7
Section 455 of the Companies Act, 2013 outlines the concept of a Dormant Company that are registered under the Act but have no significant accounting transactions. A dormant company is typically established for future projects, asset holding, or intellectual property management purposes.
It provides a framework for companies to obtain the status of a dormant company that are not actively engaged in business operations but remain registered entities under the Act. The concept of a dormant company allows for the efficient management of entities that are temporarily inactive or exist solely for specific purposes.
Dormant companies are exempted from certain regulatory and compliance obligations, given their inactive nature. However, they must fulfill specific requirements to obtain and maintain their dormant status.
1. Inactive Company
According to Section 455 of the Companies Act, 2013, an “inactive company” refers to a company that meets any of the following criteria during the last two financial years:
- No Business or Operations: The company has not been carrying on any business or operational activities.
- No Significant Accounting Transactions: The company has not engaged in any significant accounting transactions.
- Non-Filing of Financial Statements and Annual Returns: The company has not filed its financial statements and annual returns with the authorities during the last two financial years.
2. Significant Accounting Transaction
The Act defines a “significant accounting transaction” as any transaction that falls outside the specific categories listed below:
- Payment of Fees to the Registrar: Transactions related to the payment of fees to the Registrar of Companies.
- Payments to Fulfill Legal Requirements: Transactions made by the company to fulfill the requirements of the Companies Act, 2013, or any other applicable laws.
- Allotment of Shares: Transactions related to the allotment of shares to comply with the provisions of the Companies Act, 2013.
- Payments for Office and Records Maintenance: Transactions involving payments for the maintenance of the company’s office and records.
In essence, a significant accounting transaction encompasses all business-related activities beyond the specified exempted transactions listed above.
3. Eligibility Criteria for Obtaining Dormant Company Status
To obtain the status of a dormant company, the company must meet certain eligibility criteria. These criteria are outlined in the Companies (Miscellaneous) Rules, 2014, and include the following conditions:
- No ongoing legal proceedings: No inspection, inquiry, investigation, or prosecution should be pending against the company.
- No outstanding public deposits: The company must not have any outstanding public deposits or be in default in payment thereof or interest thereon.
- No outstanding loans: The company should not have any outstanding loans, whether secured or unsecured. In the case of an outstanding unsecured loan, the company can still apply for dormant status with the concurrence of the lender.
- No dispute in management or ownership: There should be no dispute related to the management or ownership of the company, and a certificate confirming this should be enclosed with the application.
- No outstanding statutory dues: The company should not have any outstanding taxes, duties, or dues payable to the Central Government, State Government, or local authorities.
- No default in payment of workmen’s dues: The company must not have defaulted in the payment of dues to its workmen.
- Not listed on any stock exchange: The securities of the company should not be listed on any stock exchange within or outside India.
4. Application for Obtaining Dormant Company Status
A company formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, or an inactive company to obtain the status of a dormant company, a company needs to make an application in Form MSC-1 to the Registrar of Companies.
This application should be made 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 and obtaining consent from at least 3/4th of the shareholders (in value).
5. Certificate of Status of Dormant Company
Upon consideration of the application filed in Form MSC-1, the Registrar will issue a certificate in Form MSC-2, confirming the status of a dormant company to the applicant.
6. Obligations of a Dormant Company
A dormant company has certain obligations it must fulfill:
- Filing of Annual Return: A dormant company must file a “Return of Dormant Company” in Form MSC-3 annually within 30 days from the end of each financial year. The return should indicate the company’s financial position, duly audited by a chartered accountant.
- Compliance with Other Filings: While being a dormant company, it should continue to file returns of allotment and changes in directors as specified in the Act, whenever applicable.
73 Seeking Status of an Active Company
If a dormant company decides to become active again, it can apply for the status of an active company. The application for obtaining active company status should be made in Form MSC-4 and accompanied by a return in Form MSC-3 for the financial year in which the application is filed.
The Registrar shall, after considering the application issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.
8. Inactive for 5 Years: Registrar’s Action
If a company remains dormant for five consecutive years, the Registrar can initiate the process of striking off the company’s name from the register of dormant companies.
9. Consequences of Non-Compliance
Furthermore, if the Registrar has reason to believe that a registered dormant company has been functioning in any manner, it may remove the company’s name from the register of dormant companies and treat it as an active company after due process.
Conclusion
In conclusion, Section 455 of the Companies Act, 2013 provides a valuable mechanism for companies to obtain and maintain the status of a dormant company. This allows businesses to remain registered and compliant even during periods of inactivity or when they have no significant accounting transactions.
By fulfilling the specified conditions and obligations, companies can effectively manage their dormant status and seamlessly transition to active status when needed. The provision strikes a balance between regulatory compliance and the flexibility required by businesses during temporary periods of inactivity or for specific purposes. It ensures that dormant companies can maintain their legal existence while reducing unnecessary regulatory burden.
Overall, Section 455 serves as an effective tool for companies to navigate their inactive phases and optimize their operations in alignment with the Companies Act, 2013.
******
Author is a Qualified Company Secretary, with over four years of comprehensive experience and knowledge in navigating complex Act, Rules and Regulations, including but not limited to The Companies Act, 2013, FEMA, LODR, PIT, SEBI ICDR and more. With a strong passion for law and ongoing pursuit of an LLB degree, possess a comprehensive understanding of legal principles and practices. Author can be connected at malhotrabhuvesh@gmail.com.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. For legal advice, please consult with a Qualified Company Secretary familiar with the relevant laws and regulations. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the article or the information contained in it.
Author Bio
