Company Strike Off Under Section 248: Procedure, Eligibility & STK-2

Summary: Company strike off under Section 248 of the Companies Act, 2013 provides an exit mechanism for eligible companies that have stopped business operations and no longer intend to continue. The process may be initiated by the Registrar of Companies in specified circumstances or voluntarily by an eligible company through Form STK-2. Voluntary strike off requires the company to satisfy prescribed eligibility conditions, extinguish its liabilities, review and complete applicable statutory compliances, obtain the required members’ approval, prepare the prescribed statement of accounts, indemnity bond and affidavit, and obtain regulatory approvals where applicable. The application is processed centrally through C-PACE and is subject to scrutiny before the company’s name is finally removed from the Register of Companies. Public notice provides an opportunity for creditors and other interested persons to raise objections. Dissolution does not automatically extinguish past liabilities, and fraudulent applications may result in continuing liability and penalties under Section 251. Section 252 provides mechanisms for restoration of a struck-off company in appropriate circumstances. The article also explains restrictions under Section 249, the distinction between strike off and liquidation, common reasons for delay or rejection, the absence of a universal processing timeline, and the importance of properly closing an inactive company rather than allowing statutory obligations to continue accumulating.

Introduction

Closing a company in India involves more than simply stopping business activities. A company continues to exist as a separate legal entity until its name is formally removed from the Register of Companies. Therefore, even if a business has stopped earning revenue, closed its office or discontinued commercial activities, statutory obligations may continue until the company is legally closed. The Companies Act, 2013 provides a comparatively straightforward mechanism called company strike off for eligible companies that are no longer carrying on business. The main legal provision governing this process is Section 248 of the Companies Act, 2013.

Under Section 248, the Registrar of Companies may initiate the removal of a company’s name in specified circumstances. Alternatively, an eligible company may voluntarily request removal of its own name by filing Form STK-2 after satisfying the prescribed conditions. The voluntary STK-2 process is currently handled through the Centre for Processing Accelerated Corporate Exit (C-PACE), which was introduced for centralised processing of company closure applications. The prescribed filing fee for Form STK-2 is presently ₹10,000.

What is Company Strike Off?

Company strike off is the legal process through which the name of a company is removed from the Register of Companies maintained by the Registrar of Companies. After completion of the statutory procedure and publication of the final dissolution notice, the company generally ceases to operate as a corporate entity. The strike-off mechanism is particularly useful for companies that have stopped conducting business and whose promoters no longer intend to continue the entity.

Instead of keeping an inactive company on the MCA records and continuing statutory compliances year after year, eligible promoters can initiate a formal closure process. However, simply discontinuing business does not mean that the company has been legally closed. Until its name is formally struck off, the company continues to remain registered and may remain responsible for applicable filings and statutory obligations.

Law Governing Company Strike Off

The law relating to company strike off is mainly contained in Sections 248 to 252 of the Companies Act, 2013, read with the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016. Section 248 broadly provides two routes for removing a company’s name. Under Section 248(1), the Registrar may initiate strike-off proceedings if the company falls within one of the statutory grounds. Under Section 248(2), an eligible company may voluntarily apply for removal of its own name after extinguishing its liabilities and complying with the prescribed requirements.

Sections 250 and 251 deal with the consequences of dissolution and fraudulent strike-off applications, while Section 252 provides the mechanism through which a struck-off company may be restored by the National Company Law Tribunal in appropriate cases.

Strike Off by Registrar Under Section 248(1)

The Registrar of Companies can initiate strike-off proceedings where there is reasonable cause to believe that the company satisfies one or more of the grounds mentioned under Section 248(1). One such ground arises where the company has failed to commence its business within one year from the date of incorporation. Since companies are incorporated for carrying on lawful activities, prolonged failure to commence operations can result in regulatory action. The Registrar may also take action where a company has not carried on any business or operation for two immediately preceding financial years and has not applied for obtaining dormant company status under Section 455.

