FAQ’S Dormant/ Strike off of Companies


FAQ’S Dormant/ Strike off of Companies
Short Summary:
Ministry of Corporate Affairs (‘MCA’) has come with new rules for Strike off of Companies notification dated 26th December, 2016 notifying Section 248, 249, 250, 251 and 252 of Companies Act, 2013 (Chapter XVIII). This is alternative to winding up of a Company subject to statutory criterion specified under the section. This has replaced Section 560 (Form FTE) of erstwhile Companies Act, 1956. While going through provisions Professionals/Corporates are facing some technical/ interpretational issues. Through this article is an endeavor to tackle with such issues in FAQ’s Form. 

Situation for Dormant & Strike off by ROC:

Dormant:
Grounds of Dormant of Companies

In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

Strike Off:
Grounds of Strike off of Companies:

i.            A company has failed to commence its business within one year of its incorporation. OR
ii.            A company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

One can interpret that, as per the above mentioned provisions ROC has power to issue notice to change status of the Company from Active to Dormant or strike off of Companies after trigger of above mentioned conditions.
A.    If ROC has issued notice to Company and changed the status from active to dormant, then what are the compliances as dormant or what is the process to get back active status or?
§  Whether Company need to file MSC-4 to get active status
§  Whether Company need to file MSC-3 annual form of Dormant Company

We have already discussed the situation in which ROC can change the status of Company from active to dormant.


§  Whether Company need to file MSC-4 to get active status?
As per provisiosn of the Act if a company has applied voluntarily get status of dormant then it can get back status of active by filing of e-form MSC-4. But in this case status becomes dormant by act of the ROC.
If Company will try to file the MSC-4 it will face issue i.e. Point 3 of e-form MSC-4 asks the information “SRN of form [1]MSC -1” which is required to file in the situation of voluntary dormant.
Therefore, it can be interpret that there is no need to file MSC-4 to get status of Company as active in the above mentioned situation.

§  Whether Company need to file MSC-3 annual form of Dormant Company?
As per provisiosn of the Act if a company has applied voluntarily get status of dormant then it has to file annual return of such dormant Company in MSC-3. But in this case status becomes dormant by act of the ROC then whether company have to comply the provision of filing of annual return in MSC-3.
If Company will try to file the MSC-3 it will face issue i.e. Point 3 of e-form MSC-3 asks the information “Date of issue of certificate of dormant company” which is not issued by the ROC in this case.

Therefore, it can be interpret that there is no need to file MSC-3 annual form of Dormant Company. If dormant is status by the Act of the Roc.

B.     If company failed to file annual forms after obtaining dormant status whether director will be disqualifies u/s 164 of Companies Act, 2013?

As per provisions of Section 164 (2) No person shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said Company fails to filed financial statements or annual returns for any continuous period of three financial years.

As per the provisions mentioned above the word used is “Company” it shows that any Company (Include Dormant Company) which fails to file financial statement for any continue period of 3 year then directors of such Company will be disqualified to appoint as director.

One can interpret that if ROC changes the status of a Company from Active to Dormant for non filing of Annual form for 2 continue financial year and company still fails to file annual forms in third financial year after obtain status of dormant then the director of such Company will be disqualified u/s 164(2).

C.   Whether above mentioned Dormant Company can go for direct strike off without obtaining status as active.

As per provisions of [2]Fast Track Exit Scheme (FTE) vide General Circular 36/2011 dated 7th June, 2011. Following Company can apply for Strike off “Any defunct company which has active status or Identified as Dormant by the Ministry of Corporate Affairs, may apply for getting its name strike off from the Register of Companies.”

Simultaneously, in the [3]Latest Rules of Section 248 a Company can be strike off only on following grounds:

        i.        A company has failed to commence its business within one year of its incorporation. OR
     ii.       A company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

One can interpret that if ROC changes the status of a Company from Active to Dormant then company can’t go for direct strike off u/s 248 because of the reason of Dormant which was allowed in earlier FTE Scheme.

If a Dormant company want to apply for strike off u/s 248 then first Company have to apply for Active status of the Company with ROC. Once Company obtain active status then it can apply for strike off by fulfilling requirement of section 248 along with respective rules.

D.    Whether above mentioned Dormant Company can go for direct strike off after obtaining status as active without completing the earlier Annual filings.

