The Ministry of Corporate Affairs (MCA) has, vide its notification dated 17th April 2023, amended the existing Rule 4 of the Rules (Amendments). The Amendments have been introduced to create a smooth process of exit for companies, which do not fall under the purview of the Insolvency and Bankruptcy Code, 2016. (IBC)
Background
The Ministry of Corporate Affairs (MCA) vide Circular No. 16/2016 on 26th December 2016, introduced a scheme to strike off the name of a company from the Register of Companies by giving an opportunity to non-operating companies for getting their names struck off from the records of Ministry of Corporate Affairs at cheaper cost and with lesser formalities under section 248 of the Companies Act, 2013.
The companies which are eligible to apply for Fast Track Exit are as follows:
- The small companies which are:
a. Inoperative.
b. Not filing annual returns with the Registrar of Companies.
c. Operating in loss.
d. Not having any objective to continue with it.
Grounds to issue Notice for strike-off:
- Notice can be issued for strike off of a company by ROC either suo-motu or on application of a company on the following grounds:
1. If a company has not commenced its business within one year of its incorporation;
2. If the subscription which was undertaken to be paid within a period of one hundred and eighty (180) days from the date of incorporation of a company has not been paid by the subscribers to the memorandum and a declaration under section 11(1) to this effect has not been filed within one hundred eighty (180) days of incorporation of the company;
3. If a company has stopped carrying on any business or operation for a period of two (2) immediately preceding financial years and no any application within such period has been filed by the company for obtaining the status of a dormant company under section 455 of Companies Act, 2013.
Companies not eligible for Fast Track Exit are as follows:
1. Listed Companies.
2. De-listed companies due to non-compliance of Listing Agreement or any other statutory Laws.
3. Companies falling under Section 25 and Section 8 of Companies Act, 2013.
4. Vanishing companies Companies registered under Companies Act, 2013 or previous company law or any other law for the time being in force and listed with Stock Exchange but have failed to meet certain legal obligations. These obligations include filing returns with the Registrar of Companies and maintaining a registered office at the provided address and has failed to fulfill these requirements for two consecutive years.
5. Companies where investigation/ inspection has been ordered and are yet to be taken up or pending in Court.
6. Companies where notice under Section 234 of the Companies Act, 1956 or Section 206 or 207 has been issued by Registrar of Companies and reply is pending or report under Section 208 has not yet been submitted or is pending.
7. Companies where prosecution for an offence is pending in court.
8. Companies with pending applications for compounding offences and have sought to resolve legal offences committed by the company or its officers.
9. Companies having accepted public deposits which are outstanding or there has been a default in repayment of such deposits.
10. Companies having secured or unsecured outstanding loans.
11. Companies having management disputes.
12. Companies in respect of which filing of documents have been stayed by court or Company Law Board (CLB) or Central Government or any other competent authority.
13. Company having dues towards income tax or sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities or any local authorities.
14. If at any time in the previous 3 months, the company:
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- Has changed its registered name or has shifted its registered office from one State to another.
- Has made a disposal for value of property or rights held by it, immediately before cesser 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 apart from the one which is compulsory or beneficial for making an application under that Section.
- Has made an application before the Tribunal relating to sanctioning of a compromise or arrangement and the matter has not been finally disposed.
- Is in the process of winding up under Chapter XX of Companies Act, 2013 or under the Insolvency and Bankruptcy code, 2016.
Procedure of striking off the name:
1. The Company must call for a Board Meeting to pass a resolution for striking off and to sanction any director to file an application for the same.
2. After passing of Board resolution, the company shall set off all the liabilities, if any.
3. A special resolution must be passed in the general meeting called by the company.
4. Form MGT-14 is to be filed with the Registrar of Companies within 30 days of passing the abovesaid special resolution.
5. An application for removal of the name of the company under sub-section (2) of section 248 shall be made in Form STK-2 along with the fee of INR 5000 along with the necessary attachments. E-Form STK-2 shall be signed by authorized director. If the concerned director does not have a Digital Signature certificate, a physical copy of the form duly filled shall be signed manually by the Director and duly authorized in that behalf and shall be attached with the Form STK-2 while uploading the Form. Additionally, it shall also be accompanied with a pending litigation disclosure against the Company.
Procedure followed by the Registrar of Companies
Step 1: Registration
Form FTE must be filed by the eligible companies to Registrar of Companies for striking off their name.
Step 2: Fee Payment
The FTE must be filed electronically on the Ministry of Corporate Affairs portal by remitting Registrar of Companies a fee of INR 5000.
Step 3: Examination
The Registrar of Companies examines and gives notice to the Company under Section 560(3) of the Companies Act, 1956 by e-mail, mentioning thirty days unless the cause of showing to the contrary, its name be struck off from the Registrar and the company will be dissolved.
Step 4: Raising Objection
A total of thirty days is given to raise objections, if any, by the stakeholders to the concerned Registrar once the Registrar of Companies includes the applicant’s name along with the date of application under the scheme on Ministry of Corporate Affairs portal.
Step 5: Intimation
A total of thirty days is provided to office of the Income Tax Department for their objection once the Registrar of Companies sends intimation of such companies that avails Fast Track Exit.
Step 6: Approval
If satisfied, the Registrar of Companies approves and strikes the company’s name off the Register and a notice is sent under Section 560(5) of the Companies Act, 1956 for the purpose of publication in the official Gazette.
MCA Amendments Dated 1st May 2023
The following new changes have been introduced vide amendments made dated 1 May, 2023.
1. New Authority: The approval authority for all applications of FTE would now be a special authority, being the ‘Center for Processing Accelerated Corporate Exit’ (CPACE). CPACE has been set up at the ‘Indian Institute of Corporate Affairs, Manesar’, an institution attached to the MCA. The functions of CPACE will include processing and disposing of applications that has been made for the removal of names of companies under Section 248 of the Companies Act (through Form STK-2). Earlier the territorial jurisdiction was handled by the Registrar of Companies of the respective states where the companies’ registered offices were situated. Vide the amendment, CPACE will now have territorial jurisdiction pan India.
2. New forms/format: The formats of three existing FTE forms (being STK-2 (application by company to ROC for removing its name from ROC), STK-6 (public notice) and STK-7 (notice of striking off and dissolution)) have been substituted. Form STK-2 includes disclosures relating to pending litigations of the concerned company and such other disclosures to ensure that there are no other pending proceedings or liabilities of the company. Forms STK-6 and STK-7 have been amended to vest powers to CPACE.
3. Omission of attaching of shareholder approval: The companies will now no longer be required to submit a special resolution or consent of seventy-five percent of its members for the purpose of making an application for strike-off.
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Authored by Arghya Sen, 3rd year BALLB(Hons.) Student at Amity University, Kolkata
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