Simplified Exit Scheme - Clarifications on some issues - Companies Law - 16/2003

General Circular No: 16/2003 F.No. 17/78/2001-C.L.V Government of India Ministry of Finance and Company Affairs Department of Company Affairs ********** Shastri Bhavan, New Delhi. Dated the 17th April, 2003 To All Regional Directors, All Registrar of Companies Sub: Simplified Exit Scheme - Clarifications on some issues ***************** The undersigned is directed to refer to General Circular No: 13/2003 dated 25.3.2003 and General Circular No: 15/2003 dated 9.4.2003 regarding Simplified Exit Scheme. Though the scheme has been well received by professionals and corporate sector, clarifications/amplifications on certain issues have been sought for effective implementation of the scheme. These issues have been examined in the Department and clarifications are given in Question-Answer format in the annexed Statement. Kindly acknowledge the receipt of this circular. Yours faithfully, Encl: As above (N.K. Vig) Under Secretary to the Government of India (Ph: 23387174) Clarifications on Simplified Exit Scheme, 2003 Issue No: 1: How will companies that have some minimal assets, such as cash balance, take advantage of the scheme? (para 9(ii) of the scheme). Clarification: Assets and liabilities should be zero. Issue No: 2: How often will the ROC publish the list of companies applying for SES? (para 10 of the scheme) Clarification: ROC will do so on a monthly basis. Issue No: 3: Who will pay the advertising charge? (para 10 of the scheme) Clarification:. The ROC (Central Government). Issue No: 4: Will publication of newspaper advertisement and reference to IBA be simultaneous? (para 11 of the scheme). Clarification:. Yes. Department will bind the ROCs to ensure that the letter to IBA is dispatched on the same day as the order for advertisement is placed with the newspapers. It is further directed to all ROCs that reference should also be made to Financial Institution besides IBA. Issue No: 5: What happens to applications received on the last date of the validity of the scheme? (para 14 of the scheme) Clarification:. All applications received till the last date will be duly processed. The intention of giving a last date for the scheme is only to indicate the last date for receipt of application. Issue No: 6: If application is to be signed by a minimum of two directors, why have three boxes been provided? (Application form - Annexure 'A') Clarification:. Because more than two directors may apply; in public companies it is likely that three directors will apply. If it is a private company and only two directors are applying then the third photo box will simply remain empty. Issue No: 7: What happens if any of the directors making the application does not have a PAN number. (Affidavit - Annexure 'B') Clarification:. Then, in his/her affidavit a paragraph has to be added stating that he/she has not been assigned a PAN number by the Income Tax Department. Issue No: 8: Is NOC required from tax authorities/banks? (para 5 of the Affidavit - Annexure B) Clarification:. If the affidavit clearly states that there are no tax liabilities, and the indemnity bond clearly states that the directors will be responsible for any liabilities discovered or assigned subsequently, then no NOC is required. Issue No: 9: Why does the indemnity bond have a column for worth of assets, when only zero asset companies are eligible for the scheme? (Indemnity Bond- Annexure 'C') Clarification:. This was a printer's devil and has already been corrected, including on the website. A clarification has been issued on 9.4.2003(General Circular No: 15/2003). Issue No: 10: Why should director's liability remain unlimited and that too for an unlimited period? (Indemnity Bond- Annexure 'C') Clarification:. The directors are bye-passing the entire winding up procedure where the liabilities would have been judicially determined; the minimum comfort they have to provide in lieu of this is to be prepared to accept the liabilities if they have not brought such liability to notice when exiting from a limited liability company and extinguishing a juridical person. Regarding limitations, normal laws of limitation will apply. The liability is no different from what is provided in Proviso (a) to sub-section (5) of section 560 of the Companies Act, 1956. Issue No: 11: Why cannot the affidavit be notarised instead of being sworn before a magistrate or executive magistrate? (Para 9(iii) of the scheme) Clarification:. The SES actually relies on the affidavit heavily, in respect of there being no liabilities. Individuals find it more difficult to swear false affidavits in front of a magistrate. Issue No: 12: Whether applications received prior to SES will be required to come under SES (even in cases where increase in capital as required in section 3(3) and 3(4) have not been effected. Clarification:. SES is a new scheme and application will have to be made under the scheme itself. Companies have the option of withdrawing their regular section 560 application and applying under the SES. Issue No: 13: Whether company should draw a separate balance sheet for the year ending 31st March, 2002/2003 wherever they do not have uniform financial year. Clarification:. The intent of giving the date 31st March is to indicate end of financial year. If some companies' financial year ends in any other month, then naturally that cut off date will apply. In fact, the balance sheet to be filed with the scheme can be for a period after the close of the financial year also. For example, financial year of a company may have ended on March 31st, 2003. Yet, if the application is being filed, say, in July, 2003, then the company is at liberty to file a balance sheet finalised for the period upto June, 2003 also. In other words, it needs to be understood that what has to be filed is the last balance sheet, provided it pertains to a period which is not more than three months prior to filing of the application. Issue No: 14: Can companies, who have not raised their capital to the required minimum as required under section 3(3) and 3(4) of the Companies Act, can avail of the scheme without increasing the capital. Clarification:. Yes. In fact, the circular clarified they need not even be prosecuted for not raising the capital in time, in case they take the SES route. Issue No: 15: Can companies who have not taken even the commencement certificate avail of the scheme? Clarification:. Yes, of course. There cannot be a company more defunct than this. In fact, these are the companies that need to be struck off the register first. ************