such companies)
3. Who are Non-eligible to avail the Scheme?
Companies which have been struck off by ROCs by the ROCs shall not be eligible to file documents under this Scheme. Such companies can however, make application to NCLT for revival and upon successful order for revival avail benefits of this Scheme during the period of its validity only.
4. What is the time limit of the Scheme?
The Scheme shall be applicable from January 1, 2018 to March 31, 2018.
5. What is the Position of disqualified DINs after the expiry of Scheme?
The DINs of the disqualified directors shall be temporarily enabled during the period of the Scheme to allow filing of overdue documents. based on verification and scrutiny of documents including e-Form CODS filed with the ROCs under the Scheme, The disqualification of directors shall be extinguished/condoned.
6. What is the Remedy available for disqualified directors who have not filed application before NCLT for revival?
Such disqualified directors shall not be eligible to avail benefits under this Scheme as the Scheme clearly lays down that only companies whose application of revival has been filed before NCLT can avail benefits of this Scheme, subject to favourable order from NCLT for revival. Hence, in order to avail benefit under this Scheme, first application has to be made to NCLT u/s 252 and favourable order for revival is also to be obtained during the validity of the Scheme and thereafter overdue documents to be filed within the prescribed time limit under the Scheme.
7. If NCLT rejects application for revival of company, then how can disqualified directors of such companies avail benefits of this Scheme?
In our view, in such situation, such companies and disqualified directors associated with such companies shall not be eligible to avail benefits of this Scheme. They shall have to move to High Court by making Writ Petitions.
8. Can disqualified directors associated with active companies (non-defaulting) file their overdue documents during the period of Scheme as their DIN will be activated?
In our view, DIN shall be activated for filing only overdue documents of only defaulting companies and therefore, active companies (non-defaulting) shall not be allowed to file any documents (including overdue documents) with DIN of the disqualified directors during the period of this Scheme. Such companies shall continue to appoint new directors through back-end process notified by concerned ROCs.
9. What is the procedure to avail benefits of this Scheme?
The defaulting companies shall file their overdue documents . Thereafter, they shall file e-form CODS for condonation of delay for removal of disqualification of Directors. The ROC may seek some additional Documents forms for further clarification
10. What is the Filing fees for Condonation under this scheme?
The filing fee for availing benefits under this Scheme is Rs.30,000/- which is the fee required to be paid at the time of filing the e-Form CODS 2018. However, before filing e-Form CODS 2018, the defaulting companies shall be required to upload all their overdue documents with additional fee for the delayed period for each one of them, as may be levied as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014.
11. Whether the defaulting Company has to pay additional fees for delay in filing the overdue documents?
Yes, additional fee as may be applicable as per section 403 of the Act read with Companies (Registration Offices and fee) Rules, 2014 shall be required to be paid for each form which is pending to be filed upto 30.06.2017.
12. Does the Scheme removes disqualification of directors? If so, how can disqualified directors apply for re-activation of their DIN?
The motive of the Scheme is to provide opportunity to the defaulting companies to complete their filings and subsequently removal of the disqualification imposed upon directors. Although there is lack of clarity as to the procedure for removal of director disqualification from therefore after filing eForm CODS 2018 one has to wait for Ministry’s response w.r.t. disqualification removal.
13. What are the disclosures required in CODS-2018?
SRN of each document filed during the period of this Scheme needs to be mentioned, besides this there are mainly 3 disclosures required under the CODS-2018. They are:
- Whether any appeal(s) was filed against any notice issued or complaint filed before the competent court for violation of the provisions under the Act in respect of the above mentioned document(s). lf yes, attach proof of withdrawal of such appeal.
- Whether any prosecution(s) is pending in court against the company and its officers in respect of belated documents filed under the scheme. If yes, provide details thereof as an attachment.
- Whether any director(s) of the company is declared as proclaimed offender or facing criminal case(s) for economic offences. If yes, provide details of such director(s) as an attachment.
14. Is this scheme an immunity from prosecution for defaulting companies?
Yes this Scheme is providing an immunity vide Para 6 against matters related to filing of the overdue documents only. The other acts of default under any other provisions shall equally be liable to action as provided under the provisions of law.
15. Can company file all its overdue documents under this scheme?
A defaulting company can file only its overdue financial statements & Annual Return documents which were due to filed upto 30.06.2017 under this Scheme. Any other overdue document which was due for filing from 01.07.2017 shall not be allowed to be filed under this Scheme.
16. As per the provisions of section 167(2) every director will attract penalty as per the provision of the Act who is aware of his disqualification and still functions as director. However as per CODS-2018 the DIN of disqualified directors are reactivated for filing of document. Will this attract the penalties of section 167(2)?
The main motive behind the Scheme is to make the default good and not to incur further liability so the disqualified directors shall not attract penalty under the provisions of Section 167(2) The DIN will be re-activated for filing the overdue documents under the Scheme.
17. What will be the status of pending proceedings/prosecution post registering into the scheme?
The pending prosecution proceedings w.r.t. the overdue documents shall be withdrawn by the ROCs. The applicants availing the benefits of the Scheme shall also withdraw their application from all forums w.r.t. the overdue documents and other non- compliances under the Act. Proof of withdrawal of such applications must be attached in e- Form CODS 2018