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Company Law Settlement Scheme


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 30th 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.