Procedure for striking off the name of company

INTRODUCTION

We all are aware the situation of Defaulting Companies as Registrar of Companies (herein after referred as ROC) the authority under Section 248 (1) of Companies Act, 2013 (hereinafter referred as Act) has issued notice against those defaulting companies and ask them to reply within 30 days from the date of receiving notice from the ROCs unless contrary provide the companies name will be struck off from the Registrar maintained at MCA portal official site.

The notice was issued by ROCs to those companies which are defaulting any of the following clause of Section 248(1) of the Act:

i. In case a company who has failed to commence its business within one year of its incorporation

ii. A company is not carrying on any business or operation for a period of two immediately preceding financial year and has not made any application to ROC for obtaining the status of Dormant Company under Section 455 of said Act.

There will be two consequences of notice issued by ROCs:

The company will decide not to file any representation to ROCs within the time prescribed under Notice issued by ROCs.

If the Board of a Company choose not to reply and file any representation to ROCs in that case Rule 3 of Companies (Removal of name of Companies from Register of Companies) Rules, 2016 provides that the Registrar of Companies may remove name of the company from register of companies in terms of Subsection 1 of 248 of said Act, such company will be removed from the Registrar of Companies after taking due procedure by ROCs including entertaining the representation to be made by concerned Authorities.

Provided the following categories of companies shall not be removed from the register under this rule and rule 4 namely:-

1. listed companies;
2. companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;
3. vanishing companies;
4. companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;
5. companies where notices under section 234 of the Companies Act, 1956 (1 of 1956) or section 206 or section 207 of the Act have been issued by the Registrar or Inspector and reply thereto is pending or report under section 208 has not yet been submitted or follow up of instructions on report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the Court;
6. companies against which any prosecution for an offence is pending in any court;
7. companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default;
8. companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
9. companies having charges which are pending for satisfaction; and
10. companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.

For the purposes of clause (iii), the expression 'vanishing company' means a company, registered under the Act or previous company law or any other law for the time being in force and listed with Stock Exchange which has failed to file its returns with the Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and none of its directors are traceable.

Further, the ROCs will not be able to remove the name of the following companies covered under Rule 4 of Companies (Removal of name of the Companies from Register of Companies) Rules, 2016 which need no objection certificate from appropriate Regulatory Authority concerned which includes the following companies:

1. companies which have conducted or conducting non-banking financial and investment activities as referred to in the Reserve Bank of India Act, 1934 (2 of 1934) or rules and regulations thereunder;
2. housing finance companies as referred to in the Housing Finance Companies (National Housing Bank) Directions, 2010 issued under the National Housing Bank Act, 1987 (53 of 1987);
3. insurance companies as referred to in the Insurance Act, 1938 (4 of 1938) or rules and regulations thereunder;
4. companies in the business of capital market intermediaries as referred to in the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules and regulations thereunder;
5. companies engaged in collective investment schemes as referred to in the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules and regulations thereunder;
6. asset management companies as referred to in the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules and regulations thereunder;
7. any other company which is regulated under any other law for the time being in force e.g. Chit Fund Company as these companies are covered under Chit Fund Act, 1882.

Moreover, the MCA has the power to mention the DIN of Board of such company in default category under Section 164(2) of said Act in case the non filing of Annual Return and financial statement continue for more than 3 years.          

Further, the company and every officer in default who fails to comply with the requirement of the provision and rules under Companies Act, 2013 will be penalized under Section 450 of Companies Act, 2013 which provide as follows:

Section 450 of Companies Act, 2013 (Punishment where no Specific penalty or punishment is provided).

If a company or any officer of a company or any other person contravene any of provision of this Act or the rules made thereunder  and for which no penalty  or punishment  is provided elsewhere in the Act, the company and every officer who is in default or such other person shall be punishable with fine which may be extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first day during which contravention continues.

However the name of the Company will be struck off from the Register therefore only the liability of Board will be exists and may be penalized under said Act.

The company will decide to file representation to ROCs within the time prescribed under Notice issued by ROCs

In such a case such representation of company will be taken into consideration under Section 248(1) of said Act as a nature justice of opportunity of being heard before strike off the name of the company from the Register.

