Frequently asked questions on Easy Exit Scheme (EES) - 2011

Introduction :

In Indian corporate scenario it is observed that many a time promoters register their companies under the Companies Act, 1956, but could not turn their corporate venture operative due to various reasons. The readers may be aware that the Ministry of corporate affairs (MCA) has come out with heavy penal/ additional filing fees with effect from 05th December, 2010 for the delayed annual submissions. This may tend to be a burdensome proposition for all such non-operative business ventures. Management of such companies desire to declare their companies defunct and relive them from further compliances of company law, income tax, service tax, excise, customs, VAT or any other provisions occurring out of other statutory legislations for the time being in force.

Keeping such defunct companies into consideration, the Ministry had launched a Scheme namely, "Easy Exit Scheme, 2010" during May to Aug, 2010. Thousands of companies had already benefited by the scheme. However due to various genuine reasons EES 2010 scheme could not get the intended response. Ministry has come across various representations and deliberations for extension of this scheme. In view of streamlining those requests the Ministry has decided to re-launch the Scheme as, "Easy Exit Scheme, 2011" pursuant to Section 560 of the Companies Act, 1956, during the month of January, 2011, especially for all those who had missed out exit opportunities earlier.

This scheme should stand as a surprising gift from the MCA extending its golden shake-hand for those, who want to part with their corporate status forever. Official detailing about the scheme could be available by logging on to the link on the website of Ministry of Corporate Affairs   http://www.mca.gov.in/Ministry/latestnews/CircularEES_3dec2010.pdf

On a few professional platforms I had an opportunity to share my views on Easy Exit Scheme 2011. While interacting with the audience, I have noticed some questions which are frequently posed. In the general interest I have chalked them down.

Frequently asked questions :

1. Under Easy Exit Scheme 2011, is it necessary to file the annual returns and get the company regularize?

Answer : Under the Easy Exit Scheme (EES) 2011, company need not require to regularize its filing of annual forms. On the contrary the scheme is designed for those companies which are in-operative or defunct and want to get rid of routine compliances pertaining to the Companies Act and other statutory legislations.

2. Is there any charge to close the company under EES 2011 ?

Answer: The circular of EES 2011 states that every company needs to pay filing fees are Rs. 3,000/- (Rupees Three Thousand only). Stamp duty being a state subject needs to be addressed according to the provisions of stamp act of the respective state. In Maharashtra stamp duty for affidavit is Rs. 100/- and indemnity bond is Rs. 200/-

3. Is there any prerequisite for applying under EES 2011 ?

Answer: Yes. The company should have an ACTIVE status on the MCA portal; otherwise the application form in EES 2011 could not be filed.

4. What documents are required for considering our company as defunct under EES 2011?

Answer: Compulsory documents -

• Application form EES (should be certified by CA/CS/CWA)
• Board resolution u/s 560
• Affidavit in Annexure A (*attestation compulsory, should be given individually)
• Indemnity Bond in Annexure B (*attestation compulsory, may be given jointly)
• Statement of accounts in Annexure C (should be signed with stamp by a chartered accountant and at least two directors)

*Affidavit and indemnity bond should be sworn by before a First Class Judicial Magistrate or Executive Magistrate or Oath Commissioner or Notary

In case of government companies where 100% shares are held by government and no board is established; a senior administrative person carrying post not below the rank of deputy secretary can write his/her name, details and sign on the annexure A, B and C. 

Optional documents (which may be asked by the registrar) -

• Waiver letters by each shareholder
• Waiver letters or no object certificates from sundry creditors
• Photocopy of Assessment orders
• No dues certificates issued by statutory authorities/ banks/ financial institutions
• No dues certificates issued by administrative ministry or department or state government in case of government company

5.Our company has some unsold stock/machinery. What should be done?

Answer: If the value of said machinery is obsolete or inventory value is nil; company can take the benefit of EES 2011. If it has meager value it may be written off. More or less the same principle is applied for all current assets.

6. What if the company has any tangible asset like plot or flat?

Answer: The Company cannot apply for declaring it defunct under the scheme. It has only recourse of going through the process of voluntary liquidation. More or less the same principle is applied for all fixed assets having considerable valuations.

7. Some of the Income tax/ sales tax assessments are pending. What should be done?

Answer: Directors need to give an indemnity bond for making the good of any pending assessments with any statutory authority. Indemnity bond also covers any other contingent liability which may occur after the intended dissolution under the scheme.

8. Do we require closing our bank account? Do we need to close our cash from the books of account?

Answer: Preferably yes. It is not mandatory that the company should not have its bank account closed or cash in its books; however Registrar insists to do so. Seldom has he allowed small amount of cash.

9. Our company is showing some reserves. Can it be closed?

Answer: As long as reserves are in the form of undistributed profits they may be distributed as dividend. Alternatively they may be capitalized by bonus issue. In case of other reserves like revaluation reserves or redemption reserves point to be kept in mind is that accumulated losses should tally with the aggregate of share capital and reserves.

10. If there are some liabilities like outstanding audit fees; but the company does not have cash to pay. What is the recourse?

Answer: The most practical solution will be to pay the outstanding liabilities by the directors in their individual capacity and seek a “no objection letter” from the concerned creditor.

11. In the balance sheet of 2008-09 our company had meager turnover of around Rs. 5 lacs. Can it avail the scheme?

Answer: No, the scheme contemplates that the applicant company should not carry on any business activity and impliedly should not have any business income after 01^st April 2008.

12. Our company has referred as sick to BIFR. Can it be closed?

Answer: No sick company declared as such or referred to the BIFR can avail the benefit of EES 2011.

