Modes of closing a business - Series II: Striking off the name of a company by Registrar of Companies

The COVID-19 pandemic has thrown up unprecedented challenges to businesses, big and small. It has also struck a fatal blow to many young startups.

In our previous Series I of the blog, we covered steps involved in summary procedure of liquidation which can be accessed here and this Series II provides insight on striking off of a company (i.e. Fast Track Exit) by the Registrar of Companies (RoC). Series-III will cover matters related to obtaining status of dormant for a specified period, which is relevant for startups planning on pivoting and not shutting down the company; and Series-IV will cover the voluntary liquidation under the Insolvency and Bankruptcy Code.

Striking off of a company

Striking off the name of a company was introduced by the Ministry of Corporate Affairs (MCA) to give an opportunity to the in-operative or defunct companies for getting their name struck off from the records of Register of Companies maintained by the Registrar of Companies. Fast Track Exit is a time-efficient mode of closing down a company, with lesser formalities as compared to other modes of closure of a company.

Section 248 of the Companies Act 2013 is applicable in case of closure of a company by way of striking off the name of the company by the RoC.

Applicability

Following companies are eligible to file an application to shut down the company:

If a company has failed to commence its business within one year of its incorporation; or if a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company; or if the subscribers to the memorandum have not paid the subscription money 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 180 days of its incorporation; or if the company is not carrying on any business or operations as revealed after the physical verification carried out by the registered office under Section 12 of the Act.

In case a company satisfies the aforementioned eligibility criteria, it may opt for the Fast Track Exit process.

Non- Applicability

The following companies are not eligible: listed companies; companies that have been delisted due to non-compliance of 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 orders are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in a court; companies where notices are received under the Companies Act or pending process under the notices or any prosecution arising out of such inquiry or scrutiny, if any, is pending with the court (i.e. notices under Section 234 of the Companies Act, 1956 (1 of 1956) or Section 206 or Section 207 of the Act have been issued by the registrar or inspector and reply thereto is pending or report under Section 208 has not yet been submitted or follow up of instructions on report under Section 208 is pending); companies against which any prosecution for an offence is pending in any court; companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default; companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same; companies having charges which are pending for satisfaction; and companies registered under Section 25 of the Companies Act, 1956 or Section 8 of the Act.

Pre-requisites to application for strike off

No Debt: The company should not have any outstanding loans in the company.

No dues to any statutory authority: The company should not have any dues towards income tax, VAT, excise duty, service tax or any other tax or duty, by whatever name called, payable to the Central or any state government, statutory authority or local authority.

No liabilities: All the other liabilities of the company should be settled or discharged or extinguished.

No investigation: There should not be any inspection or investigation ordered and carried out or yet to be carried out or being carried out against the company and where inspection or investigation have been carried out, and no prosecution is pending in any court.

No deposits: The company should neither have any public deposits which are outstanding nor the company is in default in its repayment or interest thereon.

Filing of pending forms: All overdue returns such as Form No. AOC-4 or AOC-4 XBRL, as the case may be, and Form No. MGT-7, up to the end of the financial year in which the company ceased to carry its business operations should be filed before filing an application.

Procedure for striking off

Corporate approvals:

Board Resolution

The Board of Directors of the company should pass a resolution recommending to the shareholders the seeking of approval for strike off.

Shareholders Resolution

The shareholders should pass a special resolution (with 75 percent of the shareholders’ approval) authorising the Board to file an application to strike off its name from the Register of Companies by the RoC.

Affidavit and Indemnity Bond

The Board should also prepare and execute an affidavit in Form STK 4, indemnity in Form STK 3 and the said affidavit and indemnity bond should be notarised by the public notary.

Statement of Assets and Liabilities

The company should prepare a statement in Form STK-8 containing assets and liabilities of the company made up to a day, not more than 30 days before the date of application and certified by a chartered accountant.

Application to the RoC

The company should file an application in Form STK 2 with the RoC. Further, this form has to be certified by a chartered accountant in full-time practice or a company secretary in full-time practice or a cost accountant in full-time practice along with: board and shareholder consents, declaration by the directors on the operations of the company, as well as identification and address proof of each of the directors, indemnity bond by each of the directors - the indemnity bond must be to the effect that any losses, claim and liabilities on the company will be met in full by every director individually or collectively even after the name of the company is struck off from the Register of Companies. This is the most crucial part of this method of shutting down. Statement of assets and liabilities from a CA or statutory auditor, disclosure of pending litigations, if any. (If there are pending litigations, then the process of shutting down is not possible).

On receipt of the application, the RoC upon being satisfied that the company is fit for being struck off from the RoC’s register, shall give a notice to the company by email on its email address provided in its Form FTE, giving 30 days time to show cause as to why the name of the company should not be struck off.

The RoC will proceed to publish the name of the company on the MCA website for any stakeholders to raise objection within 30 days of publication. After the expiry of the aforesaid time periods, the RoC will proceed to strike off the company’s name from the register and will publish a notice in the official gazette. The company will stand dissolved from the date of publication in the official gazette.

Restoration of struck off companies

Upon the company dissolved under Section 248 of the Act, in case any person aggrieved by an order of the RoC striking off, may file an appeal to the National Company Law Tribunal within a period of three years from the date of the order of the RoC. If the tribunal is of the opinion that the removal of the name of the company from the Register of Companies with the RoC is not justified, it may order restoration of the name of the company in the ROC.

However, If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the Register of Companies, the tribunal on an application made by the company, member, creditor or workman before the expiry of 20 years from the publication in the official gazette, order the name of the company to be restored. The tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other people in the same position as nearly as may be as if the name of the company had not been struck off from the Register of Companies.

Timelines and costs

The entire process of striking off of the name of the company from the ROC takes about three to six months from the date of the application.

Costs involve preparation and certification statement of accounts, expenses for notarisation and stamp duty on the affidavit, indemnity bond and filing fees of Rs 5,000 to 10,000.

Conclusion

The striking off process is a major relief for a large number of companies that have registered under the Act but either went out of business or became non-operational. This will provide an opportunity to the inoperative companies to dissolve with minimal cost and compliance as compared to other modes of closure of companies.

From the above, it can be seen that there is an option for restoration of the company based on petition from aggrieved persons.

ALSO READ

Modes of closing a business - Series-I: Summary procedure of liquidation

Please Note: In the process of simplifying the reading of this blog, we have excluded many technical aspects/document description, filings, timelines etc to be followed. Please obtain legal advice, since the specific requirements of your company have to be considered.

The series was written with the help and research of the team at NovoJuris Legal.