Another ground relates to failure by subscribers to pay the subscription money undertaken by them at the time of incorporation, accompanied by failure to file the required declaration relating to commencement of business within the applicable period. Strike-off proceedings may also be initiated if physical verification under the Companies Act indicates that the company is not carrying on business or operations at its registered office. Before removing the company’s name, the Registrar is required to issue notice to the company and its directors and provide them an opportunity to submit representations and supporting documents.

Voluntary Strike Off Under Section 248(2)

Section 248(2) allows an eligible company to voluntarily apply for removal of its name from the Register of Companies. This route is generally used where the company has stopped operations, does not intend to restart business and wishes to formally terminate its corporate existence.

A fundamental requirement is that the company must first extinguish its liabilities. Therefore, voluntary strike off cannot normally be treated as a mechanism for escaping creditors, loans, employee dues, statutory liabilities or other obligations. Once the affairs of the company are properly concluded, the required corporate approvals and documentation must be completed before Form STK-2 is submitted.

Eligibility for Voluntary Company Strike Off

Before filing an application, the company should conduct a detailed eligibility review. Being inactive alone does not automatically make a company eligible for strike off. The company should review its business status, outstanding liabilities, pending annual filings, secured charges, litigation, inspections, investigations, prosecutions and regulatory registrations.

Its financial accounts should also be reconciled so that outstanding creditors, loans, statutory dues and other liabilities are identified and appropriately settled. This review is important because an application filed without satisfying the legal conditions may result in resubmission, rejection or future liability for the directors.

Companies That Cannot Normally Use the Voluntary Strike-Off Route

Certain categories of companies are restricted from using the ordinary voluntary strike-off mechanism because of their nature, regulatory status or pending legal matters. Companies undergoing specified investigations, inspections or prosecutions may face restrictions. Companies having unresolved public deposits, certain outstanding charges or pending proceedings may also need to resolve those matters before closure.

A Section 8 company cannot use the ordinary voluntary strike-off mechanism under Section 248(2). Such companies are incorporated for charitable or not-for-profit objects and are subject to separate statutory requirements for closure. Accordingly, eligibility should always be checked before preparing STK-2 rather than assuming that every non-operational company can simply file for strike off.

Restrictions Under Section 249

Section 249 places additional restrictions on companies intending to file a voluntary strike-off application. For example, a company cannot undertake certain significant actions shortly before submitting the application and then immediately seek dissolution. Restrictions apply in situations such as a recent change of company name or shifting of the registered office from one State to another within the period specified under the Act.

Restrictions may also arise where the company has disposed of property or rights other than for permitted closure-related purposes, is carrying on activities beyond those necessary for completing its affairs, or has pending proceedings relating to a compromise, arrangement, winding up or insolvency. The purpose of these restrictions is to prevent the strike-off procedure from being misused to avoid liabilities or ongoing legal proceedings.

Compliance Required Before Filing STK-2

A company should conduct a thorough compliance review before filing Form STK-2. The first major area to examine is annual filing compliance. Financial statements and annual returns required for the relevant period should be reviewed and completed in accordance with the applicable rules.

The company should also reconcile its accounting records and identify outstanding loans, creditors, employee dues, taxes and statutory liabilities. Any bank accounts, business registrations, contractual obligations and regulatory approvals should also be examined to determine whether any action is required before closure. The objective is to ensure that the company’s affairs have genuinely been concluded and that the information submitted to the MCA accurately represents its financial and statutory position.

Step 1: Check the Company’s Eligibility

The first step in the strike-off procedure is determining whether the company can legally use the voluntary closure route. The company’s MCA master data, annual filing history, financial statements, charges, litigation and regulatory status should be examined.

Where the company has outstanding secured charges, unresolved liabilities, active regulatory proceedings or other restrictions, those matters should be addressed before proceeding. Conducting this review at the beginning significantly reduces the possibility of objections during the processing of STK-2.

Step 2: Extinguish the Company’s Liabilities

Before making an application under Section 248(2), the company’s liabilities must be extinguished. This generally requires settlement of creditors, bank loans, employee dues, taxes, government liabilities and other amounts payable by the company.

