Regulatory Updates by Ministry of Corporate Affairs in Light of COVID-19
Updated: Apr 26, 2020
Owing to the rigorous spread of the virus amongst citizens, a national wide lockdown was imposed for 21 days till 14th April 2020, which has now been extended till 3rd May 2020. To facilitate a smooth running of affairs of the companies, numerous circulars and notifications have been issued by various ministries to combat the operational difficulties being caused due to the COVID-19 crisis. Listed below are various circulars/ notifications/ clarifications/ memorandums issued by the Ministry of Corporate Affairs (“MCA”) in light of COVID-19.
Matters to be dealt through Video Conferencing or Other Audio-Visual Means
The Companies (Meetings of Board and its Powers) Rules, 2014 were amended vide notification dated 19th March 2020 stating that the requirement of holding Board meetings with the physical presence of directors under Section 173 (2) of the Companies Act, 2013 (“the Act”) read with Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 for approval of the annual financial statements, Board’s report, etc. shall be conducted through video conferencing or other audio visual means from the date of the notification till 30th June 2020.
Special Measures under Companies Act, 2013 and Limited Liability Partnership Act, 2008
MCA, vide a circular sought to reduce the burden of compliance and other risks being faced by the companies and LLPs by relaxing the following:
Penalty for late filing during the moratorium period (i.e., from 1st April 2020 to 30th September 2020) has been waived off irrespective of its due date.
The mandatory requirement of holding board meetings at least 4 times a year with the interval between two such meetings not exceeding 120 days, has now been extended by a period of 60 days until the next two quarters i.e., till 30th September.
Independent Directors who have not been able to hold a meeting without non-independent directors for the FY 2019-20 have been exempted and are not liable for any violation.
The date for transferring at least 20% of the amounts of deposits that are due to mature during FY 2020-2021 to a deposit repayment reserve has been extended from 30th April 2020 till 30th June 2020.
The requirement to invest or deposit at least 15% of the amount of debentures maturing in specified methods of investments or deposits before the amount of April 2020, may now be complied with by 30th June 2020.
Newly incorporated companies have been granted an additional period of 180 for complying with the obligation to file a declaration for Commencement of Business within 180 days of incorporation.
The requirement of a resident director (who has been in India for at least a period of 182 days) in every company has been waived off.
Clarification on passing of resolutions by companies on account of COVID-19
MCA, vide notification dated 8th April 2020, permitted the Companies to take all decisions of urgent nature requiring approval of members, other than items of ordinary business where any person has a right to be heard, through the mechanism of postal ballot/e-voting, with holding a general meeting.
Corporate Social Responsibility
On 23rd March 2020, owing to the pandemic, the MCA vide a circular, clarified that the spending of funds and donations towards COVID-19 shall be eligible for CSR activity.
Going further, on 10th April 2020, MCA, vide a circular (“Circular on FAQ”), answered questions on the CSR expenditure of companies related to COVID-19 and clarified that contributions made towards the Chief Minister’s Relief Fund or State Relief Funds are not included in Schedule VII of the Act and therefore shall not qualify as CSR expenditure. In contrast, MCA permitted the contributions made to the PM Cares Fund to be treated as CSR expenditure as it falls under item viii of Schedule VII of the Act.
Please feel free to reach out to any member of the G&A Team in case you require any clarifications on the above.
Gandhi & Associates