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Coronavirus: Special Corporate Law Measures in India

Note: The content herein is only for informational purpose and does not constitute any legal opinion or advice on behalf of Legal Minds LLP.

The unexpected outbreak of COVID-19 has massively disrupted global economic activity and is indicating a financial meltdown. Consequently, several critical issues confront all the stakeholders of the economy. 

We have prepared this information in response to numerous queries about the extraordinary measures and relaxations notified by the Government to combat COVID-19. 

This information is in continuation of our previous information on the Legal Implications of a Global Pandemic (available here).

1. Labour Related 

The Government of India has urged every section of the society to coordinate and combat the catastrophic pandemic jointly. The Government has directed all establishments to devise and promote a work-from-home policy.

The Ministry of Labour & Employment has urged all the employers of public and private establishments not to terminate the services or reduce the wages of their employees. The notification mentions that if any worker takes a leave, he shall be considered to be on duty without any consequential reduction in wages. Further, if the place of employment is made non-operational due to COVID-19, the employees of such an establishment shall be deemed to be on duty.

2. MCA Related 

I. FORM CAR. The MCA has deployed FORM CAR (Companies Affirmation of Readiness Towards COVID-19) as a confidence-building measure aimed at the assessment of the readiness of the Companies to deal with COVID-19. The FORM CAR is a simple web form and does not require the payment of any fee. Consequently, Form CAR does not induce any payment or enforcement-related action. 

II. Corporate Social Responsibility (CSR) Fund. The MCA has notified that the spending of CSR Funds for combating COVID-19 is an eligible CSR Activity for the Companies Act. 

The notification permits Companies to spend the fund for promoting healthcare, including preventive healthcare and sanitisation and toward disaster management. 

III. Measures under the Companies Act 2013 (CA 2013) and the Limited Liability Act 2008 (LLP 2008).  The MCA has implemented the following measures to reduce the compliance burden and other risks on Companies and Limited Liability Partnerships (LLPs). 

i. Filings. A moratorium period of six (6) months commencing 1st April is imposed on MCA-21 filings. Such a step implies that no additional fees will be charged for delayed filings, thereby reducing the compliance responsibility of Companies and LLPs.

ii. Meetings. The requirement of intervals between Board Meetings under Section 173 of CA 2013 stands extended by a period of sixty (60) days. Such a step implies that the interval between two consecutive Board Meetings may extend to 180 days till the next quarter, instead of the previously-mandated 120 days.

iii. The Companies (Auditor’s Report) Order, 2020. To ease the responsibility of Companies and their Auditors, the MCA has made the Order applicable from the financial year 2020-21 instead of the fiscal year 2019-20. 

iv. Separate Meetings of Independent Directors. Schedule IV of the CA 2013 mandates Independent Directors to conduct at least one meeting without the attendance of other Directors or Management Members. The MCA has nullified this requirement for the financial year 2019-20. Therefore, if the Independent Directors have not been to hold such meetings, it shall not be a violation. But, the Directors may share their views amongst themselves via phone or emails. 

v. Repayment Reserve. The mandate to create 20% of deposits maturing during the financial year 2020-21, as deposit repayment reserve under Section 73(2)(c) of the CA 2013 is extended for compliance till the 30th June 2020.

vi. Debenture Investment. The mandate to invest or deposit at least 15% of the amount of maturing debentures under Rule 18 of the Companies (Share Capital & Debenture) Rules, 2014 is extended for compliance till the 30th June 2020. 

vii. Commencement of Business Declaration. Newly incorporated companies are conferred an additional period of 180 days to file a declaration for the commencement of businesses under Section 10A of the CA 2013.

viii. Resident Status. For Section 149 of the CA 2013, the non-compliance with the resident test / 182-day test shall not be interpreted as non-compliance for the financial year 2019-20. 

3. Insolvency and Bankruptcy Code Related. 

i. Default Threshold. Acknowledging the economic impact of COVID-19 on business, the minimum threshold for default to initiate corporate insolvency process is being increased from INR 1 lakh to INR 1 crore. The implication of such a measure would be, amongst other things, to prevent the triggering of insolvency proceedings against MSMEs. 

ii. Initiating Insolvency Proceedings. The Ministry will consider suspending the filing of an insolvency application by a financial creditor, operational creditor and by a corporate debtor for six (6) months, if COVID-19 persists beyond 30th April 2020. The implication of such a measure would be to prevent companies from being dragged into the insolvency resolution process.

4. Direct Tax (Income Tax)

i. Due Date. The due date for filing Income Tax Returns (ITR) for the Financial Year 2018-19 has been extended to the 30th June 2020. 

The due date for issuance of notices, filings, compliances, availing benefits under the following acts have been extended to the 30th June 2020: The Income Tax Act, 1961; The Wealth Tax Act, 1957; The Benami Transaction (Prohibition) Act, 1988; The Black Money Act; The Security Transaction Tax; and The Commodity Transaction Tax.

ii. Aadhar-Pan Deadline. The deadline for linking Aadhar-PAN is extended to the 30th June 2020.

iii. Vivad se Vishwas Scheme. The deadline for availing the benefits of the Scheme has been extended to the 30th June 2020. The Scheme allowed a taxpayer to pay only the amount of disputed tax, with a complete waiver on interest and penalty. 

5. Indirect Tax (GST & Customs)

i. Due Date. The due date for filing the annual return for the financial year 2018-19 has been extended to the 30th of June 2020. 

The due date for filing the GSTR-3B for March, April and May have been extended till the 30th of June 2020. Companies with less than five (5) crore turnover will not be subject to interest, late fee or penalty, however, for companies with a turnover higher than Rs. Five (5) crore, interest at the rate of 9% would be charged from 15 days after the due date. The rate of interest is concessionary as the current rate of interest at 18%.

ii. Composition Scheme. The due date for availing the composition scheme has been extended to the 30th of June 2020. The Scheme enables taxpayers with less than 1.5 crore turnover, to pay GST at a fixed rate. 

iii. Sabka Vishwas Scheme. The Scheme was introduced for the resolution and conclusion of legacy disputes about the erstwhile indirect tax regime. The due date for payment under Sabka Vishwas Scheme has been extended to the 30th of June 2020. Such payment shall not be subject to interest. 

iv. Custom Clearance. The due date for issuing of notices, notifications, sanctions, and any other document under the Customs Act and other allied laws is extended to the 30th of June 2020. Further, there shall be 24×7 custom clearance till the 30th of June 2020. 

6. Financial Services

Relaxation. A relaxation of three (3) months is provided for debit cardholders to withdraw cash for free from any other banks’ ATM; a waiver of minimum balance fee and reduced bank charges for digital trade transactions for all trade finance consumers. 

Conclusion. As of date, it is unmanageable to determine the impact of COVID-19 accurately. We advise each one of you to comply with the government health prescribed precautionary measures and stay safe. Life is so precious! 

If you would like to discuss any legal implication, please reach out to us on info@legalminds.co.in.