Where amounts are receivable by the company, management should also determine how such assets will be realised or appropriately dealt with before closure. The company should not artificially show a nil-liability position when amounts remain legally payable. Incorrect declarations may expose directors and persons responsible for management to serious consequences.

Step 3: Complete Applicable Pending Annual Filings

The company’s annual compliance position should be reviewed before filing Form STK-2. Where applicable financial statements or annual returns are pending for the relevant periods, those filings should be completed in accordance with the current Rules and MCA requirements.

This is important because the strike-off mechanism should not ordinarily be viewed as a way of bypassing historical compliance requirements. The amount of additional filing fees arising from earlier defaults should therefore also be considered while determining the total cost of legally closing the company.

Step 4: Hold a Board Meeting

Once the preliminary eligibility and compliance review has been completed, the Board of Directors should formally consider the proposal for closure. The Board may approve initiating the strike-off procedure and authorise a director or other eligible person to prepare and submit the necessary documents. This Board decision creates an official corporate record showing that the proposed closure was properly considered and authorised by the management of the company.

Step 5: Obtain Members’ Approval

Voluntary strike off also requires the prescribed approval of the members. Depending upon the route adopted, the company may pass a special resolution or obtain consent from members representing at least 75% of the paid-up share capital in accordance with Section 248(2).

Where a special resolution is passed, the applicable corporate filing requirements relating to that resolution should also be completed. Member approval is important because dissolution affects the legal existence and ownership interests of the company and therefore cannot ordinarily be left solely to the decision of the directors.

Step 6: Prepare the Statement of Accounts

The company must prepare the prescribed statement of accounts reflecting its financial position shortly before filing the strike-off application. The statement provides details of the assets and liabilities of the company and helps the authority determine whether its affairs have been properly concluded.

The financial position disclosed in the statement should correspond with the books of accounts, bank records and other supporting documents. Creating an artificial zero balance without appropriately dealing with assets or liabilities can result in objections and may also expose the persons making the declarations to legal consequences.

Step 7: Prepare the Indemnity Bond

The directors are generally required to execute the prescribed indemnity bond as part of the strike-off documentation. The purpose of the indemnity is to protect legitimate claims that may arise even after the company has been dissolved.

Directors should therefore understand that signing the indemnity bond is not merely a procedural formality. It can have continuing legal significance if undisclosed liabilities or claims subsequently emerge.

Step 8: Prepare the Required Affidavit

The directors must also provide the prescribed affidavit containing declarations relating to the proposed strike off. Information contained in the affidavit should be consistent with Form STK-2, the company’s accounting records, indemnity documents and statutory filings.

Since an affidavit contains formal legal declarations, false statements, concealment of material information or incorrect disclosure can create significant consequences for the directors and persons responsible for the company’s affairs.

Step 9: Obtain Regulatory Approval Where Applicable

Some companies operate in sectors regulated by specialised authorities. Depending upon the company’s activities, regulatory approval or a no-objection certificate may therefore be required before closure.

Companies operating in financial services, securities, insurance or other regulated industries should examine sector-specific rules carefully. A company should not proceed with corporate strike off while regulatory obligations, customer claims or licence-related matters remain unresolved.

Step 10: File Form STK-2

Once the eligibility conditions and documentation requirements have been satisfied, the company may submit Form STK-2 through the MCA portal. STK-2 applications are processed centrally through C-PACE. MCA launched the STK-2 form with C-PACE functionality from 1 May 2023.

The current MCA instruction kit specifies a filing fee of ₹10,000 for Form STK-2. The form is processed in non-STP mode, meaning that it is subject to examination instead of automatic approval. Filing STK-2 does not itself dissolve the company. It initiates the statutory review and removal process.

Scrutiny of the Strike-Off Application

After the form is filed, the competent authority examines the application, attachments, declarations and statutory records. During scrutiny, inconsistencies relating to annual filings, financial accounts, liabilities, charges, regulatory permissions or supporting documents may be identified.

Where defects are found, the applicant may be asked to provide additional information or make corrections within the prescribed process. A properly reconciled application with accurate supporting documentation therefore has a better chance of moving through the process without repeated objections.

