Closure of Business / Striking Off / Removal of Name under Companies Act, 2013- A Tool for Defunct Companies

CLOSURE OF BUSINESS / STRIKING OFF / REMOVAL OF NAME UNDER THE COMPANIES ACT, 2013- A TOOL FOR DEFUNCT COMPANIES

Introduction:

With the advent of new Companies Act, 2013, corporate governance is the key and professional approach is the essence of all business operations. Under the Companies Act, 2013, even the private companies are expected to be compliance oriented in lot many ways, with the comprehensive reporting systems in annual filings, shedding away the old practices where compliances were taken for granted. Removal of name under Sections 248-252 is a privilege to the corporates to close their entities legally without any hassles where they incorporated the company but due to any reason could not commence operations or after the commencement of operations, they are not in operations for two (2) immediately preceding financial years and they have not availed the facility of filing application for getting status of a dormant company under section 455 of CA, 2013.

Section 248-252 of the Companies Act, 2013 read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 deal with removal of names of companies from the Register of Companies. These provisions have been applicable / effective from 26^th December, 2016. Earlier, striking off of name of companies was governed by Section 560 of the Companies Act, 1956 and the procedure was more or the less similar except that earlier board resolution was sufficient but now special resolution is desired. This facility of striking off of name of company is a very cost effective, easy and hassle free way of closing down of business by corporates which are not carrying on any business, due to any reason whatsoever or defunct.

Now we are going to understand which corporates are eligible and which are not eligible under this route, the procedure of striking off and practical aspects of this route.

1. Eligibility Criteria:

Power of Registrar to strike off

As per Section 248(1): Where the Registrar has reasonable cause to believe that

(a) a company has failed to commence its business within one year of its incorporation or

(b) a company is not carrying on any business or operation for a period of two (2) immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455;

he shall send a notice to the company and all the directors of the company, in form STK­1, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty (30) days from the date of the notice.

Suo-motto Application by the Company for striking off

As per Section 248(2): A company may on its own, after extinguishing all its liabilities, after passing a special resolution or with the consent of 75% of the members in terms of paid up share capital, file an application in form STK-2 to the Registrar for removing the name of the Company.

2. Procedure for striking off name of Company

1. Registrar may send a notice in form STK-1 to any company and all the directors of the company, which has failed to commence business within 1 year of its incorporation or which 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. The Notice shall specify the intention of the Registrar to remove the name of the Company requesting them to send their representations alongwith copies of relevant documents within a period of 30 days from the date of the Notice.

2. A Company may on its own motion file an application with the Registrar of Companies in form STK-2, after extinguishing all its liabilities and passing of special resolution or obtaining consent of 75% of the members in terms of paid up share capital, specifying the grounds.

3. Requirements pertaining to filing of form STK-2:

(a) The application in Form STK 2 shall be accompanied by ‑

i. indemnity bond on a stamp paper duly notarised by every director in Form STK 3 (It can given collectively or individually);

ii.  a statement of accounts containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant;

iii. an affidavit on a stamp paper, duly notarised, in Form STK 4 by every director of the company to be given individually;

iv.  a copy of the special resolution duly certified by each of the directors of the company or consent of seventy five per cent of the members of the company in terms of paid up share capital as on the date of application;

v. Copy of Pan Card / Passport of all the directors, duly attested by a Gazetted officer or a wholetime practicing professional viz Chartered Accountant/Company Secretary/Cost Accountant.

vi.Copy of documentary evidence supporting the residence address of all the directors, duly attested by a Gazetted officer or a wholetime practicing professional viz Chartered Accountant/Company Secretary/Cost Accountant.

vii.    a statement regarding pending litigations, if any, involving the company.

viii.   if the person is a foreign national or non-resident Indian, the indemnity bond, Affidavit and declaration shall be notarised or appostilised or consularised. ix.a no objection certificate from appropriate Regulatory Authority concerned in respect of following companies, namely :‑

(a)      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;

(b)      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);

(c) insurance companies as referred to in the Insurance Act, 1938 (4 of 1938) or rules and regulations thereunder;

(d)     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;

(e)      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;

(f) asset management companies as referred to in the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules and regulations thereunder;

(g) any other company which is regulated under any other law for the time being in force.

(b)     The application in Form STK 2 shall be signed by a director duly authorised by the Board in their behalf. Where the director concerned does not have a registered digital signature certificate, a physical copy of the form duly filled in shall be signed manually by the director duly authorised in that behalf and shall be attached with the Form STK 2 while uploading the form.

(c)      The Form STK 2 shall be certified by a Chartered Accountant in whole time practice or Company Secretary in whole time Practice or Cost Accountant in whole time practice, as the case may be.

