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CONDONATION OF DELAY SCHEME, 2018 (CODS-2018)

CONDONATION OF DELAY SCHEME, 2018 (CODS-2018). Relief to Defaulting Companies and not to Strike off companies or its Directors Yet !!!!. If You Think Compliance is Expensive Try Non-Compliance. Index. A Responsibility of Company and its Director in India.

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CONDONATION OF DELAY SCHEME, 2018 (CODS-2018)

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  1. CONDONATION OF DELAY SCHEME, 2018(CODS-2018) Relief to Defaulting Companies and not to Strike off companies or its Directors Yet !!!! AMITA DESAI & CO

  2. AMITA DESAI & CO

  3. AMITA DESAI & CO

  4. If You Think Compliance is ExpensiveTry Non-Compliance AMITA DESAI & CO

  5. Index AMITA DESAI & CO

  6. A Responsibility of Company and its Director in India 1. One of the responsibility of Directors is to ensure the Compliance of all applicable laws by the Company as they are at the helm of the affairs of the Company. 2. Director shall exercise his duties with due and reasonable care, if fails to do so it may lead to “Disqualification” 3. Director shall intimate his Disqualification, if any, by submitting Form DIR 8 Pursuant to Section 164(2) and rule 14(1) AMITA DESAI & CO

  7. Responsibility of Company and its Director in India Section 137 & 92 of CA 2013 Companies Registered in India require to file annually atleast (i) Annual Financial Statements (FS) and Annual Return (AR) with ROC, otherwise the Company and Officer in Default shall be punishable with fine and imprisonment. AMITA DESAI & CO

  8. B. Provisions of Disqualification of Director’s in other Countries AMITA DESAI & CO

  9. United Kingdom (UK) In UK , Directors can be ‘disqualified’ if they don’t meet legal responsibilities. Anyone can report a company director’s conduct as being ‘unfit’. ‘Unfit conduct’ includes: • allowing a company to continue trading when it can’t pay its debts; • not keeping proper company accounting records; • not sending accounts and returns to Companies House; • not paying tax owed by the company; • using company money or assets for personal benefit AMITA DESAI & CO

  10. United Kingdom (UK) Consequences of disqualification ? Director may be disqualified for upto 15 years. If disqualified Director cannot: • be a director of any company registered in the UK or an overseas Company that has connections with the UK. • be involved in forming, marketing or running a Company. AMITA DESAI & CO

  11. United Kingdom (UK) • Director could be fined or sent to prison for up to 2 years if he breaks the terms of the disqualification • Director can be prosecuted and become personally liable for the company’s debts if he carries out company’s business on the instructions of someone who’s disqualified. AMITA DESAI & CO

  12. Singapore Disqualification under Section 155 of the Singapore Companies Act A Director will be disqualified if he is convicted of at least 3 offencesrelated to required filings with, delivery of documents or giving of notice to, the ROC within a period of 5 years. AMITA DESAI & CO

  13. Singapore • Even though the Director will be disqualified for 5 years from the date of his last conviction in Court, he can apply to the High Court for permission to act as a director during his disqualification period. AMITA DESAI & CO

  14. C. Powers of SEBI Section 11 of the SEBI Act, 1992, empowers the SEBI to restrain persons who according to the SEBI has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market, from accessing the securities market and to buy, sell or deal in securities for any period as SEBI deem fit. AMITA DESAI & CO

  15. Powers of SEBI On 14 August 2017, SEBI has given directive to stock exchanges to initiate action against 331 suspect shell companies and ban them from trading. BSE and NSE moved 162 and 48 companies, respectively, into Stage-VI of the Graded -VI of the Graded Surveillance Measure (GSM), implying these stocks would not be available for active trading. AMITA DESAI & CO

  16. D. MCA Action---- Is it Constitutional Article No. 14 and 19 of the Constitution of India, gives to its citizens : Right of Equality and Right to Practice any profession or to carry on any occupation, trade or business, to its citizen. However Article 19 (6) states that nothing in sub-clause 19 (1) (g) shall affect the operation of any existing law. AMITA DESAI & CO

  17. Powers of MCA • Section 248 (1) and (5) of CA 2013 , gives power to ROC on having reasonable cause to believe, to Strike off the name of a Company from the register of Companies. • As per Rule 3 of Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 ROC cannot Strike of certain categories of Companies. AMITA DESAI & CO

  18. ROC cannot Strike Off certain Companies as per Rule 3 of Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 1. Listed Companies; 2. Delisted Companies; 3. Vanishing Companies; 4. Companies where inspection or investigations are pending in the Court; 5. Companies where Notice u/s Section 206 to 208 is pending AMITA DESAI & CO

