Opportunity for Disqualified Directors – How to get rid of disqualification and avail the Company Fresh Start Scheme 2020 September 14, 2020
Published in: Alerts
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In the aftermath of COVID-19, benchmarking of profit margins of the low risk captive service providers from Transfer Pricing perspective would be a complex exercise, as the combined profitability in the value chain is shrinking and the associated enterprise would be seeking to renegotiate the remuneration paid as a cost plus mark-up, to reflect the margins in the current economic scenario.
The directors disqualified by the Ministry of Corporate Affairs (“MCA”) in 2017 have been given an opportunity to get rid of their disqualification, and also to avail benefit of the Company Fresh Start Scheme 2020 (“CFSS 2020”), valid till 30.09.2020, by a recent Judgment dated 02.09. 2020 passed by the Hon’ble High Court of Delhi in W.P.(C) 5490/2020 titled “Sandeep Agarwal & Anr. V. Union of India & Anr.” (“Judgment”).
Who is this for?
This development is relevant for directors who have been disqualified since 2017 or later, who remain disqualified till today. They would normally be unable to act as director in any other company and would also be unable to apply and take benefit of CFSS 2020. It may also be difficult to approach the High Court for writ remedy, because of delay in case of directors disqualified since 2017 or 2018.
First – What is CFSS 2020?
The MCA vide circulars dated 24.03.2020 and 30.03.2020 promulgated the CFSS 2020allowing only active defaulting companies a one-time opportunity to complete all pending compliances by filing belated documents on MCA-21 without being subject to a higher additional fees on account of delay and for getting immunity from prosecution for such default. The scheme closes on 30.09.2020.
What is the opportunity under the Judgment?
The Judgment dated 02.09.2020 sets aside the disqualification of petitioner Directors. These directors were unable to take benefit of CFSS 2020 as the default was in a struck off company and not in other active company(ies) where such persons are holding position as directors.
Hon’ble Delhi High Court noted that disqualification and cancellation of DINs would be an impediment for directors in availing remedies even for their active companies under the CFSS 2020 which is intended to allow a fresh start for active companies which have defaulted. The scheme would be ineffective if such directors are not given a chance. The Scheme was held to itself be a fresh and continuing cause of action for approaching the courts in such circumstances.
What is the remedy now?
The Judgment allows disqualified directors who are also directors in active companies to approach the High Court challenging their disqualification and suspension of DSC and DIN, so that they may be given an opportunity to avail the CFSS 2020 for their active companies. However, the window of opportunity is brief as the scheme itself expires on 30.09.2020, unless it is further extended. There is a likelihood of extension, given the past trend of extending similar amnesty schemes, and given the current situation of pandemic.
Once and if the petition is allowed, the disqualification may be set aside and the party would be able to able to take steps under the CFSS 2020 for their active defaulting companies:
We trust that you will find the same useful.