Striking-off Company’s Name from Register of Companies

Brief:  The following article explains the Power of the Registrar to remove the name of the Company from the register of companies.

> APPLICABLE SECTION: 

– Section 248 of the Companies Act, 2013

– Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016

*These sections are applicable to Private and Public Companies. However, the same is not applicable to a ‘Section 8’ Company.

>MEANING: 

The term ‘strike-off’ refers to the act of removing the name of the Company from the Register of Companies. The said register is maintained by the Registrar of Companies of that respective state. An alternative mechanism to the Striking Off the Company is termed as the ‘Winding up of a Company’, both the terms are to be taken synonymously. 

> GROUNDS FOR STRIKE OFF: 

The Company can be struck off from the Register of Companies if the ROC has reasonable cause to believe that—

– The Company has failed to commence its business operations within one year from its date of incorporation, or

– The Company is not carrying on any business or operation for a period of immediately preceding two financial years and has not made an application for obtaining the status of dormant Company under section 455.

> METHODS OF STRIKE OFF

– STRIKE-OFF SUO MOTO BY THE REGISTRAR OF COMPANIES [SECTION 248(1)]: 

Suo Moto means ‘on its own motion’. Therefore, if the ROC decides, by its own initiative, to strike-off a Company’s name from its register, then it will be termed as Strike-Off Suo Moto by the RoC.

In this, the ROC shall notice to the Company and all the Directors of the Company. In this letter, the ROC will put forward his/her intention to remove the name of the Company from the register of companies. After which, the ROC will request them to send their representations along with copies of the relevant documents, if any. The Company representatives will have a time of thirty days from the date of the notice to respond to the ROC’s notice.

– BY WAY OF APPLICATION BY THE COMPANY [SECTION 248(2)]

On the other hand, if the Company owners, on their own will, come to the decision to shut down their Company then they will need to adhere to the rules written down in Section 248(2) of The Companies Act, 2013.

Under this section, the Company can file an application voluntarily with the Registrar for Striking off their name from the Register of Companies. The grounds for strike off, for voluntarily making such an application by the Company, remains the same i.e.

– The Company has failed to commence its business operations within one year from its date of incorporation, or

– The Company is not carrying on any business or operation for a period of immediately preceding two financial years and has not made an application for obtaining the status of dormant Company under section 455.

> PROCESS OF BY WAY OF APPLICATION BY THE COMPANY [SECTION 248(2)]

As per the provisions of Section 248-252 of the Companies Act, 2013 read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, a Company may file an application for strike off in the below-given steps:-

Step 1:

– Holding a Board Meeting: 

The Directors of the Company need to hold a Board meeting. In this, they shall pass the Board Resolution for striking off the Company, subject to the approval of the shareholders, and authorize the filing form STK-2 with the ROC.

Step 2:

– Holding a General Meeting:

A general meeting will need to be held by the Members of the Company to obtain the shareholders’ approval for the Company strike-off. Now, this can be done in two ways.

First, it can be done by members putting out a Special Resolution in which the motive to wind up the Company and strike-off its name off Register of Companies shall be specified along with reasons.

Second, by acquiring the consent of seventy-five percent of members in terms of paid-up share capital.

Step 3:

– Extinguishment of all the Liabilities:  

After passing of Board resolution, if there are any pending liabilities with the Company then it will first extinguish all those liabilities before moving to the next step.  

Step 4:

– Approval of Concerned Authorities: 

 In case a Company is regulated under a special Act then, approval of the regulatory body constituted or established under that specific Act will also need to be obtained and enclosed with the application. 

Step 5:

– Filing of Application to ROC in form STK-2 

When the Company is filing its application for strike-off in Form STK- 2, the following list of documents must accompany the said application –

√ An Indemnity Bond duly notarized by every Director of the Company in Form STK-3

√ An affidavit in Form STK-4 by every Director of the Company

√ A statement of accounts showing the current assets and liabilities of the Company not more than thirty days before the date of application. The statement of accounts must be certified by a Chartered Accountant in Form STK-8

√ A copy of the special resolution duly certified by each of the Directors of the Company or consent of seventy-five percent of the members of the Company in terms of paid-up share capital as on the date of application.

√ A statement regarding pending litigations, if any, involving the Company.

√ Government filing fees: INR 10,000/-

√ In case the Company regulated by any other authority or comes under the regulation of a special Act, approval of such authority shall also be required.

Step 6:

– Public notice by ROC:

After filing an application for strike off by the Company, the ROC shall publish a public notice in Form STK-6 inviting objections from the public to the proposed Strike off, if any. The objections, if any, are to be sent to the respective ROC within thirty days from the date of publication.

