Understanding Easy Exit Scheme and Company Law Settlement Scheme and What it means for SMEs

The Ministry of Company Affairs (“MCA”) has introduced two Schemes with effect from 30 May 2010 for providing benefit to companies from prosecution and other legal action.

Company Law Settlement Scheme, 2010 (“CLSS”) which provides an opportunity to companies who have not been on top of their compliances and not filed returns, filings etc. to make their default good by just paying 25% of the additional fee (i.e. a rebate of 75% on the additional fee) and avail immunity from prosecution from non-compliance.

Easy Exit Scheme, 2010 (“EES”) provides an opportunity for inoperative / defunct companies to get their names struck off from the Register of Companies through a simplified process compared to the tedious winding up procedure.

CLSS

Eligibility: CLSS is available till 31 August 2010, for Indian companies and foreign companies (liaison / branch / project offices). But the companies should have first increased their minimum paid up capital (Rs. 1 lakh for private limited and Rs. 5 lakh for public limited ).

Non-applicability: CLSS is not applicable where ‘prior approval’ of any authority (like Company Law Board, Central Govt.) is required or if there is any on-going prosecution. Delayed filings during the period of the Scheme is not eligible for the fee rebate.

Procedure: The defaulting company has to pay the prescribed statutory fee along with additional fee to the extent of 25% of the actual additional fee prescribed. Once those filed forms / returns are taken on record (approved by ROC), then the company must in a specific form provided under the CLSS, apply (within 6 months) for immunity from any prosecution.


Company Law Settlement Scheme 2010

EES

Eligibility: Any active company on the MCA portal, which is not carrying on any business activity or operation on or after 1 April 2008.

Non-applicability: EES is not applicable in cases of listed companies, not-for-profit companies, if any prosecution is pending. Also in cases where companies have accepted public deposit or has a secured loan which is outstanding, has a management dispute or any taxes are pending for payment.


560 Easy Exit Scheme 2010

Procedure: Let me make it sound simple:

Step 1:

– Apply through a new form EES which has been prescribed. No fees on this one.

– Along with an Affidavit from each Director that there are no outstanding litigation, the company has been in-operative and that there are no tax dues. It is nice that a format has been prescribed for this too.

– And an Indemnity Bond

– And a Statement of Accounts.

Step 2:

On receiving the above documents and examining them, ROC shall display the names of such companies on MCA portal and provide 30 days time to receive any objection from any stakeholders of the company. Intimate the company (via email) and also to certain regulators ( in cases of NBFCs etc.) and tax authorities for their objection. Post the 30 day period and if there are no objections, then the ROC shall strike the name of such defunct companies from the Register of Companies and publish the same in the Official Gazette. With effect from the date of such publication, the company stands dissolved.

This scheme is available till 31 August 2010.

I wish there is an ‘easy Incorporation of a company scheme’ too. At times it takes 6 weeks and more with replies from ROC ranging from system is slow, no net connection, the officer is on leave to comments such as address of the subscriber does not tally (it means you should have written “Flat No. B1102” and you wrote “No.B1102”).

Please leave your questions in the comments section.

Sharda Balaji

Founder, NovoJuris Services India Pvt. Ltd (legal consulting company focused on start-ups).

Disclaimer: This article is for informational purposes only and is intended but not promised or guaranteed to be correct, complete and up-to-date. This is not a legal advice or opinion.

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