Public Notice Before Removal of Name

Before finally removing the company’s name, the prescribed public notice procedure is followed. The purpose of public notice is to allow creditors, regulators, government authorities and other interested persons to raise legitimate objections to the proposed closure.

This safeguard is essential because creditors should have an opportunity to protect their claims before the company is dissolved. If a genuine objection is raised, the authority may examine the matter before proceeding with final removal of the name.

Final Strike Off and Dissolution

If the authority is satisfied that the statutory requirements have been fulfilled and no valid objection prevents closure, the name of the company is removed from the Register of Companies. The prescribed final notice of removal and dissolution is issued under the Companies Act and the applicable Rules. The Companies (Removal of Names of Companies from the Register of Companies) Rules prescribe Form STK-7 for the notice of striking off and dissolution.

Once the company is dissolved under Section 248, its Certificate of Incorporation is treated as cancelled from the effective date, subject to limited purposes relating to realising amounts due to the company and paying or discharging liabilities.

Effect of Company Strike Off

The primary effect of strike off is that the company ceases to operate as a company from the effective date mentioned in the statutory notice. However, dissolution should not be interpreted as automatically eliminating every past obligation.

Section 250 expressly preserves the company for limited purposes involving amounts due to it and discharge of liabilities or obligations. Therefore, directors and promoters should ensure that the company’s affairs have been properly concluded rather than relying on strike off to eliminate unresolved issues.

Liability After the Company is Struck Off

One of the most important points to understand is that strike off does not necessarily protect directors or persons responsible for management from earlier liabilities. Where claims existed before dissolution or the company has concealed liabilities, responsible persons may still face legal penalties.

The purpose of strike off is to close a genuine inactive company whose affairs have been properly concluded. It is not intended to provide immunity against creditors or statutory authorities.

Fraudulent Strike-Off Applications

The Companies Act specifically addresses fraudulent applications for removal of a company’s name. Under Section 251, where an application has been made with the object of evading liabilities, deceiving creditors or defrauding another person, those responsible for management can be held jointly and severally liable for resulting loss or damage.

They may also face punishment for fraud under the Companies Act. This makes accurate financial disclosure and proper settlement of liabilities essential before filing STK-2.

Restoration of a Struck-Off Company

Strike off does not always mean that the company can never be restored. Section 252 provides mechanisms for restoration through the National Company Law Tribunal. An aggrieved person may appeal against the Registrar’s order within three years in circumstances covered by Section 252(1).

Additionally, the company itself, or its member, creditor or workman, may apply for restoration within twenty years from publication of the prescribed strike-off notice where the conditions under Section 252(3) are satisfied. The Tribunal may restore the company where it finds that the company was carrying on business or was in operation at the time of strike off or where restoration is otherwise considered just.

Difference Between Strike Off and Liquidation

Strike off and liquidation can both ultimately result in the closure of a company, but they serve different situations. Strike off is generally more suitable where the company is inactive, its operations have ceased, liabilities can be cleared and the company’s affairs are comparatively uncomplicated.

Liquidation is generally a more elaborate process and may involve formal realisation of assets, settlement of creditors and distribution of the remaining property. Where a company has substantial debts, insolvency issues or complicated creditor claims, promoters should carefully assess whether liquidation or another mechanism is more appropriate than voluntary strike off.

Common Reasons for Delay or Rejection of STK-2

A strike-off application may encounter difficulty where the company’s statutory records are incomplete or inconsistent. Pending annual filings, unresolved liabilities, unsatisfied charges, mismatches between financial records and MCA filings, defective declarations or missing regulatory approvals can result in queries or resubmission.

Applications may also face problems where legal proceedings or regulatory matters have not been properly disclosed. A detailed pre-filing review is therefore one of the most important steps in achieving an efficient closure.

How Long Does Company Strike Off Take?

There is no universal timeline applicable to every strike-off application. The period required depends upon the accuracy of the application, the company’s compliance history, outstanding filings, objections, regulatory matters and whether additional clarification or resubmission is required.

A company with clean statutory records, properly settled liabilities and complete supporting documents will generally be better positioned for efficient processing than a company with unresolved compliance issues.

