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Relaxation Of Time & Fees For Filing Charge Forms

Introduction: MCA has via its circular dated 17 June, 2020 issued a ‘Scheme for relaxation of time for filing forms related to creation or modification of charges under the Companies Act, 2013’ (“Scheme”) for the purpose of condoning the delay in filing certain forms related to creation/modification of charges. This circular is an extended clarification to the Companies Fresh Start Scheme as laid out in the MCA General Circular No.12/2020 dated 30 March 2020, where the benefit of waiver of additional fees was not extended to charge forms. The benefit is now being extended to charge creation and modification forms with effect from 17 June 2020.

Existing Regulations: Companies are required to file charge creation or modification forms within the timelines specified in Section 77 of the Companies Act, 2013 (“Act”) i.e. within a total of 120 days from the date of creation or modification of the charge, after paying all the additional and advalorem fees prescribed under the Act.

Detail of Relaxations Announced:

  1. Relaxation in Timeline: This Scheme shall be applicable in respect of the filing of Form No.CHG-1 and Form No.CHG-9 by a company or a charge holder, where the date of creation/modification of charge
    • is before 01 March 2020, but the timeline for filing such form had not expired under Section 77 of the Act as on 01 March 2020 – in this case, the period from 01 March 2020 to 30 September 2020 shall not be counted for the purpose of calculating the number of days within which form is required to be filed under Section 77 of the Act i.e. the first day to be counted after 29 February 2020 shall be 01 October 2020.


    •  falls on any date between 01 March 2020 to 30 September 2020 (both dates inclusive) – in this case the period beginning the date of creation/modification of charge till the 30 September 2020 shall not be counted for the purpose of calculating the number of days within which form is required to be filed under Section 77 of the Act i.e. the first day to be counted after the date of creation/modification shall be 01 October 2020.
  1. Relaxation in Fee: The relaxation in fee for both the above scenarios is as below, respectively for Clauses Ia. and Ib.:
    1.  in this case :
      1.  if the form is filed on or before 30 September 2020, the normal fees payable as on 29 February 2020 shall be applicable.
      2. if the form is filed after 30 September 2020, the fees shall be charged after adding up the number of days beginning 01 October 2020 and ending on the date of filing of form plus the time period lapsed from the date of creation of charge till 29 February 2020
    2.  in this case:
      1. if the form is filed before 30 September 2020, normal fees shall be payable
      2. if the form is filed after 30 September 2020, the fees shall be charged for the period counted from the 01 October 2020 till the date of filing the form.

Exception to the Scheme: This Scheme shall not be applicable in the following cases:

  1. where the forms have already been filed before 17 June 2020 i.e. date of the circular
  2. where the timeline for filing the forms have already expired prior to 01 March 2020
  3. where the timeline for filing the form expires at a future date
  4. for filing charge satisfaction form i.e. Form CHG-4

Points to Note:

  1. This Scheme shall be applicable from the date of issue of the MCA General Circular No.23/2020 i.e. 17 June 2020
  2. This Scheme is applicable only to charge creation forms i.e. Form CHG-1 and Form CHG-9.

Link to Circular:

Business Reforms and Enablers under Govt. Scheme – SELF RELIANT INDIA
Business Reforms & Enablers under Govt. Scheme – SELF RELIANT INDIA

Corporate Law measures to boost Ease of Doing Business:

  1. Timely Action during COVID–19 to reduce compliance burden under various provisions of the Companies Act, 2013 as well as enable companies to conduct Board Meetings, EGMs & AGMs, Rights issue by leveraging the strengths of Digital
  1. Decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM).
  1. Majority of the compoundable offenses sections to be shifted to internal adjudication mechanism (IAM) and powers of RD for compounding enhanced (58 sections to be dealt with under IAM as compared to 18 earlier).The Amendments will de-clog the criminal courts and
  1. 7 compoundable offenses altogether dropped and 5 to be dealt with under alternative (Details of such offenses not available yet)
  1. Withdrawal of more than 14,000 prosecutions under the Companies Act,
  1. Lower penalties for all defaults for Small Companies, One Person Companies, Producer Companies & Start

Enhancement of Ease of Doing business through IBC related measures:

  1. The minimum threshold to initiate insolvency proceedings raised to 1 crore (from Rs. 1 lakh, which largely insulates MSMEs).
  1. Special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified
  1. Suspension of fresh initiation of insolvency proceedings up to one year depending upon the pandemic
  1. Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency

Other Miscellaneous Key-Points:

  1. Direct listing of securities by Indian public companies impermissible foreign
  1. Private companies which list NCDs on stock exchanges not to be regarded as listed
  1. Power to create additional/specialized benches for NCLAT.
Solutions to the Challenges faced by MSMEs: COVID times and way forward

With a very large number of MSMEs struggling with cash flows, due to delayed payments, reduced customer demand and a general slow-down in the economy, it is important to focus on getting demand back as soon as possible. The best way would be to incentivise accelerated spending over the next 6 months.

  1. Revenue – the cash flow challenges

Over the past few weeks, MSMEs across the world have been facing unprecedented challenges. For MSMEs in consumer businesses such as hotels, restaurants, salons, gyms, movie theatres, distribution firms, and other non-essential retail, revenues are down to near zero.

Firms operating in the B2B space have also seen revenues dip substantially. We have heard of multiple instances of large customers canceling long term contracts and enterprise customers delaying payments. Cash collections have slowed down or completely stopped.

Most of the MSME founders are in a state of shock and there is a total lack of clarity on when customers will return. The rare few who don’t face this problem should consider themselves lucky.

  1. Expenses – how do you pay?

On the other hand, the firms have to continue to pay for certain necessary expenses, such as employee salaries, utility payments, rentals, etc. With the lack of cash collections, many of these payments are being delayed or reduced. Firms are resorting to reduced salaries and asking landlords to delay rental payments. Supplier payments are being delayed.

Firms are looking to mitigate cash flow pressures, through the RBI provided a temporary moratorium on existing borrowings and the set-off benefits on GST and TDS payments provided by the government, though these come at a cost.

  1. Can one turn to the bank for help?

The firms can look to the banks for loans to help with cash flows, but given the uncertainty over the business, banks are also reluctant to lend till there is more clarity. Remember, the bank can lend only if they are confident of collecting the principal and interest. If there is a material risk for the loan to be repaid, it is not in the best interest of the bank to provide the loan – else the bank runs a high risk of default on the loan.

Given the triple pressures of Low or No Cash Collections (Revenues), necessary payments to be made and limited borrowing opportunities, the MSMEs are using whatever little cash cushion to manage, but if the weak demand continues for slightly longer, then the situation looks dire for a large number of MSMEs. The Risk of bankruptcies is very high.

  1. What are MSMEs doing

In this situation, MSMEs are first focussing on evaluating if customers will get back and planning accordingly. Wherever possible, they are reducing costs and new initiatives are being shelved. In conversations, many promoters have mentioned that they have set aside some additional capital to take care of the expenses over the next few months and if the business does not get back to profitable mode, they may have to start taking hard calls.

  1. The challenges for the government

There is much clamor for the government to provide a large stimulus, but this is a complicated path. Already the fiscal deficit has been under strain and the COVID related lockdown has further exacerbated this problem, with tax collections already down and guaranteed to go down even more. Any increase in tax rates will delay an already fragile economic recovery. And just providing increased liquidity, can only help the MSMEs to some extent, as the money will go down the drain if customers don’t return soon.

  1. What support do MSMEs need from the government

For the entire economy, this is a complicated challenge. At the root of the problem is delayed customer demand. Enterprise businesses are going into a cash conservation mode and delaying spending, as they prepare for the uncertain times ahead. Individuals are also conserving their cash as they are uncertain about their future.

In this scenario, it is imperative to get demand back as early as possible. In order to do this, firms and individuals who have sufficient cash reserves and cash flows should be incentivised to start their spending early. This will ensure the MSMEs (and also larger businesses) get back to normalcy sooner. There are precedents on how the government has addressed this in the past:

  • For businesses, allow for say 100% depreciation as an expense on Capex done before September 2020
  • Provide discounted GST rates on consumption done before Sept 2020 for both businesses and individuals. In the past, we have seen reduced excise and service tax for limited periods

This will get the economy back on its feet sooner, save jobs, reduce bankruptcies,  reduce bad loans for banks, and get the MSME engine moving. The government will also benefit, as demand recovers and the tax lost out on the depreciation benefit will just be delayed. Jobs saved will lead to higher income tax collections and the increased consumption will lead to improved GST collections.