  19. Continue 6. Companies against which prosecution for an offence is pending; 7. Companies whose application for compounding is pending 8. Companies which have accepted public deposits which are either outstanding or the Company is in default in repayment of the same 9. Companies whose charges are pending for satisfaction and 10.Companies registered under Section 25/ 8 of the Companies Act, 1956 /2013 AMITA DESAI & CO

  20. Action taken by MCA- Indicating serious compliances AMITA DESAI & CO

  21. Reason for MCA to Strike Off • To clean up the database and system of Registrar • To support Government’s initiative of Ease of doing business • To identify and strike off of Shell Companies • To make demonetization more effective • To control the Money Laundering and black money • To prevent misuse of corporate structure by shell companies for various illegal purposes. AMITA DESAI & CO

  22. Reaction on Action of MCA of Disqualifiying approx 3 Lac Directors • Industry, Corporate Houses and Business man had never expected such action from MCA which is harsh to debar them. • Representation were received from all seeking an opportunity for compliances. • Many had filed Writ Petitions before the High courts of various States , challenging the action of MCA as unconstitutional. AMITA DESAI & CO

  23. Writ Petitions till DEC 2017 • Hon’ble Madras High Court has granted interim stay and Order RoC to stay disqualification of Directors who had filed Writ Petition. (BhagvanDasDhananjayaDasVsUoI) • Hon’ble Delhi High Court has also granted interim stay and Order RoC to stay disqualification of Directors who had filed Writ Petition (Shikha Pahuja & Ors vs. MCA) AMITA DESAI & CO

  24. Order of Delhi High Court Hon’ble Delhi HC on December 21, 2017 in the matter of Raman Nada Vs UOI has passed the following Orders: a) Petitioner may file all the requisite returns in relation to the Company to avail the CODS – 2018; b)Necessary resolution for voluntarily striking off may be filed U/S 248(2); c) Petitioner to make a necessary application under CODS- 2018 alongwith the requisite charges; d) Offline submission allowed to be made to ROC. AMITA DESAI & CO

  25. Order of Delhi High Court Hon’ble Delhi HC on January 10, 2018 in the matter of PremPrakashSethi Vs UOI has passed the following Orders: a) Petitioner may file all the requisite returns in relation to the Company to avail the CODS – 2018; b) Petitioner to make a necessary application under CODS- 2018 alongwith the requisite charges. c) Online submission to be made to ROC. AMITA DESAI & CO

  26. Order of Bombay High Court Hon’bleBombay HC on October 12, 2017 gave following clarification: a) The effect of the provision of Section 167 (2) (a) is not retrospective; b) Applicant may file DIR-10; c) ROC/ MCA can take appropriate actions which will be independent of the Petition AMITA DESAI & CO

  27. E. Provisions of the Act The CA 1956 Vs. The CA 2013 AMITA DESAI & CO

  28. Sec. 274 (1) (g) of CA 1956 vsSec. 164 & 167 of CA 2013 AMITA DESAI & CO

  29. Mis-Understanding of Commencement of Section 164 As CA, 2013 came into effect from April 01, 2014, hence it was understood that section 164 (2) (a) shall be effective only after 3 years of continuous default in filing of B/s and A/r, that is for FY 2014-15, 2015-16 and 2016-17, for which the last date of filing was October 30, 2017. Hence disqualification will start from November 01, 2017. AMITA DESAI & CO

  30. MCA Circular No.41/2014- sec 164(2) MCA vide Circular No. 41/2014 has clarified that in case of Company who have filed their Balance Sheet and Annual Return on or after 01.04.2014 but prior to launch of CLSS 2014, disqualification u/s 164(2) (a) shall apply only for the prospective defaults , if any, by such companies. This includes filing for FY 2013-14 which is filed after 01.04.2014 AMITA DESAI & CO

  31. What is the status of Directors of Defaulting Companies? • Vacate their office as Director in all companies -Sec. 167(1)(a) • not eligible to be re-appointed in the defaulting Company or appointed as a director in another company for a period of 5 years,from the date on which the defaulting company failed to file said documents. AMITA DESAI & CO

  32. Relevant sections of CA, 2013 • Section 164: Disqualification for appointment of Directors • Section 167: Vacation of Office of Director • Section 248 : Power of Registrar to remove name of company • Section 252: Appeal to Tribunal • Section 403: Fee for Filling • Section 459: Powers of CG or Tribunal to accord approval. • Section 460 (b): Condonation of delay by CG AMITA DESAI & CO

  33. Qualifications of Director ( Sec 164 and AoA) • Section 164 mentions the primary requirements that who may or may not be appointed to be a director. AND • the company may in its Articles provide additional groundsfor ineligibility or disqualification, or additional minimum qualifications that should be met by its directors. AMITA DESAI & CO