The representation made by the company further bifurcated in two categories

1. When the board decided make an application to ROC for striking-off the name of company from the Register of Companies in form STK-2.
2. When the Board decided take status of Dormant company by filing Form MSC-1 and decided to presume the business of the Company for future projects due to the persisting business conditions are not feasible for company to carry out business.

When the board decided to make an application to ROC for striking-off the name of company from the Register of Companies in form STK-2.

The company can make an application to ROC under Section 248(2) of said Act for striking off the name of the Company from Register of Companies after complying with the requirement of said Act and Rules framed thereunder.

The Board once decided to strike off the name of the Company from register of Companies they need to follow the following procedure:

• The Board Meeting is required to be call for the purpose of discussing this matter of strike off and approving notice for calling meeting of shareholder of the company containing explanatory statement under Section 102 of said Act.
• A Chartered Accountant will be engaged for the purpose of preparing the Statement of Accounts and the liabilities of the company will be write off with the assets of the company and same will required to be placed before the management for their approval.
• Once the Board Meeting held then notice is to be issued to all the shareholder of the company.
• After holding the EGM the resolution of Shareholder will required to be filed in Form MGT-14.
• Once the Resolution filed with ROC take affidavit as required in Form STK-3 and Indemnity Bond in STK-4 from the Directors of the Company and Statement of Accounts is also required to be signed by atleast two directors of the company, one of the director shall be Managing Director, if any.
• File application form STK-2 for striking off the name of the company along with aforesaid mentioned documents.
• The application will be processed under approval route and take atleast one month unless any objection is raised by concerned ROC.
• Once the form is approved by ROC same will be made available at MCA site and publish in the official gazette and from the date of publication it will stand dissolved.

In case the company governed under Special Act and Authorities, they need to take Non-Objection certificate from the governing authority or regulator, covered under Rule 4 of Companies ( Removal of Companies Name From Register of Companies) Rules, 2016 . However Section 248 of said Act prohibits the Section 8 company for to strike off from this route.

Moreover, the officer and management of the company will continue to be liable for discharging any liabilities arise against the company as if the company has not be dissolved.

The following companies are restricted under Section 249(1) of said Act to make an application to ROC under Section 248(1) of said Act in case the company at any time in previous three months:

1. Done Name Change of Shifted RO from One State to Another
2. Has made a disposal for the value of property or right held by it,
3. Has engaged in any other activity except the one which is necessary or expedient for making application under that section
4. Has made an application to Tribunal for Compromise & Arrangement and the matter has not been disposed off; Or
5. Being wound up under Chapter XX, whether voluntarily or by the tribunal.

In case if the company restricted above make an application to ROC under Section 248(2) for Strike off of the name such company will be punishable with a fine of Rs. 25 Lakhs under Section 249(2) and the application will be liable to rejected by ROC under Section 249(3) of said Act after knowing the fact provided under Section 249(1) of said Act.

When the Board decided to take status of Dormant company by filing Form MSC-1 and decided to presume the business of the Company for future projects due to the persisting business conditions are not feasible for company to carry out business.

In this case the company will need to follow the provision of Section 455 of said Act & Companies (Miscellaneous) Rules, 2014 which provide that a company which has formed for the purpose of future projects or to hold assets or intellectual property and has no significant accounting transactions, such a company or inactive company (the company which has not been carrying on any business or operation, or has not made any 'significant accounting transactions'* during the last two financial years, or has not filed financial statements and annual returns during the last two financial years) may make an application to ROC in form MSC-1 for obtaining the status of Dormant Company.

Note: 'Significant Accounting Transactions' means any transactions other than

1. Payment of fee by a company to Registrar;
2. Payment made to fulfill the requirements of the Act or any other law;
3. Allotment of shares to fulfill the requirement of this Act; And
4. Payment of maintenance of its office and records.

The following is the procedure for obtaining the status of Dormant Company under the said Act:

1. A board meeting will be called to file an application to ROC in form MSC-1 for obtaining the status of Dormant Company.
2. The Board meeting will be called to discuss the following matters:

• To Approve the resolution for filing the application to ROC in form MSC-1 to ROC.
• To authorized any of the person to file an application to ROC.
• To Decide the date, time and place of General Meeting for seeking the approval of shareholder through special resolution as required under Rule 3 of Companies ( Miscellaneous) Rules, 2014.
• To approve the notice of shareholder meeting.
• To authorize person for issuing the notice to all the shareholder of the company.

