Want to put your business to an end? Confused? What’s better – dormant or strike off? Compiled by CS Harshdeep Singh Narula


WHAT DO YOU UNDERSTAND BY A DORMANT COMPANY?

In Lay-Man’s Language, it means to put a company into a Deep Sleep. Which also means that, after obtaining the status of Dormant or Inactive Company, the company is not required to comply with that heavy burden of compliances and it will reduce to the minimum.

Along with it, post obtaining “Inactive Status”, the company will still be in the books and on the records of Registrar of Company. It will just be put to a very Deep Sleep.

LAW BEHIND OBTAINING “DORMANT STATUS”

Section 455 of Companies Act, 2013 contains the provision for the Dormant Company and it enables the Companies with Inactive business or incorporated for Future Projects or for only to hold an asset or Intellectual property without complying with the provisions of the Act and an option to apply for a Dormant Status and those companies need not to be required to comply with the Stricter provisions of the Act.

However, there are certain requirements to be fulfilled for retaining the status of Dormant Company otherwise on failing to comply with the requirements, the Registrar has power to strike off the name from Register of Dormant Companies. Further, a Dormant Company can also apply for the status of “Active Company” on continuation of business or project for which it was incorporated, as the case may be, by filing an application to registrar along with documents and fees as prescribed.

What does ‘Inactive Company’ means?

Explanation (i) to Section 455(1) defined 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.

And ‘Significant Accounting Transaction’ means any transaction other than,

  • Payment of fees by a company to the Registrar;
  • Payment made by it to fulfill the requirement of this Act or any other law;
  • Allotment of shares to fulfill the requirement of this Act, and
  • Payment for maintenance of its office and records.

WHAT DO YOU UNDERSTAND BY STRIKE OFF?

In Lay-Man’s Language, it means to process the removal of the name of the Company from the records of the Registrar of Companies. In cases, where Companies do not abide with the Company Law and related provisions, then the Registrar has a power to Strike off their Company.

In other cases, where the Company is suffering losses in business or is unable to comply with the heavy burden of compliances under the act or has fulfilled the object of opening a company. They have an option to apply for removal of name of the company from the register and to discontinue the operations, along with compliances.

LAW BEHIND OBTAINING STRIKE OFF STATUS – Removal of Company from Registrar of Companies.

Section 248 of the Companies Act, 2013 provides an option for ROC to strike off the name of the Company from Register of Companies either Suo Moto OR on an application made to it by the Company in the prescribed manner.

The Companies which are inactive and have not applied for the status of Dormant Company can be struck off on following the procedure prescribed under the Rules.

Grounds for Strike Off

  • a company has failed to commence its business within one year of its incorporation, or
  • a company is not carrying on any business or operation for a period of two immediately preceding financial years 
  • the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub­section (1) of section 10A; or
  • the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.

COMPARISON OF CONDITIONS AND PROCEDURES

S. No.

DORMANT COMPANY

STRIKE OFF

 

1

 

Companies cannot apply for status of Dormant Company, if:

·         the securities of the company are listed on any stock exchange within or outside India (i.e. Listed Companies).

·         inspection, inquiry or investigation has been ordered or taken up or carried out against the company

·         prosecution has been initiated or pending against the company under any law

·         the company has any public deposits which are outstanding and the company is in default of any payment thereof or interest thereon

·         the company have any outstanding loan, whether secured or unsecured.

 

However, if the company has any outstanding unsecured loan then the company may apply for status of dormant only after obtaining no objection certificate from the lender.

 

·         There is any dispute in the management or ownership of the company.

·         the company have any outstanding statutory taxes, dues, duties, etc. payable to the central government or any state government or local authorities

·         the company has defaulted in the payment of workmen’s dues

 

 

These Companies Shall not be Removed under these Rules, if:

·         listed companies;

·         companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;

·         companies having charges which are pending for satisfaction;

·         companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;

·         Vanishing companies(a Listed Companies which has failed to file its returns with the Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the ROC or Stock Exchange and none of its directors are traceable).;

·         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 against which any prosecution for an offence is pending in any court;

·         companies whose application for compounding is pending before the competent authority; and

·         Companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act (i.e. A Not for Profit Organizations).

 

 

2

 

Special Resolution in the general meeting of the Company

 

Special Resolution in the general meeting of the Company

 

 

3

 

Previous filings of Annual Returns are required to be completed for obtaining status of Dormant Company.

