Dormant Company in India – Legal framework, Procedure and Compliances

Dormant Company in India – Legal framework, Procedure and Compliances

 Dormant Company in India — Legal framework, Procedure and Compliances

(Section 455 of the Companies Act, 2013 read with the Companies (Miscellaneous) Rules, 2014)

Introduction

In business practice, it is common for promoters to incorporate companies for future projects, asset holding structures, or strategic purposes. However, such companies may not immediately commence business operations. Prior to the enactment of the Companies Act, 2013, the earlier Companies Act, 1956 did not provide any formal legal status for such inactive companies.

As a result, even companies that had not started operations were required to comply with the full set of corporate compliances applicable to active companies, including preparation of financial statements, statutory audits, and regular filings with the Ministry of Corporate Affairs (“MCA”). This created unnecessary compliance burdens and administrative costs for companies that were legitimately inactive.

To address this gap and to promote ease of doing business, the Companies Act, 2013 introduced the concept of a Dormant Company under Section 455, allowing companies that are temporarily inactive to obtain a special legal status with reduced compliance requirements while retaining their corporate identity.

Meaning of Dormant Company

Under Section 455, a company may apply to the Registrar of Companies to be classified as a Dormant Company if it is not carrying on any significant accounting transaction and wishes to retain its corporate existence for future use.

A company may seek dormant status if it is:

• formed for a future project,
• established to hold assets or intellectual property, or
• otherwise not carrying on any significant business activity,
• An inactive company.

Dormant status allows such companies to remain legally registered while operating under a simplified compliance regime.

Meaning of “Inactive Company”

 Section 455 also introduces the concept of an Inactive Company.

An inactive company means a company which:

• has not been carrying on any business or operation, or
• has not made any significant accounting transaction during the last two financial years, or
• has not filed financial statements and annual returns during the last two financial years.

Such companies may apply to obtain dormant status through the prescribed procedure.

Meaning of “Significant Accounting Transaction”

The term significant accounting transaction is defined under the Companies (Miscellaneous) Rules, 2014.

It refers to any transaction other than:

• Payment of fees to the Registrar of Companies,
• Payments made to maintain the company’s registered office,
• Payments made to comply with statutory requirements,
• Allotment of shares to fulfil requirements of the Act,
• Payments for maintenance of statutory records of the company,

These transactions are considered routine administrative activities and do not affect the dormant nature of the company.

Situations Where Dormant Status is Commonly Used

In practical corporate structuring, dormant company status is frequently used in the following situations:

• Companies incorporated for future expansion or strategic projects,
• Special Purpose Vehicles (SPVs) created for real estate or infrastructure projects awaiting approvals,
• Companies established to hold intellectual property, trademarks, or other assets,
• Corporate groups preserving entities for restructuring or investment purposes,
• Companies incorporated by foreign investors awaiting regulatory approvals before commencing operations,

Dormant status allows promoters to retain these corporate vehicles without incurring the full compliance burden of an active company.

Who can not apply for the Dormant status

The following types of Companies are not eligible to apply for dormant status:

• Listed Companies,
• Companies under inspection, investigation, or prosecution,
• Companies having outstanding public deposits,
• Companies with outstanding statutory dues,
• Companies with unresolved management disputes,
• Companies having active commercial transactions.

Key benefits of Dormant Company status

Obtaining dormant status offers certain operational and compliance benefits to companies that temporarily do not intend to carry out business activities.

Key advantages include:

•  Significantly reduces the compliance burden on companies that are temporarily inactive while allowing them to retain their corporate existence as compared to an active company.
• It provides regulatory clarity and transparency by formally distinguishing genuine inactive companies from shell entities that may otherwise be misused for illegitimate activities.
• It offers promoters flexibility to preserve corporate structures and business vehicles for future use without being compelled to either maintain full compliance or seek strike-off of the company.
• Lower frequency of board meetings and streamlined compliances.
• Simplified regulatory requirements while maintaining the company’s legal existence
• Ability to preserve corporate structure for future business projects or asset holding

Eligibility Conditions Before Applying for Dormant Status

Before applying for dormant status, the company must ensure the following conditions are satisfied:

• The company is not carrying on any significant business activity.
• All statutory filings with the ROC are up to date.
• There is no default in payment of statutory dues, taxes, duties, or government liabilities.
• The company has no outstanding public deposits or default in repayment thereof.
• The company is not under inspection, inquiry, or investigation.
• There is no dispute in management or ownership of the company.
• The securities of the company are not listed on any stock exchange.
• The company does not have any outstanding loan, or the lender’s consent has been obtained for applying for dormant status.

Ensuring compliance with these conditions is essential for smooth approval of the application by the Registrar of Companies.