1. Once the board meeting held the notice will be issued to all the shareholder of the company.
2. Hold the General Meeting and pass the necessary resolution to file an application for Dormant company.
3. The special resolution passed in point IV will required to be filed with ROC in form MGT-14 as required under Section 117(3) Of said Act and rules made thereunder.
4. Once the form MGT-14 is filed with ROC the company is required to file an application in form MSC-1 (by mentioning the SRN of Form MGT-14) with the following documents:

1. Certified Copy of Board Resolution for making application to ROC.
2. Certified copy of special resolution or consent of ¾ of shareholder (in value)
3. Auditor Certificate mentioning the following facts that:

1. no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
2. no prosecution has been initiated and pending against the company under any law;
3. the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
4. the company is not having any outstanding loan, whether secured or unsecured:

Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1.

1. there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;
2. the company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;
3.  the company has not defaulted in the payment of workmen's dues;
4. the securities of the company are not listed on any stock exchange within or outside India.

1. Statement of Assets & Liabilities form the Chartered Accountant in Practice which should not be older than one month at time of taking approval from shareholders.
2. No objection certificate from the Lender or Creditors of the Company.
3. No management dispute certificate from the management of the company.

Once the Form MSC-1 is filed with ROC the same will be taken into record directly being in the mode of Straight Through Process and a certificate in form MSC-2 as mentioned in  Rules 4 of Companies (Miscellaneous) Rules, 2014 will be issued to company with approval mail.

POST COMPLIANCE AFTER HAVING STATUS OF DORMANT COMPANY

INTRODUCTION

In today scenario many of Companies obtaining the status of Dormant Company being inactive company not having significant transactions due to business market conditions or formed for the purpose of future projects and to avoid the cost of day to day fixed charges and cost of Compliance these are opting for status of Dormant Company under Section 455 of Companies Act, 2013. Hence, once the company obtained Dormant Status under Section 455 of Companies Act, 2013 we think that there is now no formalities pending on the part unless we opt for status of Active company again. However, for the Dormant Company the following compliances which are need to be done by the company for avoiding any prosecution and penalty on the part of Board of the company and company itself:

As per Section 455 of Companies Act, 2013 read with Rule 7 of Companies (Miscellaneous) Rules, 2014 which deal with the post compliance after having status of Dormant Company which provides that -

Rule 4 of Companies (Miscellaneous) Rules, 2014 Return of Dormant Companies: A Dormant Company shall file a 'Return Of Dormant Company' annually, inter alia, indicating financial position duly audited by a Chartered Accountant in practice in Form MSC-3 along with such annual fee as provided in the Companies (Registration Offices And Fee) Rules, 2014 with in a period of thirty days from the end of Financial year:

Provided that the company shall continue to file the return or returns of allotment and change in Directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the Company.

Interpretation of Above Rule:

Every Company after obtaining the status of dormant company is required to file a Annual Return in Form MSC-3 duly certified by Chartered Accountant In Practice within 30 days from the end of financial year. And it will continue to file other forms as are required under Companies Act, 2013 other than filing annual filing forms such as Change in Board, Allotment and etc.

Consequences of Not Complying with the Above Requirement:

If a company fails to comply the requirement of Section 455 of Companies Act, 2013 and Companies (Miscellaneous) Rules, 2014 which talks about filing of Annual Return within 30 Days from the end of financial year the Registrar of Companies will strike off the name of such company from Register.

Moreover, the company and every officer in default who fails to comply with the requirement of the provision and rules under Companies Act, 2013 will be penalized under Section 450 of Companies Act, 2013 which provide as follows:

Section 450 of Companies Act, 2013 (Punishment where no Specific penalty or punishment is provided).

If a company or any officer of a company or any other person contravene any of provision of this Act or the rules made thereunder and for which no penalty or punishment is provided elsewhere in the Act, the company and every officer who is in default or such other person shall be punishable with fine which may be extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first day during which contravention continues.

The author can also be reached at lksharmapcs@gmail.com

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