Note on Dormant Companies under Companies Act, 2013

> INTRODUCTION:

The Oxford Dictionary defines dormant as ​‘not active or growing now but able to become active or to grow in the future’.

Accordingly, a dormant company will mean a company which is inactive or inoperative. The basic premise of a dormant company is that the company is not carrying any business and is inoperative, but it holds an asset / intellectual property without having any significant accounting transactions and may get revived in the future, whenever it is deemed viable.

The provisions regarding “Dormant Company” have been given in Section 455 of the Companies Act, 2013 (“the Act”) read with Rule 3 to 8 of Companies (Miscellaneous) Rules, 2014 (“the Rules”).

> IMPORTANT TERMS:

1. “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.

2. “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.

> ELIGIBILITY CRITERIA:

A company may make an application to the Registrar for obtaining the status of a dormant company in Form No. MSC-1 after passing a special resolution to this effect in the general meeting of the company or after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of at least 3/4th shareholders (in value).

A company shall be eligible to apply for obtaining the status of a dormant company only if:

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; and if there is any outstanding unsecured loan, the company may apply after obtaining concurrence of the lender and enclosing the same with Form MSC 1 ;

5. there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;

6. 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.;

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

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

> PROCEDURE:

1. Convene a Board Meeting to discuss the following items prior to proceeding with the application for obtaining the status of a dormant company:

(a) To evaluate the proposal of obtaining the status of a dormant company.

(b) To approach the Auditor for a Certificate and Statement of Affairs duly certified by Chartered Accountant or Auditor(s) of the company to be enclosed as an attachment to e-form MSC-1.

(c) To authorize any director(s) to prepare a Certificate regarding no dispute in the management or ownership.

(d) To approach creditors of the company, if any, to give their no objection for obtaining the status of a ‘Dormant Company’.

(e) To authorize any director(s) to do all such other acts, deeds or things as may be necessary.

2. Convene a Board Meeting to:

(a) Authorize a Director to make an application for obtaining the status of a dormant company.

(b) Fix date, time and place for convening of an Extra-Ordinary General meeting (alternatively, the Company may send a notice to all the shareholders of the company for this purpose and obtain consent of at least 3/4th shareholders in value).

3. Hold the Extra-Ordinary General Meeting and pass a special resolution and file MGT-14 with the RoC within 30 days.

4. After filing MGT-14, application for obtaining the status of a dormant company in form MSC-1 is required to be made to the Registrar.

5. The Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate in form MSC-2. Once the form is approved the status of the company shall be changed to ‘Dormant under section 455’.

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.

> FILINGS TO BE MADE WITH THE REGISTRAR POST OBTAINING THE STATUS OF A DORMANT COMPANY

1. To maintain the status of dormant company, the company shall file “Return of Dormant Company” annually indicating its Financial Position duly audited by Chartered Accountant in Practice in e-form MSC-3 within 30 days from the end of each Financial Year.

2. Company shall continue to file the return of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company.

3. If company carrying any “Significant transaction” during the dormant period, the directors shall within 7 days from such event, file an application with ROC in e-form MSC-4, for obtaining the status of an active company.

4. If a company wants to get Active status to file e-form MSC-4 with ROC, then gets active company status.

> CONVERSION OF DORMANT COMPANY INTO ACTIVE COMPANY:

A dormant company can be made active by simply filing Form MSC-4 under section 455(5) seeking active status of the company along with prescribed fees and form MSC-3 with respect to the financial year in which the application seeking active status is being filed. The Registrar will issue a certificate of recognizing active status of the company in form MSC- 5.

> MISCELLANEOUS:

1. The dormant company shall maintain minimum no. of directors, i.e. 3 in case of public company, 2 in case of private company and 1 in case of OPC.

2. A Dormant Company need not enclose cash flow statements in its annual accounts.

3. A Dormant Company is required to convene at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings should not be less than ninety days.

4. For reckoning the limit of audit of twenty companies, the audit of a dormant company shall not be included.

5. Provisions of the Act in relation to the rotation of auditors shall not apply on dormant companies.

6. For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

7. The Act provides that 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.