C-PACE & related amendments – Everything you need to know!

Introduction of C-PACE

The Honorable Finance Minister Nirmala Sitharaman introduced the concept of C-PACE as a measure of ‘Accelerated Corporate Exit” in her budget speech on February 1,2022.

In her words “Several IT-based systems have been established for accelerated registration of new companies. Now the Centre for Processing Accelerated Corporate Exit (C-PACE) with process re-engineering, will be established to facilitate and speed up the voluntary winding-up of these companies from the currently required 2 years to less than 6 months.”

Centre for Processing Accelerated Corporate Exit or C-PACE in short was established vide MCA Notification dated 17^th March, 2023 which shall be situated at Indian Institute of Corporate Affairs (IICA), Plot No. 6,7,8, Sector 5, IMT Manesar, District Gurgaon (Haryana), Pin Code – 122050 w.e.f 1^st day of April, 2023.

The introduction and establishment of such a centralized system is based on two-fold motives;

1. Centralisation and speedy processing of the voluntary winding up of Companies

2. Relieving the workload of the registry officials concerned, so that they can focus on other tasks that fall within their jurisdiction

Such a system is beneficial from both the government’s and the companies’ point of view.

Voluntary Closure of Companies

Cancellation of companies or voluntary closure of companies is currently being handled by the respective Registrar of Companies (RoC) under section 248 of the Companies Act, 2013 read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

The said rules now stand amended by notification dated 17^th April, 2023 and are designated as Companies (Removal of Names of Companies from the Register of Companies) Rules, 2023 which shall come in effect from 01^st May, 2023.

Amendment to Strike-off Rules

Now, as per the Amendment (as mentioned above), the application of the strike-off in Form STK-2 shall be made to and be processed by Registrar, C-PACE.

Accordingly, the Registrar, C-PACE shall be the Registrar of Companies for the purpose of exercising functional jurisdiction of processing and disposal of applications and all matters related thereto under section 248 and will have jurisdiction all over India.

The latest amendment has also substituted the present e-forms STK-2 (Application by Company to ROC for removing its name from register of companies), STK-6 (Public Notice) and STK-7 (Notice of Striking off and Dissolution).

Impact of Amendment

One of the most important and noteworthy changes in these rules is the omission of clause (iv) sub-rule (3) of Rule 4 of the Companies ((Removal of Names of Companies from the Register of Companies) Rules, 2016 which provided that “the special resolution duly certified by each of the directors of the company or the consent of seventy five percent of the members of the company in respect of the paid-up share capital at the time of application’ must be attached to the Form STK -2.
Accordingly now there would be no need to mandatorily attach the resolution or the consent in the Form STK-2.

However, it should be noted here that Section 248(2) which provides for passing a special resolution or obtaining the consent of 75% of the members to apply for cancellation of the company has not been amended or omitted and the requirement to do so still exists. Only the requirement of mandatory attachment to the form STK -2 has been deleted.

Another point that requires attention is declaration item 9(xi) in the amended form STK -2, which requires the directors to declare that the ‘consent of seventy-five percent of the members has been obtained in respect of the paid-up share capital’. This was not the case in the earlier version of the form. The same could be interpreted as the result of the omission of mandatory attachment of Special Resolution or consent hence in a way shifting the complete responsibility on the Directors and Professionals involved in the process.

Another noteworthy point the Form STK-2 is the provision to now file the Statement of Accounts in excel format and the provisioning of getting it digitally certified by the Chartered Accountant.

Conclusion

By bringing up this centralized system for closure in the form of C-PACE, the government is clearly intending to make things more centralized, fast paced and efficient without compromising the quality of the governance. The provision of attachment in Excel format with Digital sign clearly suggests governments push towards digitization.

Although it looks good at first glance, actual implementation will be the key to bringing the imagined perspective to life.