COVID 19 - Relaxation of Regulatory Compliances Under the Companies Act, 2013 Introduced by the Ministry of Corporate Affairs
The much-awaited relaxation of regulatory compliances under the Companies Act, 2013 (hereinafter “the Act”) have been introduced by the Ministry of Corporate Affairs (hereinafter “the MCA”). Please see below the detailed analysis of relaxations introduced by the MCA on regulatory compliances applicable under the Act:
(i) Directors need not plan their Board meetings in the coming quarter of this calendar year i.e. upto June 30, 2020. The directors can plan their Board meeting sometime during the last month of the next quarter i.e. by end of September 30, 2020.
As per the Act, it is mandatory for the Board of all companies to hold Board meeting in every quarter of a calendar year with a minimum gap of 120 days. As per the relaxation provided by the MCA, the period of 120 days has been extended to 180 days.
(ii) In case your company has one resident director who is a foreign national and plans to fly back to his/her native country during this financial year which will reduce the period of stay in India to less than 182 days, the Board need not be concerned about the violation under the Act consequent to absence of such resident director in India.
As per the Act, every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year. The MCA has relaxed this mandatory requirement of having one resident director on the Board of the Indian company.
(iii) In case you are a newly incorporated company and the due date of 6 months from the date of incorporation is expiring soon for procuring certificate of commencement of business from the MCA, the Board need not be concerned about the violation under the Act in case of delay.
The MCA has relaxed theperiod of procuring certificate of commencement of business from 6 months to 12 months from the date of incorporation of new entity.
(iv) In case your company is planning to file a statutory return or form under the Act which is pending / due for filing, the Board need not be concerned about the violation under the Act or payment of additional fees in case the filing gets delayed beyond statutory deadline.
The MCA has implemented a moratorium period from April 1, 2020 to September 30, 2020 whereno additional fees shall be charged for late filing in respect of any document, return, statement etc., required to be filed in the MCA-21 Registry, irrespective of its due date.
(v) In case you are a public company and the Board constitutes independent directors as per the requirements of the Act, your independent directors of a company need not hold a Board meeting in the absence of non-independent directors. Failure on the part of the independent directors of a company to call for meeting in terms of Schedule 4 of the Act during this financial year would not be construed as a violation under the Act.
(vi) In case your company is required to create reserve of 20% of deposit amount for the financial year 2020-21 in terms of the Act upto April 30, 2020, the Board of your company has time upto June 30, 2020 to create such reserve account and deposit the same in a separate bank account.
As per the Act, every Company having outstanding deposits shall deposit atleast 20% of the amount of its deposits maturing during the following financial year, on or before 30th April of each year and such amount shall be kept in a separate bank account to be called deposit repayment reserve account.
(vii) In case your company is required to create Debenture Redemption Reserve in terms of Section 71 of the Act, then Board has time upto June 30, 2020 to invest 15% of debentures maturing during this financial year in specified instruments.
(viii) The MCA has decided to raise the threshold of default under section 4 of the IBC 2016 to INR 10 million (from the existing threshold of INR 0.1 million). This will by and large prevent triggering of insolvency proceedings against MSMEs. If the current situation continues beyond April 30, 2020, the MCA may consider suspending section 7, 9 and 10 of the IBC 2016 for a period of 6 months so as to stop companies at large from being forced into insolvency proceedings in such force majeure causes of default.
(ix) The MCA has postponed the implementation of newly introduced Companies (Auditor’s Report) Order, 2020 from financial year 2019-20 to financial year 2020-21. This relaxation will significantly ease the burden on companies and their auditors for the year 2019-20.