Reliefs And Measures For Companies And LLPs By The Ministry Of Corporate Affairs Pertaining To COVID-19 Situation

In order to stop the spread of the disease and at the same time to save the economic turmoil, the Government of India, as well as the judicial system of the Country, announced various relaxations, extensions by way of amendment or judicial orders.

In the present article, it is our endeavour to discuss the announcements issued by Ministry of Corporate Affairs, Government of India to ease the compliances to be undertaken there by the Companies as are many compliances which the Companies have to comply under various provisions of Companies Act, 2013 ("Act") and rules made thereunder which the Companies will not be able to undertake due to Pandemic.

It is worth mentioning that anticipating the impact of Pandemic and keeping in mind the situation globally, Ministry of Corporate Affairs issued some of these announcements much before the lockdown due to COVID-19 implemented in India. These announcement's included the suggestions w.r.t work from home policy for employees and also a voluntary declaration^[1] to be made by the Companies w.r.t their readiness to fight with COVID-19.

The relaxations provided by Ministry of Corporate Affairs qua Companies Act, 2013 and rules made thereunder are discussed hereunder:

1. Convening of Board Meeting through Video Conferencing

The Companies Act, 2013 read with Secretarial Standard I [SS-I], permits of convening the Board Meetings however Section 179(3) of the Act read with Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 and Clause 1.2.3 of SS-I provides that the certain businesses cannot be undertaken through Video Conferencing and the requisite members for passing resolution for such businesses need to be physically present during the meeting of the Board. This requirement has been done away till 30^th June 2020 vide Companies (Meetings of Board and its Powers) Amendment Rules, 2020 which were notified^[2] on 19.03.2020 wherein the Companies are now permitted to conduct the Board Meetings through Video Conferencing for passing resolutions w.r.t approval of Financial Statements, Board Reports and Restructuring.

2. Funds utilised for COVID-19 eligible for CSR requirement

Section 135 of the Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, makes it mandatory for a Company^[3] to fulfil its Corporate Social Responsibility by spending, in every financial year, at least 2% of the average net profits of the company made during the three immediately preceding financial years (or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years), in pursuance of its Corporate Social Responsibility Policy towards the activities qualified under Schedule VII ^[4]of the Act for such spending. Vide Circular^[5] dated 23.03.2020, amount spent towards COVID-19 is permitted to be qualified for CSR activities. Further, it was also clarified that CSR funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. In addition, the Ministry of Corporate Affairs vide Circular^[6] dated 10.04.2020 has issued a set of FAQs along with clarifications on eligibility of CSR expenditure related to COVID-19 activities.

Accordingly:

• The contribution made to 'PM CARES Fund' shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013;
• Any contribution to 'Chief Minister's Relief Fund' or 'State Relief Fund for COVID-19' shall not qualify as admissible CSR expenditure as such fund is not included in Schedule VII of the Companies Act, 2013;
• The contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of 2013;
• The items in Schedule VII are broad based and may be interpreted liberally (as per general circular No. 21/2014 dated 18.06.2014) for this purpose.
• Payment of salary/ wages to employees and workers during the lockdown, the period is part of the moral/ humanitarian/ contractual obligations of the company and thus shall not qualify as admissible CSR expenditure.
• Payment of wages to temporary or casual or daily wage workers during the lockdown period is part of the moral/ humanitarian/ contractual obligations of the company and thus shall not count towards CSR expenditure.
• If any ex-gratia payment is made to temporary / casual workers/ daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, the same shall be admissible towards CSR expenditure as an onetime exception. However, this exception is subject to the condition that there is an explicit declaration to that effect by the Board of the company and the same is duly certified by the statutory auditor.

This step as mentioned above was undertaken so that the Corporate Houses can come forward and help financially to fight with COVID-19. There are many people who are daily wage earners and have suffered due to lockdown the funds can be used for their survival, food, etc, the infrastructure is required to be maintained for quarantine facilities, etc. the funds can be utilised for these purposes benefits. Each corporate house is undertaking different activities to support the cause of fight against COVID-19.

3. Other relaxations announced vide Circular^[7] dated 24.03.2020.

That vide Circular dated 24.03.2020, the Ministry of Corporate Affairs further relaxed various compliances including:

a) No Additional fee for late filings

A moratorium period from 1^st April to 30^th September 2020 is declared wherein if any filing is done during the said time period there will be no additional fee will be charged if the filing is done beyond the statutory period provided under the Act, or rules made thereunder. In order to give effect to this relaxation, the Ministry of Corporate Affairs vide circular^[8] dated 30.03.2020 issued the Companies Fresh Start Scheme 2020 (CFSS 2020) under which the companies may file delayed forms/documents/reports with the ROC and make good of filing-related defaults, irrespective of the duration of default, and thus make a fresh start as a fully compliant entity. Similarly, the Ministry of Corporate Affairs has also enlightened and revised the LLP Settlement Scheme, 2020 vide circular^[9] dated 30.03.2020 and extended the date for availing the benefits of LLP Settlement Scheme till 30^th September, 2020 which was earlier available upto 13^th June 2020. Therefore, the Ministry of Corporate Affairs through such schemes provided an opportunity to comply with various filing requirements under the Companies Act 2013 and LLP Act, 2008 without any additional fees, so that the financial burden may be reduced in this pandemic situation.

