Procedure for Closure (Strike off) of Company in India

Introduction

Since 2015, Indian Govt. has started various measures for ease of doing business by various means like Exemptions to Private Companies, Companies Amendment Act, 2017, 2019, Zero fees of incorporation for new companies having capital upto Rs. 15 Lacs etc. At the same time, it has also taken stringent actions against non-compliant companies and its associated directors. It has also introduced new requirements of KYC for DIN holders and Companies to clean corporate sector of the country. Nowadays, Compliance requirement for companies were increased like DIN KYC, Company KYC (ACTIVE), DPT-3, MSME-1, Additional fees of Rs.100 per day on late filing of Financial Statement and Annual Returns.

Voluntary Closure or Strike off

Section 248-252 of the Companies Act, 2013 read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 deals with removal of names of companies from the Register of Companies. This facility of striking off of name of company is a very cost effective as compared to winding up and it is easy and hassle free way of closing down of business.

When Company can apply for closure?

• When the company has not commenced its business within 1 year of incorporation; or
• When the company is not carrying out any business or activity for preceding 2 financial years and has not sought the status of Dormant Company under Section 455 of the Act.
• the subscribers to the memorandum have not paid the subscription money and a declaration to this effect has not been filed within 180 days of its incorporation;

Section 248(2) – Statutory Provisions 

A company may on its own file an application for striking off in e-form STK-2 to the Registrar for removing the name of the Company after extinguishing all its liabilities and after passing a special resolution. STK-2 form is required to be signed by the director and it must also be certified by Practicing CS/CA/CWA.

Fees for filing form STK-2 is Rs.10,000/-. (Enhanced from Rs. 5,000/- vide Amendment dated 08^th May, 2019)

Process for Voluntary Strike off (Closure of Company)

1. Hold Board Meeting to discuss and decide for voluntary strike off u/s 248(2);

2. Pay off all the liabilities before holding EGM;

3. Convene EGM for passing special resolution;

4. File Special Resolution in MGT-14 within 30 days;

5. File STK-2 form alongwith following documents:

• Indemnity Bond duly notarized by every director in Form STK 3;
• A statement of accounts in form STK-8 containing assets and liabilities of the company made up for a day, not more than 30 days before the date of application and certified by a Chartered Accountant;
• An affidavit in Form STK 4 by every director of the company;
• CTC of Special Resolution duly signed by each Director
• In the case of a Company regulated by any other authority, approval of such authority shall also be required;
• A statement with respect to any pending litigations, involving the Company;

6. After receiving an application, ROC shall publish a public notice STK-6 to seek objection from public on proposed strike off;

7. The notice shall be placed on the website of Ministry of Corporate Affairs, published in the Official Gazette and published in a leading English newspaper and at least in one vernacular newspaper where the registered office of the company is situated.

8. ROC shall simultaneously intimate the concerned regulatory authorities regulating the company, i.e. the CBDT and CBEC having jurisdiction over the company, about the proposed action of removal or striking off the names of such companies and seek objections if any.

9. After complying all the process, ROC shall strike off the name and dissolve the company by sending notice in the official gazette in form STK-7.

Restriction on Making Application u/s 248(2)

The companies making an application for voluntarily strike off under section 248(2) of the Companies Act, 2013 be restricted if, at any time in the previous 3 months, the company-

• Has Changed its name or shifted its registered office from one State to another;
• Has made a disposal for value of property or rights held by it, immediately before Cesar of trade or otherwise carrying on of business, for the purpose of disposal for gain in the normal course of trading or otherwise carrying on of business;
• Has engaged in any other activity except the one which is necessary or expedient for the purpose of making an application under that section, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
• Has made an application to the Tribunal for the sanctioning of a Compromise Or Arrangement and the matter has not been finally concluded; or
• Is being wound up under Chapter XX, whether voluntarily or by the Tribunal or under the IBC, 2016.

Companies which can’t voluntarily strike off u/s 248(2)

• Listed companies;
• Companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;
• vanishing companies(*);
• 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;
• 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;
• Companies against which any prosecution for an offence is pending in any court;
• 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;
• Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
• Companies having charges which are pending for satisfaction; and
• Companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.

Whether Annual filing upto the date is must before making application of Strike off?

No. Filing is must only for the years in which business is active. The Companies (Removal of Names of Companies from the Registrar of Companies) Amendment Rules, 2019 dated 08^th May, 2019 expressly prescribed that all the overdue documents like AOC-4 and MGT-7 must be filled upto the end of the financial year in which company ceased to carry its business activity, before making an application for strike off.

FOR E.G:

Q: ABC Pvt Ltd was incorporated in 2008 and it ceased to carry on operation on April, 2013. It has filled its documents till 2012 now can it be struck off voluntarily?

Ans: No. First, it has to file overdue documents for the F.Y 2012-13 and 2013-14 before making an application.

Q: XYZ Pvt Ltd was incorporated in 2015 and it failed to commence its business since incorporation. However, it has filled its documents for 2015-16 now can it be struck off voluntarily?

Ans: Yes. It can make an application for strike off without filing documents for rest of the financial years.

Q: PQR Pvt Ltd was incorporated in 2014 and it doesn’t carry any operations since last 2 years and not filled any documents since last 2 years and notice in respect of strike off u/s 248 has been issued by ROC. Now can it file application for voluntary strike off to save its directors from disqualification?

Ans: Yes. But it has to file all pending documents till the closure of last F.Y regardless it has carry on business or not.

Q: JKL Pvt Ltd was incorporated in 2016 and failed to file any documents with ROC and ROC has struck off the Company after giving due notice. Can it file application for strike off now?

Ans: No. Once notice of strike off in form STK-7 has been published by ROC, Company can’t apply for voluntary strike off.

Conclusion

Due to increased compliance burden and Government’s action on non-compliant companies, promoters and directors of such companies are now unwilling to hold inactive private companies. Many corporate groups have been restructured whereby inactive companies were closed and some companies having same object were being merged to reduce the cost of compliance involved in running a Company. It is always advisable to use corporate structure wisely so as to get its benefits. Creating unnecessary entity may create financial burden and in such cases, it is advisable to close such companies.

(Republished with Amendments)