The Ministry of Corporate Affairs (MCA) has give an opportunity to the defunct companies, for getting their names struck-off from the Register of Companies, the Ministry has decided to introduce a scheme namely, “Easy Exit Scheme, 2010” under Section 560 of the Companies Act, 1956. The scheme is operational from 30th May 2010 to 31st August 2010.
The scheme defines the “defunct company” means a company registered under the Companies Act, 1956 which is not carrying over any business activity or operation on or after the 1st April, 2008 and includes a company which has not raised its paid up capital as provided in sub sections (3) and (4) of section 3 of the Companies Act,1956;
The Companies (Amendment) Act, 2000 which provides minimum paid up capital for both Private and Public limited companies. The amendment came into effect 13-12-2000
According to sub section (3) of Section 3 of the Companies Act, 1956 that every private company, existing on the commencement of the Companies (Amendment) Act, 2000 with a paid up capital of less than one lakh rupees shall within a period of two years from such commencement enhance the paid up capital to one lakh rupees;
According to sub section (4) of Section 3 of the Companies Act, 1956 that every public company, existing on the commencement of the Companies (Amendment) Act, 2000 with a paid up capital of less than five lakh rupees shall within a period of two years from such commencement enhance the paid up capital to Rs. Five lakh rupees;
According to sub section (5) of Section 3 of the Companies Act, 1956 that where a private company or a public company fails to enhance its paid up capital in the manner specified in sub section (3) or sub section (4) such company shall be deemed to be a defunct company within the meaning of section 560 and its name shall be struck off from the register by the Registrar.
In the above Section 3 (5) had the law makers would have stopped the sentence by putting a full stop after the words Section 560 it would give a different meaning and the Registrar of Companies could treat it as a defunct company under Sec 560 of the Companies Act, 1956, but it is not so. The Section reads further “its name shall be struck off from the register by the Registrar”
The bureaucrats have failed in their duty even though it is a mandatory provision since the word ‘SHALL’ is used.
Will Section 629A of the Companies Act, 1956 applicable for not raising minimum paid up capital as per sub section (3) and (4) of Section 3 of the Companies Act, 1956?
Already penalty is provided in sub section (5) of Section 3 that the said companies which fails to increase paid up capital on or after 12-12-2002 shall deemed to be defunct company and its name shall be strike off from the register. For the same cause, you cannot levy two penalties i.e., striking off from the register (which was not done so far) and imposing penal provision under Section 629A of the Companies Act, 1956.
What ought to have been done but not done so far…
Section 3 stipulates two year period, that every private company/public company, existing on the commencement of the Companies (Amendment) Act, 2000 with a paid up capital of less than one lakh rupees/five lakh rupees respectively shall within a period of two years from such commencement enhance the paid up capital to one lakh rupees/five lakh rupees respectively; which ended on 12th Dec 2002. How this could be extended by means of Government Notification/ Circular.
The bureaucrats now by means of notification/ circular shifting their responsibility to companies.Can a Notification or Circular amend the main Act? Is it not an amendment to the Act which requires approval of Parliament? If this is challenged before a court of law will this question stand? Will the Ministry of Corporate Affairs can explain the legal validity of the above issues?
