Home company law How efficiently is MCA tackling the Pandemic situation?

How efficiently is MCA tackling the Pandemic situation?

What is MCA?

Ministry of Corporate affairs(MCA) is primarily concerned with administration of the Companies Act 2013, the Companies Act 1956(existing provisions), the Limited Liability Partnership Act, 2008 & other allied Acts and rules & regulations framed thereunder mainly for regulating the functioning of the corporate sector in accordance with law. The Ministry is also responsible for administering the Competition Act, 2002 to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers through the commission set up under the Act.

How has the Pandemic affected the Businesses in India?

India is one of the world’s worst hit countries in the coronavirus pandemic, with reported cases spiking in recent months as the country emerged from a nationwide lockdown moving towards unlocking the economy.

The COVID-19 pandemic outbreak has forced many businesses to close, leading to an unprecedented disruption of commerce in most industry sectors. Retailers and brands face many short-term challenges, such as those related to health and safety, the supply chain, the workforce, cash flow, consumer demand, sales, and marketing. Many markets, especially in the fields of tourism and hospitality, no longer exist. Companies, especially start-ups, have being the worst affected resulting in increase in bankruptcies in the country.

What measures has the MCA taken?

The policymakers are trying their best to reduce the burden of the businesses. Owing to this situation our government is taking all necessary steps to help the economy in all possible ways. Complete lockdown situation across the country made it further difficult for the companies in complying with various provisions of the Companies Act. Therefore, it was essential to prescribe relaxations in corporate compliance requirements and accordingly, the Ministry of Corporate Affairs(MCA) have implemented various measures stated below for reducing compliance burden on companies under Companies Act 2013 in times of COVID-19:

*Extension of interval between two board meetings: As per the CA 2013, a company is required to hold a minimum of 4 board meetings every year with a maximum time gap of 120 days between two consecutive board meetings. The MCA has extended this time gap of 120 days by 60 days thereby increasing the interval limit between two consecutive board meetings to a maximum of 180 days. This one-time relaxation is available for the next two quarters i.e. up to 30 September 2020. Consequently, this aims at reducing the requirement to hold board meetings during the COVID 19 pandemic in adherence with social distancing measures.

*Meetings of Independent Directors: Schedule IV of the CA 2013 mandates the independent directors (ID) of a company to hold at least one meeting in a financial year without the attendance of non-independent directors and members of management. Since the ID meeting is required to (i) review the performance of non-independent directors and the board of directors as a whole; (ii) review the performance of the chairperson taking into account the views of executive and non-executive directors; and (iii) assess the quality, quantity and timeliness of flow of information between the management and the board of directors, it is usual to hold such ID meetings towards the end of financial year.

Considering the lockdown imposed in India due to the current pandemic situation across the world, the IDs may not have adequate time and information at hand to convene such ID meeting. In these circumstances, the MCA has clarified that if, the IDs are not able to hold at least one ID meeting during the financial year 2019-20, the MCA will not view it as a non-compliance of the statutory provisions. However, the MCA has encouraged the IDs to share their views amongst themselves through telephone, email or any other mode of communication, as they may deem fit.

*Declaration of Commencement of Business: A newly established company is required to file declaration for commencement of new business (Form 20-A) within 6 months of its incorporation. However, considering the hardships being faced by the newly incorporated companies, the MCA has extended the timeline for such compliance from 6 months to 1 year from the date of incorporation.

*Resident Director: As per Section 149(3) of Companies Act 2013, the minimum residency of 182 days be required. Consequently, This was no longer a breach.

*Conduct of Annual General Meeting(AGM):As per the Companies Act, 2013, all companies, other than One Person Company , must hold a general meeting each year apart from other meetings as the AGM. They must be held within six months from the closing date of the financial year. A notice of 21 days has to be sent to all member. As a relaxation this was no longer a violation.

*Auditor’s Report: Companies (Auditor’s Report) Order, 2020 shall be applicable from financial year 2020-2021 instead of 2019-20. This will significantly ease the burden on companies & their auditors for the financial year 2019-20 .

*Relaxation in filing fees of Forms DIR-3KYC, DIR-3KYC-WEB and ACTIVE: MCA has recently deployed in its ‘News & Important Updates’ section that the DIN holders marked as ‘Deactivated’ due to non-filing of form DIR-3 KYC or DIR-3 KYC-Web and those companies whose compliance status has been marked as “ACTIVE non-compliant” due to non-filing of Active Company Tagging Identities and Verification(ACTIVE) e-form are encouraged to become compliant once again in pursuance of the General Circulars mentioned above and file forms DIR-3KYC, DIR-3KYC-Web and ACTIVE as the case may be between 1st April 2020 to 30th September 2020 without any filing fee of INR 5000 or INR 10,000 respectively.

*Corporate Social Responsibility: The MCA has clarified that the spending of CSR funds for COVID-19 and making contributions to the PM-CARES Fund is an eligible CSR activity. The fund may be spent for various activities related to COVID-19 under item nos. (i) and (xii) of Schedule VII of the Act, relating to promotion of health care, including preventive health care and sanitation, and disaster management.

Further, a voluntary FORM CAR (Companies Affirmation of Readiness Towards COVID-19) has been introduced to access the companies’ compliance with COVID-19 related measures, such as, implementation of work from home policy.

*Waiver of Additional fees: No additional fees shall be charged for late filing during a moratorium period from April 01, 2020 to September 30, 2020, in respect of any document, return, statement etc., required to be filed in MCA-21 registry, irrespective of its due date.

Relaxations Under:

Insolvency Code,2016: Section 10A of the Insolvency Code prohibits the filing of applications under Sections 7, 9 and 10 of the Insolvency Code (i.e., by financial creditors, operational creditors and corporate debtors themselves) for the initiation of the corporate insolvency resolution process (CIRP) of a corporate debtor in respect of defaults arising during the six (6) month period from and including March 25, 2020 (the six month period may be extended up to one year).

Section 10A of the Insolvency Code also prohibits in perpetuity the filing of applications for the initiation of CIRP of a corporate debtor in respect of any such default. However, Section 10A of the Insolvency Code will not be applicable in respect of defaults committed by the corporate debtor prior to March 25, 2020.

Conclusion:

Evidently, the MCA is undertaking rampant initiatives to deal with present circumstances arising out of the spread of the COVID-19 virus and taking cognizance of the representations received for providing temporary relaxations in the provisions of Act. In the current scenario of the lockdown and restrictions imposed, the above temporary relaxations will enable companies to avoid penalties on account of unavoidable delays in meeting their regulatory compliances. However, companies ought to comply with any other regulatory requirement, that has not been specifically relaxed.

Also read- Ease of doing business in India

This article is written by Mahima Rathod and edited by Rupreet Kaur Dhariwal.

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