Relief to Defaulting Companies and not to Strike off companies or its Directors Yet !!!! 1 AMITA DESAI & CO
Views expressed are of my own and this presentation is based on my understanding of the General Circular no. 16/2017 Several issues relating to CODS Scheme requires clarity 2 AMITA DESAI & CO
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1.The law has changed and the flexibility in filing tax returns has been reduced. 2. Now, one has to file ITR for FY 2015-16 & 2016-17 by 31 March, 2018 otherwise one may face scrutiny and penalty. After 31 March , 2018 you cannot file ITR for earlier FY and you may loose out some benefit . AMITA DESAI & CO 6
Section Particular A Responsibility of the Co and its Director in India B Provisions in other Countries C Powers of SEBI D MCA Action E Provisions of the Act F Report of the CLC MCA ----CODS 2018 G Options for Struck Off Companies H I. Clarification required 7 AMITA DESAI & CO
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) 8 AMITA DESAI & CO
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. 9 AMITA DESAI & CO
Upon Strike Off : Section 248 (6) ROC takes undertaking of Director in respect of realization of all amount due to the Company and for the payment or discharge of its liabilities and obligations by the Company. Upon Dissolution : Section 248 (7) Even after dissolution of the Company, Directors and Shareholders of the Company continues and may be enforced as if the Company had NOT been dissolved 10 AMITA DESAI & CO
Section 248(8 ) NCLT has power to order for winding up of the Company whose name has been struck off from the register of RoC . 11 AMITA DESAI & CO
Section 250 provides for effect of strike off Certificate of Incorporation of the Company shall be deemed to be cancelled However the power and obligation of the Company shall continue for realizing and payment of liabilities and dues. STRIKE OFF ≠ DISSOLUTION OF LIABILITY 12 AMITA DESAI & CO
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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 14 AMITA DESAI & CO
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. 15 AMITA DESAI & CO
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 . 16 AMITA DESAI & CO
Disqualification under Section 155 of the Singapore Companies Act A Director will be disqualified if he is convicted of at least 3 offences related to required filings with , delivery of documents or giving of notice to, the ROC within a period of 5 years. 17 AMITA DESAI & CO
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. 18 AMITA DESAI & CO
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. 19 AMITA DESAI & CO
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. 20 AMITA DESAI & CO
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 . 21 AMITA DESAI & CO
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. 22 AMITA DESAI & CO
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 23 AMITA DESAI & CO
Companies against which prosecution for an offence is pending; 6. 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 24 AMITA DESAI & CO
1. CLSS 2014: On 15 August 2014 , CLSS 2014 notified : MCA had provided one time opportunity for condoning the delay in filing Annual Documents in CLSS 2014 (and amendment) during 15 August 2014 to 15 November 2014. 2. Section 248 (1) : In March, 2017 , Notice by ROC to all companies Notice of intention informing his Intention to Strike Off the name of the Company 3. Section 248 (5) : In June, 2017 , Notice by ROC cancelling / strike off Notice of Strike Off name of approx 210,000 defaulting Companies. 4. Section 164: In September, 2017 , MCA took bold step & identified Disqualification of 3 09,614 Directors associated with Defaulting Companies Directors: and barred them from accessing the online registry and DINs were deactivated. 25 AMITA DESAI & CO
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. 26 AMITA DESAI & CO
Reaction on Action of MCA of Disqualifiying approx 3 Lac Directo rs 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. 27 AMITA DESAI & CO
Article 226 of Constitution of India gives right to any citizen to file Petition for infringement of Fundamental Rights conferred under Article 14 and Article 19 (1) (g). Writ of CERTIORAR--- Higher court to compel the inferior court to pass the record of the proceedings Writ of MANDAMUS – Act of infringement of rights by any Government Authority ( RoC) AMITA DESAI & CO 28
1. Retrospective Application of Section 164 2. Disqualification made effective from an earlier date 3.No opportunity of being heard granted to the disqualified director 4. Rights of third party Companies affected for no default of theirs and without hearing 5. No other remedy available to the disqualified Directors. 2 9 AMITA DESAI &CO.
Hon’ble Madras High Court has granted interim stay and Order RoC to stay disqualification of Directors who had filed Writ Petition. (BhagvanDas DhananjayaDas Vs UoI) 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) 30 AMITA DESAI & CO
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