(d) Statutory ROC fees of Rs.5,000/- to be paid alongwith form STK-2.

4. On receipt of application, the Registrar shall issue a public notice either in form STK-5 or STK-6, as the case may be and it shall be

(i)        placed on the official website of the Ministry of Corporate Affairs on a separate link established on such website in this regard;

(ii)      published in the Official Gazette;

(iii) published in English language in a leading English newspaper and at least once in vernacular language in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated.

Provided that in case if the application is filed by the Company on its own under sub­section (2) of section 248 of the Act, the company shall also place the application on its website, if any, till the disposal of the application.

5. The Registrar of Companies shall, simultaneously intimate the concerned regulatory authorities regulating the company, viz, the Income-tax authorities, central excise authorities and service-tax authorities having jurisdiction over the company, about the proposed action of removal or striking off the names of such companies and seek objections, if any, to be furnished within a period of thirty days from the date of issue of the letter of intimation and if no objections are received within thirty (30) days from the respective authority, it shall be presumed that they have no objections to the proposed action of striking off or removal of name.

6. At the expiry of the time mentioned in the Notice, the Registrar may, unless cause to the contrary is shown by the Company, strike off the name of the Company from the Register of Companies and shall publish thereof in the official Gazette in form STK-7 and the same shall also be placed on the official website of the Ministry of Corporate Affairs.

7. In case, if any form FTE has already been filed prior to the commencement of these provisions and it is still pending and not disposed off by the authorities for want of any document or information, shall be disposed off on the submission of documents / information, in accordance with the rules made under the Companies Act, 1956 (1 of 1956).

3. You are ineligible / not eligible to be struck off under this route

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 ( A “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);

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.

4. Practical Aspects

Prior to the coming force of the provisions of Sections 248-252 and Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, the names of Companies were struck off under the provisions of Section 560 of the Companies Act, 1956 under Fast Track Exit Mode vide General Circular No.36/2011 dated 7.06.2011. According to the circular which was effective from 3^rd July, 2011, new guidelines were prescribed. Prior to that, any company desirous of getting its name struck off had to file all pending statutory returns alongwith e-form 61. As per the new circular, form FTE was introduced for defunct companies. According to this circular, any defunct company having nil assets & liabilities, which has not commenced any business activity or operation since incorporation; or is not carrying over any business activity or operation for last one year before making application under FTE, could apply for striking provided the conditions prescribed were fulfilled as stated in circular.

• This new guideline brought much desired relief to the defunct / dormant corporates, carrying no business operations but simply existing under the eyes of law.
• They were given the privilege to close down their entity without any requirement of filing of any statutory forms / returns which seemed to be costly affair for a defunct company.
• This enabled the corporates to get struck off by filing form FTE with affidavits and Indemnity bonds by all the directors, Statement of affairs certified by a Chartered Accountant alongwith a ROC fee of Rs.5,000/-.
• However, it has been observed at many times, that once the form FTE was filed after fulfilling all the prescribed conditions of the aforesaid Circular, office of ROC instead of approving the form FTE asked for the filing of the annual returns before availing of the aforesaid facility.
• In one case, the office of ROC even after the approving of the form FTE, filed the complaint against the company with the Court for non-filing of the annual returns by the company. After 2-3 months, the name of the Company got struck off by the office of ROC but the matter with the Court went on without any sanctity. The Court required the ROC to withdraw the suit and ROC did not withdraw the matter and the promoters / directors of the defunct company made to suffer in the court for the entity which did not exist as on that date.
• Also, under Section 560 of the Companies Act,1956, the Registrar was vested with the power to strike off the name of the company in the prescribed manner where he had reasonable cause to believe that a company is not carrying on business or operations. It has been observed that Registrar has not exercised this power vigorously and the defunct companies have approached the ROCs on their own by filing form FTE.
• You might have observed that offices of ROC issue notices for non-filing of annual accounts & annual returns for companies in which annual filings are pending for more than 2-3 years but hardly notices under Section 560 of Companies Act, 1956 have been seen.
• Under the current provisions of the Companies Act,2013, which have been effective from 26^th December,2016, it is expected that offices of Registrar shall exercise their vested powers vigorously by sending notices to the defunct companies which is ultimately going to help the economy in a large way by keeping only those companies existing which are actually doing business thus reducing the undue financial burden on the promoters to make annual filings for companies carrying no business. Form STK-2 has been introduced but it is not yet available for filing.
• For the effective use of this provision, it is suggested that office of ROCs should use this provision to strike off the names of defunct companies and also allow the filing of form STK-2 by defunct companies, provided the form is being filed after fulfilling the prescribed conditions rather than asking them to first file annual returns for the financial years for which there has been no business.

