As per English dictionary, the word ‘Dormant’ has various meanings such as alive but not actively growing or temporarily inactive. Status of Company as a Dormant Company also implies the same meaning under the provisions of the Companies Act, 2013 which provides some relief to the Companies regarding compliances to be followed as comparison to when Company is in the status of Active and carrying on business/operations thereof.

SECTIONS APPLICABLE: Section 455 of Companies Act, 2013

RULES APPLICABLE: Rule 3, 4, 6, 7 and 8 of Companies (Miscellaneous) Rules, 2014

APPLICABILITY ON COMPANIES:

  1. Where a company is formed and registered for future project, holding an asset or Intellectual property and has no significant accounting transaction.
  2. Inactive Company.

Explanation:

  • Significant transaction: It is any transaction other than the following:
    • payment of fees by a company to the Registrar;
    • payments made by it to fulfill the requirements of this Act or any other law;
    • allotment of shares to fulfill the requirements of this Act; and
    • payments for maintenance of its office and records.
  • “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.

ELIGIBILITY OF THE COMPANY:

1. no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;

2. no prosecution has been initiated and pending against the company under any law;

3. the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;

4. the company is not having any outstanding loan, whether secured or unsecured:

Provided that if there is any outstanding unsecured loan, the company shall still be eligible after obtaining consent of the lender and enclosing the same with Form MSC-1;

1. there is no dispute in the management or ownership of the company;

2. the company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;

3. the company has not defaulted in the payment of workmen’s dues;

4. the securities of the company are not listed on any stock exchange within or outside India.

PROCEDURE:

S. No. Particulars
1. Give notice to Directors along with the agenda and notes on agenda to convene the Board Meeting at least seven days before the date of the meeting in compliance with the Secretarial Standards I.
2. Convene the Board Meeting to decide on the following matters:

• Need to take the Dormant Status for the Company

• Date, Time, Place and Venue of the EOGM

• Vesting of authority to ensure compliance and submission of documents/returns.

3. Send notice to members to convene EOGM of least 21 clear days in compliance with the Secretarial Standards II.
4. Convene EOGM to pass special resolution to take shareholders approval accordingly or obtaining consent of at least 3/4th shareholders (in value).
5. File e-Form MGT-14 within 30 days of passing the special resolution.

Attachments:

• Certified true copy of the special resolution along with the explanatory statement.

• Notice of the convened EOGM.

6. File e-Form MSC-1.

Attachments:

• Certified True Copy of Board Resolution

• Certified True Copy of Special Resolution

• Auditor’s Certificate

• Statement of Affairs, duly certified by Chartered Accountant

• A certificate regarding that there is no dispute in the management or ownership of the company;

• Latest financial statement and annual return in case the same is filed

• Consent of the lender if any loan is outstanding.

7. The Registrar shall, after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2 allowing the status of a Dormant Company to the applicant.

COMPLIANCE AFTER OBTAINING DORMANT STATUS:

1. Minimum number of directors:

Company Type Public Company Private Company OPC
Directors 3 2 1

2. Annual Return

A dormant company shall file a “Return of Dormant Company” annually, in Form MSC-3 within a period of thirty days from the end of each financial year.

Attachments:

  • Copy of Board Resolution authorizing the person for filing this return.
  • Duly audited statement of financial position by Chartered Accountant.

Provided that the company shall continue to file the return or returns of allotment and change in directors whenever the company allots any security to any person or there is any change in the directors of the company respectively.

CHANGE OF DORMANT STATUS TO ACTIVE:

  1. The Company willing to regain the active status shall file an application in the Form MSC-4 after keeping in hand the SRNs of Form MSC-1 and the last filed MSC-3 in hand along with the certified true copy of the resolution authorizing for filing the application.
  1. The Registrar shall, after considering the application filed, issue a certificate in Form MSC-5 allowing the status of an active company to the applicant

FAQs on Dormant Company:

1. For how much period can a Company remain as Dormant?

Five years. The Registrar shall initiate the process of striking off the name of the company if the company remains as a dormant company for a period of consecutive five years.

2. What happens in case the Company carries on the business while having the dormant status?

Where a dormant company does or omits to do any act mentioned in the grounds of application in Form MSC-1 submitted to Registrar for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within seven days from such event, file an application in Form MSC 4, for obtaining the status of an active company.

3. Shall the provision of rotation of auditors as applicable to public Companies be also applicable to a dormant public Company as well.

No (Proviso of Rule 6 of the Companies (Miscellaneous) Rules, 2014).

Extract of Section 455 of Companies Act, 2013 which is notified wef 01/04/2014-

Dormant Company                                                                                         

Notified Date of Section: 01/04/2014

455. (1)Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

Explanation.—For the purposes of this section,—

(i) “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;

(ii) “significant accounting transaction” means any transaction other than—

(a) payment of fees by a company to the Registrar;

(b) payments made by it to fulfil the requirements of this Act or any other law;

(c) allotment of shares to fulfil the requirements of this Act; and

(d) payments for maintenance of its office and records.

(2) The Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate in such form as may be prescribed to that effect.

(3) The Registrar shall maintain a register of dormant companies in such form as may be prescribed.

(4) In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

(5) A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed.

(6) The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.

{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}

Author Bio

Qualification: CS
Company: Kajal Goyal and Associates
Location: Delhi, New Delhi, IN
Member Since: 11 Jun 2018 | Total Posts: 49
KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

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