As they say, teach a man to fish….

“Work” in the post Covid world

When the Corona led lockdowns started in the middle of March, not only in India but across various parts of the world, the business world was stunned. Most believed the world would not be able to function and work will come to a standstill. 6 weeks later, the on-ground experience has been very different. While many sectors directly affected, such as travel, hospitality, consumer-facing services like salons, malls, etc have completely come to a standstill, various other areas of work like IT Services, FMCG, Banking, etc continue to function smoothly (given the circumstance, smoothly is probably the best word).

Many people, who are part of the functioning world, claim they are actually working far more than they were in the pre-Covid world. Some say, efficiency levels have actually gone up.  A strong data infrastructure, data on the cloud, video conferencing, digital payments, and a host of digital applications have made this a reality. It would be fair to say, the lock-down would have caused far more disruption if it had happened a few years back when such infrastructure was not available.

Given the rapid spread of Covid, the importance of flattening the curve, and no real cure in sight, it is quite likely the world will never return to the old ways of working. Many offices will have to (or choose to) be prepared for ‘social distancing’ as a norm, but at a reduced level of severity than what we have seen so far.

Companies that adapt to the new world will survive and thrive in the post-Covid world. Companies that resist change will struggle a lot. We believe the following trends are firmly in place.

  1. Work-From-Home :

Firms will look to mix employees into 3 buckets (WFO: Work full time from the office. WPT: Work part-time from office. WFH: Work from home full time). All work roles could be bucketed into one of these categories. This will bring down overall administrative costs for firms. The cost savings can be directly transferred to customers leading to significant competitive advantage in the market place. Some firms may need to create distributed work environments, so that some employees who don’t have an option to work from their homes, can use these work environments close to their homes. Over time, one can reasonably expect the WPT and WFH employees to move away from the large cities to smaller towns, where lifestyle will be much better and with options to work effectively from home.

  1. Data and communication infrastructure :

With efficient video conferencing, VPN, digital work processes, etc, the post-COVID world will see a far more efficient set of work processes. One does not have to wait for a week to get a senior management meeting. More meetings can be scheduled and completed in a week, a far more efficient process than in the physical world. Firms need to invest in Data infrastructure, Data Security,  Measuring productivity.

  1. Dismantle well-entrenched processes :

What surprised many people, over the past 6 weeks, is that many processes which historically needed a physical employee presence, would be managed remotely as people figured ways to find workarounds. Firms that focus on dismantling these processes and reducing the need for physical presence should be able to work far more effectively in the new world. The lawyers, accountants, etc will have to find way around in the new world. Imagine a day when the courts, doctors, etc can work digitally.

  1. 9-5 working :

The idea of the 8 hour a day work culture, which is nearly 135 years old, is based on employees coming into office. Once you take this requirement out of the equation and define work packets for the flexible work environment, it allows companies to hire people for the work required. It will also allow many part-timers to come into the mainstream workforce – women who need to balance time between work & home, retired folks who have specialized skills, other part-timers, etc. It will land up unleashing a massive amount of talent leading to huge productivity improvements.

  1. Business Travel :

Many businesses have figured a way to work without having to travel during this lockdown. Conferences have been happening in the digital world quite seamlessly – with the same level of effectiveness, but far more efficiently. With travel and hotels facing some uncertain times, many business travelers will get used to the new world doing of business with their clients without having to travel. Once this culture is firmly entrenched, it will be difficult to change. Next time when you ask a client for a meeting, chances are the client would prefer a video-call.

  1. Digital Culture :

Finally, every organization has a culture and it is easier to create a common culture in the physical world. Employee level engagement is possible and the coffee machine conversations really make the firm. In the new world, many of these need to shift to the digital world. I already see several firms taking huge strides in this direction. Keep an eye open in this direction and you will see a plethora of options available for you to create a common culture.

All the best in your endeavor to re-engineer your firm in the new world. Stay safe. The world on the other side will most likely be a far more beautiful world.