Form No. STK – 3

Indemnity Bond

(To be drawn on Stamp Paper of appropriate value)

(to be given individually or collectively by every director) (Pursuant to clause (0 of sub-rule (3) of rule 4 of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016]

To,

The Registrar of Companies,

1. I/We, the Director(s) of…………………………… (mention name of the Company), incorporated on…………………………. under the Companies Act, 2013 or Companies Act, 1956 having its registered office at………………………….. do hereby declare that:

i. I/We ……………………………. S/o/ D/o/W/o Shri……………… am/are Director(s) of this

ii. That I/We have made an affidavit confirming that the company does not have any assets and liabilities as on date.

iii.     Further, the Company has been inoperative from the date of its incorporation/The Company commenced business/operations/commercial activity after incorporation but has been inoperative for the past…………………….. year(s) (strike out whichever is not applicable). Thus the Company is defunct and I request the Registrar of Companies,…………………… to strike off the name of the Company from the register of companies under Section 248 of the Companies Act, 2013.

2. I/We do hereby undertake to indemnify : ‑

i.  the claimants for all lawful claims against the company arising in future after the striking off the name of the Company.

ii. any person for any losses that may arise pursuant to striking off the name of the company

iii. the claimants for all lawful claims and liabilities, which have not come to our notice up to this stage, and if any claim arises or observed even after the name of the Company has been struck off in terms of Section 248 of the Companies Act, 2013.

Place:

Date:

(Name, Father’s name, Address and Signature) (To be given by every Director)

WITNESSES:

1. Signature: Name:

Father’s name: Address:

Occupation:

2. Signature: Name:

Father’s name: Address:

Occupation:

FORM No. STK -4

AFFIDAVIT

(to be given individually by every Director)

(Pursuant to sub section (2) of section 248 read with clause (iii) of sub-rule (3) of Rule 4]

1. I/ We ……………………. Director of…………………. (hereinafter called “the Company”),incorporated on ……………………  under the Companies Act, 2013 or the Companies Act, 1956having its registered office at………………………… and having CIN ………………. do solemnly affirm and state as under:

i. I/ We………………….. S/o / D/o Shri/Smt……………… Holder of DIN/Income TaxPAN/Passport number……………………….. (copy of Income Tax PAN/Passport duly attested by a Gazetted Officer or a whole time practicing professional viz Chartered Accountant/Company Secretary/Cost Accountant) am Director of the Company stated above since………….. (mention date of appointment).

ii. My present residential address is (copy of documentary evidence duly attested by a Gazetted Officer or a whole time practicing professional viz Chartered Accountant/Company Secretary/Cost Accountant) is enclosed (Alternatively, an affidavit sworn before Magistrate may be enclosed).

iii. My permanent address is (copy of documentary evidence duly attested by a Gazetted Officer or a whole time practicing professional viz Chartered Accountant/Company Secretary/Cost Accountant) is enclosed (Alternatively, an affidavit sworn before Magistrate may be enclosed).

iv. The Company does not maintain any bank account as on date.

v. The Company……………………… (mention name of the Company) does not have any assets and liabilities as on date.

vi. The Company has been inoperative from the date of its incorporation/The Company commenced business/operations/commercial activity after incorporation but has been inoperative for the past………………………………………………………… year(s) due to following reasons………… (give the reasons here).

  vii.    As on date, the Company does not have any dues towards Income Tax/Sales Tax/Central Excise/Banks and Financial Institutions; and other Central or State Government Departments/Authorities or any Local Authorities.

2. I further affirm that –

i. No inquiry, technical scrutiny, inspection or investigation is ordered or pending against the company;

ii. No prosecution or any compounding application for any offence under the Act or under any of the other Acts is pending against the company or against the undersigned;

iii. The company is neither listed nor delisted for non-compliance of listing agreement;

iv. The company is not a company incorporated for charitable purposes under section
8 of the Companies Act, 2013 or section 25 of the Companies Act, 1956;

v. The company does not have any management disputes or there is no litigation pending with regard to management or shareholding of the company;

vi. No order is in operation staying filing of the documents by a court or tribunal or any other competent authority;

vii. The company is not prevented from making the applications for strike off as mentioned in section 249 of the Act.

viii. I solemnly state that the contents of this affidavit are true to the best of my knowledge and belief and that it conceals nothing and that no part of it is false.

Verification:-

I verify that the contents of this affidavit are true to the best of my knowledge and belief.

Place: Signature_______________________

(Deponent)

Date:

Note : Attention is also drawn to provisions of section 449 which provide for punishment for false evidence.

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Author: Ms. Brij Agnihotri, Properitor

Brij Agnihotri & Associates, Company Secretaries

bagnihotri@gmail.com, 9871729864