Importance of Properly Closing an Inactive Company

Promoters sometimes stop using a company without completing its legal closure. However, leaving the company registered can result in continuing statutory obligations. Annual compliance requirements and additional fees may continue to accumulate depending upon the company’s status and applicable law. Proper strike off therefore allows eligible promoters to formally conclude an inactive company’s corporate existence rather than allowing the entity to remain unnecessarily on the Register of Companies.

Conclusion

Company strike off under Section 248 of the Companies Act, 2013 provides a lawful exit route for eligible companies that have stopped business operations and no longer wish to continue their corporate existence. However, the process involves much more than filing Form STK-2. Before applying, the company must verify eligibility, settle outstanding liabilities, complete required annual filings, obtain necessary approvals, prepare accurate financial statements, and ensure that all supporting documents are complete. The application is presently processed through C-PACE, and the prescribed government filing fee for Form STK-2 is ₹10,000.

Since strike off does not automatically remove past liabilities, directors and persons responsible for management should ensure complete and truthful compliance before closure. Any concealment, fraud, or incorrect declaration can result in future legal consequences. Compliance Calendar LLP can assist businesses with eligibility review, document preparation, STK-2 filing, and overall company closure compliance. For assistance, contact [email protected] or call 9988424211.

Frequently Asked Questions

Q1. What is company strike off under Section 248?

Ans. Company strike off is the legal process of removing a company’s name from the Register of Companies under Section 248 of the Companies Act, 2013. It is generally used when a company has stopped operations and satisfies prescribed closure requirements.

Q2. Which form is filed for voluntary company strike off?

Ans. An eligible company seeking voluntary closure under Section 248(2) files Form STK-2 through the Ministry of Corporate Affairs portal. The application is processed centrally through C-PACE, which handles voluntary applications for removing company names from the Register of Companies.

Q3. Can an active company apply for strike off?

Ans. A company actively carrying on business should generally not apply for voluntary strike off. The mechanism is intended for companies that have discontinued operations, concluded their affairs, cleared liabilities and satisfied the applicable legal conditions prescribed for removal of their names.

Q4. Must liabilities be cleared before filing STK-2?

Ans. Yes. Before filing Form STK-2, the company must extinguish its liabilities. This includes settling creditors, loans, employee dues, taxes and other obligations. Strike off cannot legitimately be used as a method for avoiding genuine debts, claims or statutory responsibilities.

Q5. Is shareholder approval required for company strike off?

Ans. Yes. Voluntary strike off requires the prescribed approval of the members. The company may pass a special resolution or obtain consent from members representing at least seventy-five percent of its paid-up share capital, subject to applicable statutory and procedural requirements.

Q6. What is the government fee for Form STK-2?

Ans. The MCA instruction kit currently specifies a government filing fee of ₹10,000 for Form STK-2. Applicants should nevertheless verify the latest MCA fee requirements at the time of filing because statutory fees and procedural requirements may subsequently be amended.

Q7. What happens after Form STK-2 is filed?

Ans. After STK-2 is filed, the application and supporting records are scrutinised by the competent authority. Defects or inconsistencies may require clarification or resubmission. Once requirements are satisfied, the prescribed notice procedure is followed before final removal and dissolution.

Q8. Can a company with pending annual filings apply for strike off?

Ans. Pending annual filings may affect the company’s strike-off application. The company should review its financial statements and annual returns and complete the filings required under applicable rules before filing STK-2, considering its operational period, compliance history and current statutory requirements.

Q9. Can a company with outstanding creditors be struck off?

Ans. A company should not ordinarily apply for voluntary strike off while genuine liabilities remain unresolved. Creditors, loans, employee dues, taxes and other obligations should first be settled because Section 248(2) requires liabilities to be extinguished before submitting the closure application.

Q10. Can a Section 8 company file STK-2?

Ans. A Section 8 company cannot use the ordinary voluntary strike-off mechanism available under Section 248(2). Such companies are established for charitable or not-for-profit objectives and their closure is governed by separate legal requirements under the Companies Act and applicable Rules.