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Bank Account Freeze due to Company Strike Off – How to lift freeze on your bank account

This article addresses the specific scenario of a bank account being frozen as the company being struck off due to the company’s failure to submit financial statements on the Ministry of Corporate Affairs (MCA) website and outlines the remedial steps under the Companies Act, 2013 (Act). Bankers routinely monitor the status of their corporate customers on the MCA database at regular intervals. If they find that a company’s status is listed as ‘struck off’, they will proceed to freeze the company’s bank account. As the company’s bank account is frozen, the Company cannot carry on its activities. Usually, it is a debit as well as credit freeze of the bank account, regardless of the funds in the bank account. The company can neither open new bank accounts nor use existing one, impacting business operations.

You can verify the strike-off status of a company by visiting the official MCA website www.mca.gov.in and navigating to the ‘Master Data’ section.

Freezing of Bank Account

When a company is struck off by the Registrar of Companies (ROC) for not filing financial statements, its bank account is frozen to prevent misuse of funds and to protect the interests of creditors and other stakeholders. This action is taken under Section 248 of the Companies Act, which allows the ROC to remove the name of a company from the register if it fails to commence its business within one year of incorporation or doesn’t carry on business for two consecutive financial years. Failure to file financial statements with the Ministry of Corporate Affairs or Registrar of Companies as required by law is considered equivalent to the company not conducting any business activities.

The freezing of bank accounts is also a precautionary measure against potential financial fraud or black money transactions, as these struck-off companies are often suspected of being non-compliant with their statutory obligations. To restore the company and regain control of the bank account, the directors must apply to the National Company Law Tribunal (NCLT) under Section 252 of the Companies Act.

If a company’s status is cited as ‘strike off’ on the MCA website, it cannot file any forms with the Registrar of Companies (ROC), except for those related to orders from the National Company Law Tribunal (NCLT).

The Restoration Mechanism

First Step – Audit of Accounts

The initial step for a company that has been struck off is to have its accounts audited and keep ready the financial statements. In case the accounts are getting audited on present date, the company should also proceed with compounding application as per the Act.

Second Step – NCLT Petition

To initiate restoration, an application must be filed with the NCLT by any of the shareholders of the company. The application should be complete with the necessary fees and following supporting documents and other documents specific to the case –

  • Certified copy of the Memorandum of Association (MOA) and Articles of Association (AOA), Certificate of incorporation of the company.
  • Current list of the company’s directors.
  • Certified true copy (CTC) of the Company’s master data
  • Registrar’s order for the company’s strike-off.
  • Latest Income Tax Return
  • Signed balance sheets of the company for the past 3 years
  • CTC of the bank statement
  • List of Shareholders
  • An affidavit that all ROC forms pending to be filed shall be completed within 30 days of NCLT order
  • A memorandum of appearance to be filed with the petition.
  • An affidavit that verifies the petition.
  • DD/ e filing receipt for payment of NCLT application fee

Justification for restoration

For the restoration of a company’s name, the justification must be included in the NCLT petition. This could involve evidence of recent business activity such as purchases or sales, income tax and GST returns, active contracts, available cheques and current employees on the company’s payroll.

If there’s no recent business, the company needs to explain the reasons to the NCLT and also outline its future business plans, any contracts or orders in hand. This includes showing how it will take up new projects, comply with legal filings and grow in the future.

Penalty & Fees

The penalty for restoring a company’s name after it has been struck off by the Registrar of Companies (ROC) varies depending on the case. The directors have to arrange for their personal funds for payment of these penalties as the bankers will lift the freeze only after the status of the company becomes ACTIVE after filing NCLT order with MCA/ ROC.

The additional fees under the Companies Act is levied at ₹100 per day for delayed filing of Form AOC 4 and Form MGT 7 / MGT 7 A. It’s important to act swiftly to restore the company to avoid these penalties from accumulating. The longer the delay, the higher the fees, which can add up quickly and become a significant financial burden.

Time Duration

The process to restore a company’s name after being struck off can vary in duration. Generally, it takes 6 months considering the time taken to obtain a hearing at NCLT. Usually it takes 3 to 4 NCLT hearings.

The NCLT, upon being convinced of the company’s operational status at the time of strike-off or the future prospects, may order the restoration of the company’s name.

Donation as a punitive measure

When the National Company Law Tribunal (NCLT) passes orders for the restoration of a company, it may sometimes include a directive to donate to certain specified funds. These donations are typically directed towards the Prime Minister’s Relief Fund or other similar government-established relief funds. The purpose of such donations is often to serve as a punitive measure for non-compliance and to contribute towards social welfare initiatives. The exact fund or the amount to be donated is determined by the NCLT and will be specified in the order.

Final Steps

Post-order, the company must file a certified copy with the Registrar within 30 days using Form INC-28. The Registrar will then reinstate the company’s name in the register.  The Company status in MCA Website will change from Strike off to Active. The Company can file the forms with respect to its financial statements and pay the additional fees as may be applicable.

To unfreeze the bank account, submit the NCLT order and the updated Master Data from the MCA website indicating the company’s status as ‘Active’ to the bank. The Bank shall lift the freeze on your bank account.

Conclusion

It is crucial for companies to file their financials on time to avoid being struck off and getting their bank accounts frozen. If a company does get struck off, it can be a complex and costly process to get back on the Register. Professional help can make this process smoother. Keeping up with these responsibilities will avoid payment of hefty penalties and fees to statutory authorities.

Author Bio

Registered Valuer - Securities or Financial Assets. Practising Company Secretary. 17+ years of experience . B Com, FCS, LLB, MBL, IP. View Full Profile

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