Company Law Settlement Scheme

Company Law Settlement Scheme is a reform measure introduced by the Government of India for companies which have made defaults in company law compliance. The scheme is applicable to all Indian companies which have failed to file their Annual Returns and Financial Statements on or before the respective due dates. Companies in default are liable to pay a penalty under the Companies Act. Under the Section 164(2) of the Companies Act 2013, the directors of the company who have failed to file the statutory documents for three consecutive financial years will be marked as inactive and disqualified from the register. The Ministry of Company Affairs introduced the Company Law Settlement Scheme in 2014 (CLSS-2014). The scheme is aimed at pardoning the delay in filing the documents and providing immunity for prosecution. The CLSS-2014 is a onetime opportunity which allows the inactive companies in filing their pending statutory documents for a reduced fee.

Eligible Beneficiaries

The defaulting companies that are registered under the Companies Act, 2013, which failed to file their

annual statutory documents and the directors of the defaulting companies are eligible to claim the benefits under the scheme.

Benefits of the Scheme

The defaulting companies that are filing for the immunity under the scheme before 30

th June 2014 are eligible for the following key benefits:

Remuneration of only 25% of the additional payable fee is levied on the defaulting companies, and the remaining 75% of the fee is waived by the Government.
Under Section 455 of the Companies Act, the inactive companies can stay on the Registrar of Companies with minimal obedience requirements by declaring them as a dormant company.
Obtaining benefits under the scheme shields defaulting companies from any legal actions and the Registrar of Companies should pull out all prosecutions against the company from the court.
As per the Act, the person acting as a director of both public and private companies and hasn’t filed the annual returns of the company for three consequent financial years will be disqualified as a director of any company. The scheme allows the directors of the defaulting company to come out from the disqualification.

Applicable Terms

The scheme is applicable only in the case of submission of the listed documents:

Form 20B- Annual Return Form filing by the companies holding share capital
Form 21 A- Details of Annual Return for the company having no share capital
Form 23AC, Form 23 ACA, 23 AC-XBRL and 23 ACA-XBRL- Forms for filing Balance Sheet and Profit & Loss Account
Form 66- Form for submission of Compliance Certificate with the Registrar
Form 238- Form for Intimation for Appointment of Auditors

Companies Not Applicable Under the Scheme

The companies that are not applicable under the scheme are as follows:

The companies against which a severe action to strike off from the list has been taken out by the Registrar of Company
The companies for which the application has been submitted subsequent to crossing off of the company's name from the Registrar
Companies applied for the Dormant Status under Section 455 of the Companies Act, 2013.
Companies that are in a dissolving stage

Procedure for the Application of the Immunity Certificate

Companies that are applying for the immunity against the prosecutions charged need to carry out the following procedures as stated in the clause:

Companies must finish off filing all the pending files as required under the Company Law Settlement Scheme 2014
The defaulting companies should withdraw any files appealed before the court against any orders issued for the violation of the provisions under the Companies Act 2013 before applying for the issue of immunity certificate and submit the withdrawal certificate as a proof
The application for the immunity certificate by the defaulting companies would be rejected in case of any pending appeal before the court and management disputes of the company
Once the documents are filed, recorded and approved by the Registrar of Companies, the defaulting companies can apply for the immunity certificate which has been made available from 1st September 2014 in electronic form CLSS-2014. No separate application fee is required to be paid during the submission of online application by the companies
The applications submitted after the deadline of three months from the closing date of the scheme would be rejected by the Registrar
The documents submitted by the companies would be evaluated and approved for the grant by the Registrar of the Companies. Once the Immunity Certificate is released, the Registrar would withdraw all the pending prosecutions in the court against the company.

Scheme for Inactive Companies

The companies, while filing for the documents under the scheme, can simultaneously apply for the following:

E-form MSC-1 at 25% of the fee and proclaim them as a Dormant Company under section 455 of the Companies Act, 2013
E-form FTE at 25% of the fee payable for FTE and apply for the removal of the name of the company.

As per the agreement of clause (a) of subsection (2) of Section 164 of the Companies Act, 2013, the defaulting companies applying for the benefits under the scheme and file all necessary documents should apply only for the prospective defaults. The Registrar is the responsible authority to take required action under the Companies Act, 2013 against the companies that failed to file the statutory documents within the stipulated time and haven’t applied for the scheme.

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Frequently Asked Questions

Common questions about Company Law Settlement Scheme.

The Company Law Settlement Scheme (CLSS) is a reform measure introduced by the Government of India to provide relief to companies that have defaulted on filing their statutory documents such as Annual Returns and Financial Statements. It allows them to file the pending documents by paying a reduced penalty fee and avoid prosecution.

Companies registered under the Companies Act, 2013, which have failed to file their annual statutory documents, and their directors are eligible to claim benefits under the CLSS. The scheme provides an opportunity for defaulting companies and disqualified directors to get relief from penalties and prosecution.

The key benefits of the CLSS include a waiver of 75% of the additional fee payable for late filing, immunity from prosecution for defaulting companies, and the ability for disqualified directors to be reinstated upon filing the pending documents.

The CLSS allows defaulting companies to file various statutory documents, including Annual Returns (Form 20B, 21A), Financial Statements (Form 23AC, 23ACA, 23AC-XBRL, 23ACA-XBRL), Compliance Certificates (Form 66), and Auditor Appointment forms (Form 23B).

Yes, the CLSS does not apply to companies against which the Registrar of Companies has initiated strike-off action, companies that have already been struck off, companies under the process of dissolution, and companies that have already applied for dormant status under Section 455 of the Companies Act, 2013.

To apply for an immunity certificate, a defaulting company must first file all pending documents under the CLSS, withdraw any pending appeals against orders issued for violations, and then apply for the immunity certificate electronically. The Registrar will evaluate the application and grant the immunity certificate, leading to the withdrawal of pending prosecutions.

Yes, while filing documents under the CLSS, a company can simultaneously apply for dormant status under Section 455 of the Companies Act, 2013, by filing e-form MSC-1 at a reduced fee of 25%.

No, the CLSS only provides relief for prospective defaults. As per Section 164(2) of the Companies Act, 2013, defaulting companies and directors can only apply for relief from disqualification for future defaults and not for past defaults.

The article does not mention a specific deadline for applying under the CLSS. However, it states that applications submitted after three months from the closing date of the scheme will be rejected by the Registrar of Companies.

The Registrar of Companies is authorized to take necessary action under the Companies Act, 2013, against companies that fail to file statutory documents within the stipulated time and do not apply for the benefits of the CLSS.