FAST TRACK EXIT

This article is written by Noel Satish Konwar, a qualified lawyer.

Fast Track Exit gives a choice or option to defunct companies to get their names struck off from the Registrar of Companies. In its place, under the Companies Act, 2013 has brought in a process called Removal of Names of Companies from Register (As per Section 248 of Companies Act, 2013), with effect from 26 December 2016.

One of the speedy way to close down a company being non–operational over a period of time is fast can proceed for closure under this criteria:

1. Within one year of its incorporation if a company fails to commence its business;
2. Subscribers to MOA has not paid the subscription amount within 180 days and no declaration filed to this effect;
3. When a company voluntarily wants to close, it can after clearing all its liabilities, by obtaining the consent of at least 75% or more shareholders in terms of paid-up capital;
4. Not able to carry any business for a period of two years as per new rule and has not sought to call itself a dormant company.

FOLLOWING TYPE OF COMPANIES ARE NOT REMOVED UNDER FTE:

1. Listed companies;
2. Companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;
3. Vanishing companies; i.e registered under the act or previous company law or any other law for the time being I force and listed with Stock Exchange which has failed to file its return 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 during commencement of business.
4. 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;
5. Companies, where 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 or where any prosecution arising out of such inquiry or scrutiny ,if any, is pending with the court;
6. Companies against which any prosecution for an offence is pending in any court;
7. 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;
8. Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
9. Companies having charges which are pending for satisfaction; and
10. Companies registered under Section 25 of the Companies Act 1956, or Section 8 of Companies Act, 2013.

A COMPANY CAN’T GO THROUGH FTE ROUTE UNDER FOLLOWING CIRCUMSTANCES:

An application under FTE route shall not be made if, at any time in the previous three months the company-
1. Its name has been changed or shifted its registered office from one state to another.
2. 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 of gain in the normal course of trading or otherwise carrying on of business;
3. Has engaged in any other activity except the for one which is mandatory 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;
4. Has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
5. Sis being wound up under Chapter XX, whether voluntarily or by the Tribunal.

PROCEDURE OF STRIKING OFF:

1. Call Board Meeting to pass Board resolution for the purpose of strike off and to authorize any director to file an application.
2. After passing of Board resolution, if there is any liability in the company, the company will set off all liabilities.

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3. Call the general meeting and pass a special resolution.
4. File MGT-14 within 30 days of passing a special resolution.
5. An application for removal of the name of the company under sub-section (2) of section 248 shall be made in Form STK-2 along with the fee of INR 5000 along with the necessary attachment. E-Form STK-2 shall be signed by authorized director. Where the Director Concerned does not have a Digital Signature certificate, a physical copy of the form duly filled in shall be signed manually by the Director duly authorized in that behalf and shall be attached with the Form STK-2 while uploading the Form.
6. E-Form STK-2 shall be certified by Company secretary in whole time practice or Chartered Accountant in whole time practice or Cost Accountant in whole time practice.

PENDING LITIGATION DISCLOSURE:

It is important for the Company to disclose pending litigations against the Company. If the pending prosecutions are only for non-filing of Annual Returns under and Balance Sheet, such application may be accepted provided the applicants have already filed the compounding application. However, steps for final strike of the name of the company will be taken only after disposal of compounding application.

ATTACHMENTS ALONG WITH THE E-FORM STK-2:

1. Indemnity bond duly notarized from every director individually or collectively effect that any losses, claim and liabilities on the company, shall be met in full by every Director individually or collectively, even after the name of the company is struck off the Registrar of Companies in Form STK 3;
2. Statement of accounts containing assets and liabilities of the company prepared up to a day, not beyond thirty days before the date of application and certified by a Chartered Accountant;
3. An affidavit in Form STK 4, sworn by each of the existing director/directors before a First Class Judicial Magistrate/Executive Magistrate/Oath Commissioner/Notary, to the effect that the company did not carry on any business since incorporation or that the company did some business for a period up to a date and then discontinued;
4. 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;
5. Statement regarding pending litigations, if any, involving the company.

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PROCEDURE TO BE FOLLOWED BY REGISTRAR:

1. Notice: On receipt of application notice shall be given under Section 560(3) giving thirty days time, unless the cause is shown to the contrary, its name be struck off from the Register and the company will be dissolved.
2. Inviting Objections: The Registrar shall put the name of applicant and date of making the application on the MCA portal www.mca.gov.in, allowing thirty days time for raising an objection, if any, by the stakeholders.
3. Notice to tax and other relevant authorities: The Registrar need to inform Income Tax Department about companies availing FTE mode and ask for objections within thirty days. RBI, SEBI, etc is to be notified in case of Non-Banking Financial Company and Collective Investment Management Company.
4. Striking off name: The Registrar of after expiry of such time mentioned above shall strike its name off the Register and shall send notice under Section 560(5) of the CA, 1956 for publication in the Official Gazette and the applicant company shall stand dissolved from the date of publication of the notice in the Official Gazette
5. Restoration order: Under section 560(6) an application for restoration shall be made by the aggrieved company, member or creditor. A company shut down under FTE can be restored on the Register by a Court order within 20 years of it striking off.

KEY POINTS OF CHANGES FROM OLD FTE SCHEME:

Earlier Board Resolution was Sufficient for approval for making application for removal of the name, however, now it is mandatory to Pass Special Resolution or take consent of 75% members in terms of paid up share capital.
Earlier the eligibility for applying for FTE was a company not carrying any business operations since last one year, however, now it is changed to a company not carrying any business or operation for a period of two immediately Preceding Financial Years.
An additional requirement of certifying the special resolution by each of the directors of the company or consent of the 75% of the members of the company in terms of paid up share capital as on the date of application.

CONCLUSION

We can see a detailed description of the speedy way of Fast Track Exit of a company to get itself unregistered from the Register of Companies as per Section 248 of Companies Act, 2013. And various process in regard to it. And the key changes from the old FTE scheme.

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Reference:

  • Companies (Removal of names of Companies from the Registrar of Companies) Rule 2016.
  • mca.gov.in

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4 COMMENTS

  1. Hi
    I have submit fees with necessary documents according to procedure mentioned above. I have not submitted bank closing letter with documents. Now form has been rejected. Kindly let us know that we need to pay fees again or i can resubmit the form again without fees

  2. I have incorporated a Pvt. Ltd. company in Aug 30 2017, due to some reason i have now decided to not go ahead with the business and want to close this. I have been told that the company has to comply with certain formalities on a monthly basis even though there are any transactions which would be carried out.

    Questions:
    1. Is it true that i have to wait for a year from the date of incorporation to close this Company? Cant i just get rid of this company within a year?
    2. If i don’t comply with the compliance required for Pvt. Ltd. will i be liable to pay any penalties for the same? If yes, what will be the penalty amount at the end of the year which i will have to shell out. Isn’t there any pardon for the same? Or would you suggest to comply with the compliance’s for a year even if there isn’t any transactions done.

  3. In case Subscribers to MOA has not paid the subscription amount within 180 days and no declaration filed to this effect; than how to take consent of the Shareholders in terms of 75% of paid up capital (Shares were never subscribed only)

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