  34. Disqualification of Director U/S 164(1) Section 164 (1) provides for disqualification which are incurred by a Director in his Personal capacity like, If he is of : • unsound mind , • undischarged insolvent, • adjudicated as an insolvent • convicted by a court of any offence, • court order disqualifying him, • failed to pay any calls in respect of shares , • convicted for offence of dealing with related party transactions, • not having DIN etc. AMITA DESAI & CO

  35. Quote--- Section 164 (2) Section 164 (2)--- No person who is or has beena director of a company which— (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. AMITA DESAI & CO

  36. Disqualification of Director U/S 164(2)(a) • As per Sec 164 (2) (a) – Not Personal But Company defaulted in filing the Annual Financial Statements or Annul Return for a continuous period of 3 years • Auditors also need to report u/s 143 (3)(g) about Disqualification of Directors u/s  164(2). AMITA DESAI & CO

  37. Vacation of office of Director U/S 167 (1)(a) Sec. 167 (1)The office of a director shall become vacant in case — (a) he incurs any of the disqualifications specified in section 164; AMITA DESAI & CO

  38. Section 164 & 167 – amended –The Companies (Amendment) Act, 2017 Proviso added to Section 164 (2),which reads as follows: “Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b) he shall not incur the disqualification for a period of six months from the date of his appointment.” Immunity is given to new appointee Director, otherwise from day One he is disqualified AMITA DESAI & CO

  39. Section 164 & 167 – amended –The Companies (Amendment) Act, 2017 Under Section 167 (1)(a), the following proviso is inserted "Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section." He shall continue to be director of defaulting company even after default. AMITA DESAI & CO

  40. F. Report of the CLC • CLC was set up on 4th June 2015 to make recommendation to the Government on issues arising from the implementation of CA 2013 • In the Report of the CLC, issued in February 2016, it has been discussed as follow with respect to the stringent provision of disqualification and vacation of Director. AMITA DESAI & CO

  41. CLC Report • CLC Report had a mention that Section 164(1) provides for disqualifications which are incurred by a director in his personal capacity, and Section 164(2) lists out disqualifications related to the Company • In this regard, the CLC recommended that the vacancy of an office should be triggered only where a disqualification is incurred in a personal capacity and therefore, the scope of Section 167(1)(a) should be limited to only disqualifications under Section 164(1). AMITA DESAI & CO

  42. CLC Report • The CLC acknowledged that this Section created a paradoxical situation, as the office of all the directors in a Board would become vacant where they are disqualified under Section 164(2), and • A new person could not be appointed as a director as they would also attract such a disqualification. AMITA DESAI & CO

  43. CLC Report • The CLC also recommended that a disqualification under Section 164(2) be only applicable to a person who was a director at the time of the non-compliance, and in case of a continuing non-compliance, there should be a period of 6 months time allowed for a new Director to make the company compliant. (Now added in the Companies Amendment Act 2017) AMITA DESAI & CO

  44. G. MCA ----To find a solution for updating their Data –CODS 2018 AMITA DESAI & CO

  45. NEW YEAR GIFT – CODS 2018 CODS 2018 - A golden opportunity For Defaulting Companies to rectify the default Not For Disqualified Directors of Struck Off Co. AMITA DESAI & CO

  46. Para 1 --Power of MCA and duration of CODS Powers of MCA : • Sections 403 – Fee for Filing • Section 459 – Powers of CG or Tribunal • Section 460 – Condonation of Delay Duration of CODS :January 1, 2018 to March 31, 2018 Whether last date of filing e-form CODS – 2018 will also be March 31, 2018. AMITA DESAI & CO

  47. Para - 2 Definitions under CODS-2018 • Company: It means a Company as defined in section 2(20) of the Companies Act, 2013. Foreign companies having BO or LO are not covered : As per Sec. 381 & 384 Foreign Companies need to file B/s & A/r in Form -FC-3 & FC-4 which is to be certified by authorised Signatory and not Director. • Defaulting Companies: It means a company which has not filed its FS or AR as required under the Act and the Rules made there under for a continuous period of 3 years. Struck Off Companies are not covered AMITA DESAI & CO

  48. AMITA DESAI & CO

  49. Struck Off Companies but Directors are not disqualified Situation where Form DIN - 3 was not filed intimating DIN and such Company is Struck Offbut Directors in such companies are not yet disqualified • Should these Director’s be considered as disqualified • Do they require to make application to NCLT u/s 252 and revive the company and then file application u/s 248 (2) for voluntary strike off of the Name AMITA DESAI & CO

  50. Clarifications for Struck Off Companies (a)Can struck off companies make application to NCLT u/s 252 after the implementation of CODS or upto the date of the Scheme ? (b) What about struck off companies which had never done any operations : We suggest that such companies be allowed to make an Application to NCLT u/s 252 and NCLT gives Direction to RoC to first revive the company and allow it to file application u/s 248 (2) for voluntary strike off and remove the disqualification of Directors AMITA DESAI & CO

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