• Time gap between two Board Meetings

As per the provisions of Section 173 of Companies Act, 2013 and Clause 2.1 of SS-I, the gap between two (2) consecutive board meetings cannot be more than 120 days. This time period of 120 days have been extended to 180 days for the next two (2) quarters.

• Meeting of Independent Directors.

A relaxation has been announced w.r.t convening of meeting of Independent Directors for the financial year 2019-20 which otherwise needs to be convened in pursuance of Para VII of Schedule IV of the Act i.e. at least one meeting in a financial year should be held by the Independent Directors of the company without the attendance of non-independent directors and members of management;

• Creation of Deposit Repayment Reserve

The time period for creation of Deposit Repayment Reserve of 20% of deposits maturing during the financial year 2020-21 under the provisions of section 73(2)(c) of Act has been extended till 30^th June 2020 from the current due date of 30^th
April 2020.

• Commencement of Business

Any newly incorporated Company has to mandatorily file a declaration of commencement of business as per provisions of Section 10A within 180 days of its incorporation. This time period has been extended for additional 180 more days i.e. they can now, file the declaration within 360 days of incorporation.

• Investment or Deposit w.r.t Debentures maturing

As per Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014, companies, in case of issue of secured debentures, required to invest or deposit at least 15% of amount of debentures maturing during the year ending on the 31^st day of March of the next year in specified methods of investments or deposits before 30th April 2020. Now, this condition needs to be complied till 30^th June, 2020.

g) Relaxation with respect to Resident Director

The requirement of having at least one director who stays in India for a total period of not less than 182 days during the financial year as per section 149(3) of the Act. has been dispensed with for the financial year 2019-20. Therefore, in case there is no any resident director in a company during the financial year 2019-20, there would not be any non-compliance.

h) Applicability of Companies (Auditor's Report) Order, 2020

In order to ease the burden on Companies and their auditors for the financial year 2019-20, the Companies (Auditor's Report) Order, 2020 shall be applicable from the financial year 2O2O-2O21 instead of being applicable from the financial year 2019-2020.

4. Extra Ordinary General Meetings through Video Conferencing

The Act as well as Secretarial Standard-II (SS-II) is silent w.r.t any specific provision w.r.t conducting of meetings of members through video conferencing (VC) and other audio visual means (OAVM),however there are many decisions which are required to be undertaken by any Company for which the meeting of members is required to pass the resolutions (both ordinary and special). Accordingly, the MCA vide circular^[10] dated 08.04.2020 has permitted the Companies to hold EGMs through VC or OAVM complemented with e-Voting facility/simplified voting through registered emails, without requiring the shareholders to be physically present. The circular provides the detailed procedures to be followed while conducting EGM through VC or OAVM. Thus, listed Companies or Companies with 1,000 shareholders or more (which are required to provide e-voting facility under the Companies Act, 2013) may conduct EGM through VC or OAVM and provide e-voting facilities. The other Companies, which are not required to provide e-voting facility under the Companies Act, 2013, may conduct EGM through VC or OAVM by providing voting mechanism through registered emails. Now the Companies may pass ordinary and/or special resolutions by holding EGM on or before 30^th June 2020 according to the procedures prescribed under this circular. The circular is also subject to compliance of all the provisions relating to general meetings viz. making disclosures, inspection of related documents by members and authorizations for voting by corporate members should be done through electronic mode. Further, the circular also provides that all resolutions passed in the EGM conducted under this circular shall be filed with the ROC within 60 days of passing the same.

There are more measures been anticipated from the MCA as even though the lockdown gets over but due to this lockdown and other factors there will be considerable delay in completing the finalization of financial statements, statutory audit and secretarial audit(for specified Companies)of the Companies. Such delay in completion of statutory as well as secretarial audit may cause delay in conducting the Annual General Meeting (AGM) of the Companies, which is required to be held within six months of end of the financial year i.e. on or before 30^th September each year. As it has been noticed, due to the reason that substantial time is required for completion of statutory as well as secretarial audit, many Companies have a practice of conducting their AGM in the month of September. Therefore, in the current situation of theCOVID-19 outbreak, MCA may come up with some relaxation relating to holding of the AGM for the financial year ending 31.03.2020 and subsequent filing of forms relating to annual financial statements, annual returns, the appointment of auditors, etc. As the COVID-19 is a dynamic situation and it is uncertain to predict for how long it remains, the Companies clearly need to be relaxed from the burden of compliances in near future as well.