Procedure to Obtain Dormant Company Status

 The process for obtaining dormant status involves the following steps:

 Step 1: Board Meeting: The Board of Directors should convene a meeting to:

1. Approve the proposal to apply for Dormant Company status,

2. Approve the notice for shareholder approval,

3. Authorise a director or professional to file the application with ROC.

Step 2: Shareholders’ approval: The company must obtain approval of shareholders by:

1. Passing a Special Resolution and obtaining consent of shareholders,

2. Proper minutes, attendance and other supporting records must be maintained.

Step 3: Filing application with the ROC: The company must file e-Form MSC-1 with the Registrar of Companies. The application includes the following attachments:

• Certified copy of the special resolution or shareholders’ consent,
• Statement of Affairs of the company certified by a Chartered Accountant,
• Auditor’s certificate,
• Declaration regarding absence of disputes or liabilities by the directors,
• Consent of lenders (if the company has outstanding loans)

Step 4: ROC verification and certificate

Post filing an application with the ROC, ROC reviews the application and reserved the right to seek any clarification. Post satisfaction of ROC, a certificate in Form MSC-2 will be issued by the ROC and the company is shown as Dormant in the register.

Post-approval: Ongoing compliances for a Dormant Company

Even though dormant companies enjoy reduced compliance requirements, certain obligations must still be fulfilled.

• Minimum directors: Maintain the minimum number of directors as per category, 2 for a private company, 3 for a public company and 1 for the OPCs.
• Board meetings: As per Section 173(5) of the Companies Act, 2013, A company needs to hold at least one Board Meeting in each half of a calendar year, and the gap between the two meetings should not be less than 90 days.
• Filing of Return of Dormant company: A company is required to file e-Form MSC-3 within 30 days from the end of the financial year duly certified by the chartered accountant in practice. However, company shall continue to file return of allotment and change in the directors in accordance with the provisions of the Companies Act, 2013 read with rules framed thereunder, if required.
• Maintenance of Books and Records: Along with the financial statement of the Company, the dormant companies need to maintain the books of account and statutory registers and record permitted transactions in accordance with the Act.
• Maintain “dormant” Status: A dormant company must avoid undertaking any significant accounting transactions. If business operations resume, the company must apply to become active again.

 Reactivation of Dormant Company

A dormant company can become active again when it intends to commence business operations.

The process involves:

1. Hold a Board Meeting and pass a Board Resolution approving activation of Company,

2. Filing e-Form MSC-4 with the MCA,

3. MCA issuing confirmation and restoring the company’s active status.

 Power of ROC to Classify a Company as Dormant

Under Section 455(4), the Registrar of Companies may Suo Motu classify a company as dormant if the company has not filed financial statements or annual returns for two consecutive financial years.

This provision enables regulators to monitor inactive companies and maintain transparency in corporate records.

Risk of Strike-Off

If a company continues to remain dormant for five (5) consecutive years, the registrar may consider initiating action for removal of the company’s name from the register under Section 248 of the Companies Act, 2013.

Compliance checklist (quick view)

For ease of reference, companies may follow this practical checklist:

✓ Ensure ROC filings are up to date before applying,

✓ Obtain Board approval and shareholder special resolution,

✓ Prepare Statement of Affairs certified by a Chartered Accountant,

✓ File MSC-1 and obtain dormant certificate,

✓ Maintain minimum number of directors,

✓ Hold two board meetings per year (one in each half),

✓ File MSC-3 annually,

✓ Avoid significant accounting transactions,

Special Update: The CCFS-2026 Opportunity

 The Ministry of Corporate Affairs (“MCA”) has introduced a time-bound scheme to help inactive or defunct companies regularize their status with significant financial relief.

 Scheme Highlights for Inactive Companies

• Validity Period: The scheme opens on April 15, 2026, and remains active until July 15, 2026.
• Reduced Fee for Dormancy: Inactive companies can apply for “Dormant” status (e-form MSC-1) by paying only half (50%) of the normal filing fee.
• Massive Penalty Waiver: For companies needing to catch up on overdue Annual Returns or Financial Statements (Forms MGT-7/AOC-4) before going dormant, the additional late fees are reduced by 90% (you pay only 10% of the total accumulated additional fees).
• Immunity from Prosecution: Completing these filings under the scheme generally grants immunity from further penal action or proceedings related to the delay

 ******

Disclaimer: This article is intended solely for general educational and informational purposes. It does not constitute legal advice or professional opinion. Readers are advised to consult a professional or refer to the latest applicable laws and regulations before acting on any information contained herein. The provisions and interpretations may vary with subsequent amendments or judicial pronouncements.

 CS Deepak Sharma, (Company Secretary, LL.B) (M.) +91-9873 99 7776 Email: csdeepaksharma10@gmail.com