The Companies’ Fresh Start Scheme, 2020 (CFSS-2020) was introduced by the Ministry of Corporate Affairs (MCA) to give companies a chance to regularise past non-compliances without facing heavy penalties. Effective from 1 April to 30 September 2020, the scheme allowed defaulting companies to complete delayed filings with the Registrar of Companies (RoC) by paying only normal filing fees, with immunity from prosecution and penalties.
It applied to companies that had missed deadlines under both the Companies Act, 2013 and the Companies Act, 1956. However, the scheme excluded certain categories such as companies under strike-off process, amalgamated entities, vanishing companies, and filings relating to increase of authorised capital or charges.
This blog walks through the background, key takeaways, specific exemptions, treatment of appeals, provisions for inactive companies, and critical observations under CFSS-2020.
BACKGROUND
Many companies had accumulated filing defaults over the years, often due to financial strain or oversight. These defaults not only attracted additional fees but also exposed companies and their directors to prosecution and penalties. With COVID-19 adding to the challenges, the MCA rolled out CFSS-2020 to ease compliance and encourage companies to clean their records.
The scheme gave immunity for delayed filings, provided applications were made within the specified timeline. By doing so, it created a one-time window for defaulting companies to become fully compliant.
KEY TAKEAWAYS OF THE SCHEME
1. Applicability and Duration of the Scheme
CFSS-2020 applied to all companies that had defaulted in filing statutory documents such as annual returns, financial statements, or other forms with the RoC. These companies, termed “defaulting companies,” could file pending documents without any additional fee.
The scheme covered defaults since incorporation, making it comprehensive. It came into effect on 1 April 2020 and remained open until 30 September 2020.
2. Application and grant of immunity
After filing the pending documents during the scheme, companies were required to apply electronically in Form CFSS-2020 within six months of closure (by 31 March 2021). No filing fee was charged for this form.
Based on the declaration, the RoC issued an immunity certificate for the documents filed. Once granted, any related proceedings pending before courts or adjudicating officers under Section 454 were withdrawn, marking the closure of such cases.
3. Withdrawal of appeal filed, if any, by the Company
If a company or its officers had filed an appeal against any order relating to filing defaults, they had to withdraw it before applying for immunity under CFSS-2020. Proof of withdrawal was required along with the application.
This ensured that companies did not pursue parallel remedies while availing immunity.
4. Measures for cases where the order of adjudicating authority was passed but the appeal could not be filed
For penalties imposed by adjudicating officers where no appeal had been filed as on 1 April 2020:
- If the last date for filing appeal fell between 1 March and 31 May 2020, an additional 120 days was granted for appeal to the Regional Director.
- During this extended period, prosecution for non-compliance of such orders was not initiated.
This measure addressed delays caused by lockdown restrictions.
5. Immunity not to be provided in certain cases
CFSS-2020 excluded immunity for:
- Matters pending before courts or tribunals.
- Cases where conviction had already been ordered.
- Orders imposing penalties where no appeal had been filed before commencement of the scheme.
Importantly, the immunity applied only to delayed filings, not to substantive violations. For example, delays in filing Form PAS-4 attracted immunity from daily penalties, but misuse of funds raised through private placement was not covered.
6. Non-applicability of the Scheme for certain companies
The scheme did not apply to:
- Companies facing strike-off action by RoC.
- Companies that had already applied for strike-off.
- Amalgamated companies.
- Companies that had applied for dormant status.
- Vanishing companies.
- Filings related to authorised capital increase (Form SH-7) or charges (CHG-1, CHG-4, CHG-8, CHG-9).
In these cases, regular additional fees and penalties continued.
7. Scheme for Inactive Companies
Inactive companies were given a choice to either:
- Apply for dormant status through Form MSC-1, or
- Apply for strike-off by filing Form STK-2.
This allowed inactive companies to either maintain minimal compliance or exit from RoC records altogether.
8. Points to Ponder
While CFSS-2020 was well-drafted, one ambiguity remained around the term “vanishing companies,” which was not defined under the Act or rules. Clarification from the MCA was awaited on its exact scope.
Another critical point was that while immunity removed penalties for filing defaults, it did not protect directors from disqualification if they had failed to file annual returns or financials for three consecutive years. Such disqualification continued for five years.
M2K REMARKS
CFSS-2020 was a timely relief measure introduced in the wake of COVID-19. It encouraged compliance by allowing companies to clear long-pending defaults without additional cost or fear of prosecution. The scheme significantly reduced the burden on companies and promoted transparency in corporate records.
By combining compliance relief with the option for inactive companies to seek dormant status or strike-off, the scheme offered a holistic solution. It was largely self-explanatory and minimised interpretational challenges, except for the unclear scope of “vanishing companies.”
Overall, CFSS-2020 created a clean slate for defaulting companies and inc
