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;

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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?

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