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MCA Relaxes Residency Requirement for Directors

November 6, 2020

The COVID-19 pandemic has brought global travel and trade to a standstill. Nations have imposed strict restrictions on air travel because of the health risks involved with air travel. Under the Unlock 5.0 latest guidelines issued by the Home Ministry and the Directorate General of Civil Aviation (DGCA), the ban on scheduled international passenger flights has been extended till October 31.

The lack of travel options available for international travelers to India also means that compliance with the Companies Act, 2013 has become more onerous for companies with directors having foreign nationalities.

It is pertinent to mention here that Section 149(3) of the Companies Act, 2013 mandates every company to have at least one director who stays in India for a total period of not less than 182 during a financial year. However, given the fact that scheduled international passenger flights haven’t been operational since March 23, 2020, it has become impossible for certain companies to fulfill the criteria.

In much-needed respite, the Ministry of Corporate Affairs (“MCA”) vide General Circular No. 36/2020[1] dated October 20, 2020 relaxed the residency requirement for directors of 182 days under Section 149 of the Companies Act, 2013 for the financial year 2021. It mentions that ‘non –compliance of minimum residency in India for a period of at least 182 days in a year, by at least one director in every company, under Section 149 of the Companies Act shall not be treated as non-compliance of the financial year 2020-2021 also’.[2]

Earlier in March 2020, MCA vide General Circular No. 11/2020[3] had relaxed the residency requirement for directors for the financial year 2019-20 along with other measures in view of the Covid-19 outbreak.

MCA has responded to the economic disruptions caused by the pandemic by exercising its powers to relax compliance requirements for companies and LLPs for the current financial year. Companies and LLPs have been given extended timelines to comply with statutory requirements and filings. Under the Companies Fresh Start Scheme and LLP Scheme, they have been given the option to make the necessary disclosures to clear the backlog of compliance issues, without penalties. The latest Circular would bring much-needed respite to multi-national companies having foreign nationals as Directors.

[1] http://www.mca.gov.in/Ministry/pdf/GeneralCircularNo.36_20102020.pdf

[2] http://www.mca.gov.in/Ministry/pdf/GeneralCircularNo.36_20102020.pdf

[3] http://www.mca.gov.in/Ministry/pdf/Circular_25032020.pdf

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