 

Previous filing of Annual Returns up to the end of financial year in which the company ceased to carry its business operations are required to be completed before filing application.

 

 

4

 

Company may make an application in Form MSC-1to Registrar along with:

 

§  Certified true copy of Board Resolution authorizing making of this application.

§  Certified true copy of Special Resolution authorizing for obtaining dormant status

§  Auditor’s certificate

§  Statement of affairs duly certified by Chartered Accountant or Auditor(s) of the company

§  Copy of approval or no objection certificate (NOC) from the regulatory authority in case company is regulated by such authority

§  Latest financial statement and annual return of the company is mandatory to attach in case the same is filed to Registrar

§  Consent of the lender, if any loan is outstanding

§  Certificate regarding no dispute in the management or ownership;

 

Any other information can be provided as an optional attachment(s).

 

Along with it Form MGT-14 will also be filed. (Prior to MSC-1)

 

Company may make an application in Form STK-2to Registrar along with:

 

§  Form STK-3, Indemnity Bond notarized by every director.

§  Form STK-4, Affidavit by every director of the Company.

§  Form STK-8, Statement of Accounts.

§  Certified true copy of Special Resolution

§  Certified true copy of Board Resolution authorizing directors to make an application on behalf of company.

§  A Statement regarding pending litigation, if any.

§  Copy of approval or no objection certificate (NOC) from the regulatory authority in case company is regulated by such authority

 

5

 

Fees for Filing Form MSC-1

 

Authorised Share Capital

Fees

(a)    Upto Rs. 25,00,000

2000/

1000 for Small or OPC

(b)   More than Rs.25,00,000 and upto Rs.50,00,000

5000/

2500 for Small or OPC

(c)    More than 50,00,000 and upto Rs. 5,00,00,000

10,000

(d)   More than Rs. 5,00,00,000 and upto Rs. 10 crores

15,000

(e)    More than Rs. 10 crores

20,000

 

Fees for Filing Form STK-2 is Rs.10,000 for other than OPC and Rs. 5,000 for OPC.

 

6

 

Certificate for allowing the status of Dormant Company issued in Form MSC-2.

 

 

Certificate of Strike Off will be issued by Registrar in Form STK-7.

 

7

 

Dormant Company needs to comply with the following requirements for retaining the status of Dormant Company;

§  Return of Dormant Company, indicating financial position duly audited by a Practicing Chartered Accountant in Form MSC-3 within 30 days from the end of Financial Year.

§  Return of Allotment or Particulars Change in Directors, If any.

§  Payment of Annual feesalong with normal filing feein Form MSC-3as prescribed in the rules;

 

 

 

Not Applicable in case of Strike Off.

 

8

 

Dormant Company can apply for obtaining the status of Active Company on complying with the following procedure:

§  Application shall be made in Form MSC-4 along with Form MSC-3 in respect of the financial year in which the Form MSC-4 is being filed.

§  Certificate for Active Status of Company will be issued in Form MSC-5.

 

Revival of Struck off Companies can be made within 20 years from the date of Strike off through NCLT Route by filing petition to NCLT for revival of Company.

 

 

SOME POINTS TO BE CONSIDERED

IN STRIKE OFF

Section 249 of the Act state that the Application for Strike off cannot be filed if company at any time in the previous three months;

  • has changed its name or 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 except the one which is necessary or expedient for the purpose of making an application under that section, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
  • has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
  • is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.

IN DORMANT COMPANY

A status of Dormant Company can be retained for a period of 5 consecutive years at a time by filing Annual fees and complying with the annual requirements and Company need to file the Form MSC-4 for getting the status of Active Company within 5 years from the date of approval of application for Dormant Status.

However, company can get the status of Dormant Company after completion of 5 consecutive years by filing a fresh application in Form MSC-1.

CONCLUSION

As per our view, obtaining Dormant Status is suitable for the Companies:

 

 

 

1.      Which are only incorporated for any future projects  Or;

2.      Which are not willing to comply with the stricter provisions Or;

3.      Which companies do not have any business at a moment, but willing to continue in near future Or;

4.      Wants to preserve the name, for some unsighted future projects.

 

As per our view, keeping aside the Compulsory Strike Off by ROC and taking the picture of Voluntarily Strike off. Obtaining the Strike off status is suitable for the Companies:

1.      Which are suffering from the heavy losses and wishes to discontinue or business Or;

2.      Which is under heavy burden of the Annual filing penalties; While being a Non-operative business Or;

3.      Which do not have any future sight to run the business.

 

 

 

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