13. Our company was earlier listed company on XYZ exchange. Can it be closed?

Answer: No. An existing listed company or company which has been delisted cannot avail the EES 2011.

14. Registrar of companies has issued show cause notice/s against company for non-filing of annual accounts/ annual returns. Shall our company face problem?

Answer: If the company has satisfactorily replied to the show cause notice issued by the registrar regarding non-filing of annual accounts/ annual returns; company may go ahead and file the application for EES 2011. The communication made with the registrar and/or the filing receipts of respective annual forms may be attached to EES 2011.

15. A prosecution has been launched against our company regarding some irregularities under the companies act. Is our company eligible to apply for closure?

Answer: Only in circumstances where a prosecution for a non-compoundable offence is pending in any court, company cannot file the application under EES 2011.

16. Our company had availed loan long time ago. We had satisfied the same but had not received any no-dues certificate from the bank.  Is it necessary for the closure?

Answer: It will be better to obtain the desired no-dues certificate from bank. Apart from the scheme it will be beneficial as it acts as conclusiveness that the company has satisfied/repaid its loan. For EES 2011 Registrar insists to attach no- dues certificate. Alternatively the company may get no-objection letter/certificate from the bank/ financial institution for declaring the company defunct.

17. Our company has only one director alive. What should be done?

Answer: The members may appoint at least one more director in a general meeting and then the company may go ahead to file the application under EES 2011. The death certificate of deceased director or affidavit giving confirmation of absconding director may be attached to support the genuine case.

18. If the directors are absconding; can the shareholders apply for closure?

Answer: If the company attaches FIR or such other document having evidential standing along with the application form EES 2011, company may go ahead with declaring it defunct under the scheme, provided registrar satisfies with the circumstances.

19. What should be done if any of the directors is/are foreign?

Answer: The directors should get their affidavits and indemnity bond attested from the Indian embassy in their home country and send the application under EES 2011. Alternatively apostle certificate may be produced. 

20. Is audited balance sheet at the latest date of closure of company is required?

Answer: No. Statement of accounts in Annexure C, which shows the latest financial position, is sufficient under the EES 2011. This annexure however needs to be signed by the practicing Chartered accountant or auditor of the company.

21. If the directors do not have DIN, what is the remedy?

Answer: In such cases directors need to put in their PAN or passport numbers at the appropriate places in annexure A and annexure B. Application form needs to be signed by the director/s manually and the scanned copy of the same should be attached to the application form. In all such cases PAN or Passport copy duly attested by the attesting authority should be attached to the application form.

22. If the director does not have his digital sign, what should be done?

Answer: Practicing professional (CA/CS/CWA) may sign digitally on behalf of the signatory and upload form EES 2011 on his behalf.

23. How we can know that our company is declared defunct?

Answer: The Registrar (ROC) will scrutinize the submitted application form EES 2011 and attachments in original for striking off the name of company. If he finds everything in order, he approves the form and issues notice u/s 560 (3) of the Companies Act, 1956 through e-mail. The name of the company applied for declaring it defunct starts appearing then on the MCA. He seeks objections by intimating to the applicable statutory authorities like Income Tax Department, Reserve Bank of India, Securities & Exchange Board of India, Service Tax Department, Excise Department or VAT Department. If within 30 days no objection is received, ROC sends removes name of the company from its data u/s 560 (5) of the Companies Act, 1956 by sending the data for publication in official gazette. The company then stands dissolved from the date of publication.

24. Can I raise objection for a company declaring it defunct?

Answer: Any person may take objection on the justifiable grounds detailing the same to ROC, during the course of declaring it defunct i.e. within 30 days from the application stage. Restoration of the company is possible u/s 560 (6) of the Companies Act, 1956 if the application in this regard has been made by the company, its member/s or creditor/s, within 20 years from the date of publication of defunct company in the official gazette. It should be made to the concerned High Court.

25. What is the last date of this scheme?

Answer: Last date of EES 2011 is 31^st January, 2011.

26. Our company was registered with ROC as NBFC, but had not done any business as such. It is defunct since long. Can we still close our company under the scheme?

Answer: In practical sense ROC may ask for NOC from the Reserve Bank of India (RBI). If the net worth of company is negative or less than that stipulated and it had never applied for getting the NBFC license from RBI, company may apply for the scheme. However fate of such application will be purely on merits of each case.

27. Our company had faced inspection/ investigation and replied to the central government. Can it go for closure under the scheme?

Answer: In all the following instances company is ineligible to apply under EES 2011 -

• companies on which inspection or investigation is ordered, carried out or in the process of taking them up or
• prosecutions initiated by inspection or investigation are completed and some legal matters are pending in the competent court or
• where order u/s 234 has been issued by ROC and reply thereto has been pending or 
• where prosecution is pending.

28. Shall I require submitting the original documents with ROC?

Answer: Yes. Now the Registrar has been instructed to get the original documents which have been attached as like affidavits, indemnity bonds, resolutions, NOCs, CA certificate, waiver letters etc.

29. Is the power given to the registrar discretionary?

Answer: Yes. ROC has absolute discretion while deciding each case individually on the basis of documents produced before it for supporting and justifications. Cases are decided purely on merits.

30. How can we ascertain that we are eligible and can avail the scheme?

Answer: The scheme contemplates following two kinds of companies, namely

• A company registered under the Companies Act  1956 and not carrying on any business activity or operation on or after 01/04/2008 and includes
• A company which has not raised its paid up capital u/s 3(3) or 3(4) of the Companies Act, 1956

ROCs are taking stand that they will allow a newly incorporated company, registered after 01/04/2008 as defunct and hence treating all such companies ineligible under the EES 2011.