The notice shall be placed on –

i. the website of Ministry of Corporate Affairs,

ii. published in the Official Gazette,

iii. published in a leading English newspaper, and

iv. at least in one vernacular newspaper where the registered office of the Company is situated.

Step 7:

– Intimation to regulatory authorities: 

The ROC shall simultaneously intimate the concerned regulatory authorities regulating the Company about the proposed action of removal or striking off the names of such companies and seek objections if any. The concerned regulatory authorities include the Income-tax authorities, Central Excise authorities, and Service-tax authorities having jurisdiction over the Company.

Step 8:

– Publication of notice of dissolution:

ROC, after completing the above steps, will release a notification in the Official Gazette in Form STK-7 about the Company’s strike-off and Dissolution.

Step 9:

– Notice of striking off and dissolution of Company:

The published notice shall be to the effect that the Company’s name has been struck off the register of companies and has been dissolved with effect from the date (mentioned therein). The same shall also be placed on the official website of the MCA (Section 250).

> COMPANIES ILLEGIBLE TO MAKE AN APPLICATION FOR STRIKE-OFF u/s 249 of The Companies Act, 2013

As per section 249 of the Companies Act 2013, the following companies are not eligible to make the application for strike off under 248 (2) of the same, if such companies at any time in the previous three months have:

√ changed its name or shifted its registered office from one state to another;

√ made a disposal for value of property or rights held by it, immediately before cesser of trade or otherwise carrying on of a business, for the purpose of disposal of gain in the normal course of trading or otherwise carrying on of business;

√ engaged in any other activity except for one which is mandatory for the purpose of making an application under section 248(2), or deciding whether to do so or concluding the affairs of the Company or complying with any statutory requirement;

√ filed an application to the National Company Law Tribunal (“Tribunal”) for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or

√ wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.

> COMPANIES ON WHOM STRIKE-OFF UNDER SECTION 248 IS NOT APPLICABLE 

√ Listed companies.

√ Companies that have been delisted due to non-compliance with listing regulations or listing agreement or any other statutory laws.

√ Vanishing companies.

√ Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court.

√ Companies where notices have been issued by the Registrar or Inspector (under Section 234 of the Companies Act, 1956 (old Act) or section 206 or section 207 of the Act) and reply thereto is pending.

√ Companies against which any prosecution for an offense is pending in any court.

√ Companies whose application for compounding is pending.

√ Companies that have accepted public deposits that are either outstanding or the Company is in default in repayment of the same.

√ Companies having charges which are pending for satisfaction; and

√ Not-for-profit Companies registered under Section 25 of the Companies Act, 1956 or section 8 of the Companies Act, 2013.

> Some other facts to consider

1. If there is pending prosecution against the Company and its Directors:  

If the pending prosecutions are only for non-filing of Annual Returns under section 92 and Balance Sheet under section 137 of the Act, such application may be accepted provided the applicants have already filed the compounding application. However, steps for a final strike of the name of the Company will be taken only after disposal of compounding application by the competent authority.

2. NOC from Tax Authorities:  

NOC is not required from Income Tax / Sales Tax / Central Excise / other Govt. authorities. But all Directors need to confirm that there are no dues pending against Company with any such authorities. The MCA will send notice to the Income Tax / other authorities enquiring whether they have any objection to striking off the name of the said Company.

3. Manner of notarization, apostilled or  consularization of indemnity bond and declaration in case of foreign nationals or non-resident Indians: 

 As provided under STK rules, if the Director of the Company applying for striking off, is a foreign national or non-resident Indian, the indemnity bond and declaration shall be notarised or apostilled, or consularized in the country of the foreign national.

4. Stamp Duty:

Stamp Duty is required to be paid on Affidavit and Indemnity Bond as per respective State Stamp laws.

5. Filing of Annual Returns

Pending Annual Returns to be filed before filing the Strike Off Application

> PENALTIES: 

√ In case the application is filed in violation of section 248(1):

In pursuance of Section 249(2) that if a company files an application in violation of Section 248(1) it shall be punishable with a fine which may extend to Rs. 1 lakh.

√ In case the application is filed with the intention to defraud:

Section 251(1) provides that where it is found that an application by a Company has been made with the object of evading the liabilities of the Company or with the intention to deceive the creditors or to defraud any other persons, the persons in charge of the management of the Company shall, notwithstanding that the Company has been notified as dissolved, be jointly and severally liable to any person or persons who had incurred loss or damage as a result of the Company being notified as dissolved; and be punishable for fraud in the manner as provided in Section 247. Furthermore, ROC may also recommend prosecution of the persons responsible for the filing of an application under Section 248(2).