As per section 560 of the Companies Act, 1956, Registrar of Companies may strike off the name of companies on satisfying the conditions therein. As per Section 560, a company desirous of getting its name struck off, has to apply to Registrar of companies in e-form 61. All pending statutory returns are required to be filed along with e-form 61.

In order to give an opportunity for fast track exit by a defunct company, for getting its name struck off from the register of companies the Ministry has decided to modify the existing route through e-form – 61 and has prescribed the new Guidelines. The Guidelines for “Fast Track Exit mode” for defunct companies.

Therefore, from the above provisions it is clear that before 7th June, 2011 (FTE Scheme) if company desired to go for strike off it was mandatory to file all pending statutory returns (Annual Filing Form). But then w.e.f. 7th June, 2011 by FTE scheme a company can go for Fast Track Exit without completion of pending statutory returns, even a dormant company could apply for FTE as discussed in above question.

Latest Provisions: In the latest provisions of Section 248 and in respective rules language are same as was in section 560 of Companies Act, 1956. Section 248 states the provisions of strike off of the Company not for Fast Track Exit of the Company.

One can interpret that if a Dormant Company want to go for Strike off of Company. First it have to apply for active status. Second it have to complete the all pending statutory return. Then it can apply for strike off u/s 248 by fulfillment of requirement of section 248.

Situation for Dormant & Strike off Voluntary by Company:
Dormant:
Where a company is formed and registered under this Act
·         For a future projector to hold an asset or intellectual property and
·         Has no significant accounting transaction”, such a company or
·         An Inactive Company 
may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

Inactive Company:  “Inactive Company” means a company which,
§  has not been Carrying on Any Business or operation during the last two financial years; or
§  has not made any Significant Accounting Transaction during the last two financial years, 
§  has not filed Financial Statements and Annual Returns during the LAST TWO FINANCIAL YEARS.

Significant Accounting Transaction:  “Significant Accounting Transaction” means any transaction other than-
o   Payment of Fees by a company to the Registrar;
o   Payments made by it to fulfill the requirements of this Act or any other law;
o   Allotment of shares to fulfill the requirements of this Act; and
o   Payments for maintenance of its office and records.

Strike Off:
Grounds of Strike off of Companies:

i.            A company has failed to commence its business within one year of its incorporation. OR
ii.            A company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

A.    Whether u/s 248 a Company can apply for strike off without completion of pending statutory returns.

As per section 560 of the Companies Act, 1956, Registrar of Companies may strike off the name of companies on satisfying the conditions therein. As per Section 560, a company desirous of getting its name struck off, has to apply to Registrar of companies in e-form 61. All pending statutory returns are required to be filed along with e-form 61.

In order to give an opportunity for fast track exit by a defunct company, for getting its name struck off from the register of companies the Ministry has decided to modify the existing route through e-form – 61 and has prescribed the new Guidelines. The Guidelines for “Fast Track Exit mode” for defunct companies.

Therefore, from the above provisions it is clear that before 7th June, 2011 (FTE Scheme) if company desired to go for strike off it was mandatory to file all pending statutory returns (Annual Filing Form). But then w.e.f. 7th June, 2011 by FTE scheme a company can go for Fast Track Exit without completion of pending statutory returns, even a dormant company could apply for FTE as discussed in above question.

Latest Provisions: In the latest provisions of Section 248 and in respective rules language are same as was in section 560 of Companies Act, 1956. Section 248 states the provisions of strike off of the Company not for Fast Track Exit of the Company.

One can interpret that if a Company wants to apply for Strike off u/s 248 first its have to file all the pending statutory returns.

Difference between FTE Scheme, 2011 and Companies Strike Off u/s 248
S. No.
Particulars
Provisions under FTE Scheme
Provisions under Section 248 of Companies Act, 2013 along with rules.
1.     
Link for Circular/ Rules
2.     
Not Carrying Business & Activity
is not carrying over any business activity or operation for last one year before making application under FTE.
not carrying on any business or operation for a period of two immediately preceding financial years
3.     
Dormant Company
Any defunct company identified as dormant by the MCA, may apply for
getting its name strike off
There is no such Provisions in Section 248.
4.     
Completion of Pending Statutory Return
Not- required to file pending statutory returns before apply for Strike Off.
Required to file pending statutory before apply for Strike Off.


 (Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.
This is only a knowledge sharing initiative and author does not intend to solicit any business or profession.


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