Closure of an Inactive Company under Companies Act, 2013

In India more than 30% of the Companies registered are inactive as per Government data. Thus, MCA started using provision of Section 248(1) to cancel the registration of such Companies by sending notices to these Companies. So far, the government has de-registered over 2.25 lakh companies for non-filing of returns mandated. Directors associated with these companies are also disqualified for 5 years for non-compliance. 

After the introduction of new Companies Act, 2013, Compliance requirement for private companies were increased significantly. Due to that, promoters and businessman 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 merged, to reduce the cost of compliance involved in running an inactive Company.

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 corporate which are not carrying on any business, due to any reason whatsoever or defunct.

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

When Company can apply for closure?

• When a company has not commenced its business within one 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.

Provisions in the Act

Section 248(1)

Where the Registrar has reasonable cause to believe that a company has not commenced its operations or inactive since last 2 years, he shall send a notice to the company and all the directors of the company, in form STK-­1, 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. Generally, ROC close the company based on the non-filing of Financial Statements and Annual Return.

Section 248(2) 

A company may on its own file an application in form STK-2 in e-form-FTE to the Registrar for removing the name of the Company after extinguishing all its liabilities and after passing a special resolution. Form-FTE is required to be signed by Director, it must be certified by Practicing CS/CA/CWA and fee for filing form FTE is Rs. 5,000/-.

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 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;

1. After receiving an application, ROC shall publish a public notice STK-6 to seek objection from public on proposed strike off;
2. 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.
3. 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.
4. 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.