This article is written by Sunkara Vishnu Ameya, pursuing a Certificate Course in National Company Law Tribunal (NCLT) Litigation from LawSikho.

Introduction

“Striking Off” of a company is one of the means of shutting down the company among other means like winding-up and liquidation. In simple words, striking off of a company is shutting down a defunct company. Section 248-252 of The Companies Act, 2013 read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 deal with striking off of companies and the procedure for it. The present article would deal with the process of striking off of companies and the means of reviving them and also touch upon the latest developments in this regard.

Ways of striking off companies

A company may be struck off by any of the following modes:

• Suo Moto by the Registrar of Companies (ROC) under Section 248(1) of The Companies Act                                                     (OR)

• An application by the company for removal of name/strike off of company under Section 248(2) of The Companies Act.

Strike off by the ROC

The concerned ROC may strike off any existing company if the company has:

1. Within one year from its incorporation has failed to commence business; or
2. The company has not been carrying any business operation for the immediately preceding two financial years and has not made any application to the ROC in such period for obtaining the status of ‘Dormant Company’.
3. The subscribers to the Memorandum of Association (MOA) have not paid the subscription at the time of incorporation and declaration to that effect has not been made within 180 days from the date of incorporation.
4. After the physical verification of the company, it appears that the company is not carrying out any business activity.

Procedure to be followed for striking off the name of the company by the ROC

• Service of notice by the ROC: The ROC is to send Notice in FORM STK 1 to the company and to the addresses of all the directors of the company.
• Reply to the notice by the company: Within 30 days of receipt of such a Notice, the Company and all of its directors are required to send their reasons pertaining to why the company should not be struck off from the ROC.
• Consideration of the representation made by the company: If the ROC is not satisfied with the representation made by the directors of the company, the ROC may proceed with striking off of the company.
• Publication of notice of strike-off: The notice for removal of the company must be in FORM STK 5 and the same must be [laced in the official website of the Ministry of Corporate Affairs (MCA), in the Official Gazette as well as in a newspaper (English and Vernacular) widely circulated in the place where the company is situated.
• Intimation to the regulatory authorities: The ROC must inform the same to regulatory authorities like the CBDT, CBEC, and other concerned regulatory authorities.
• Strike off of the name of the company: The ROC after 30 days of intimation to the regulatory authorities and after receiving NOC from the regulatory authorities strikes off the name of the company.
• Provision to realise the amount due: Before proceeding with striking off the name of the company from the register, the ROC ensures that there is no default subsisting, and in case there is a default, the default is made good.
• Strike off by the company: Under Section 248(2) of The Companies Act, 2013 r/w Rule 4 of The Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, a company registered with the ROC files an application for removal of name from the register of companies.

Types of companies that are barred from filing an application for striking off

1. Listed companies,
2. Companies registered under Section 8,
3. Companies that have charges pending satisfaction,
4. Companies that have a prosecution pending before any court of law,
5. Companies that have been delisted for non-compliance,
6. Companies that have accepted public deposits and have defaulted,
7. Companies where investigation or inspection has been ordered but is pending.

Procedure to be followed by the company for filing an application for striking off to the ROC

• Call a board meeting: A board meeting must be called and held and a resolution to that effect for removing the name of the company from the register of companies must be passed. 
• Existing debt or liability: Post a board resolution, the company is bound to set off/pay the existing liabilities.
• General meeting: A general meeting must be held and passed with a special resolution.
• Statement of accounts: Statement of accounts must be procured by the company in Form STK-8 30 days prior to filing an application.
• No objection certificate: A no-objection certificate from the appropriate concerned authority must be filed along with the application.

Recent developments

As companies under the Companies Act, 2013; companies are bound to follow statutory compliances like filing annual returns, financial statements, and filing of other statutory returns. As mentioned above, any company which defaults in complying with the aforementioned factors would be liable to be struck off by the ROC. 

To provide respite to such companies and LLPs, The Ministry of Corporate Affairs (MCA) vide circular no. 12/2020 dated 30th March 2020 launched a scheme titled ‘Companies Fresh Start Scheme, 2020’ to provide defaulting companies with an option to make a fresh start. This move ensured that inactive companies remained on the list of ROC without getting struck off. Initially, the said scheme was applicable till September 2020; but the same was extended to December, 31st, 2020 and further extension is being considered by the MCA. The application is to be filed in CFSS,2020 and the said Form must contain attachments pertaining to proof of withdrawals of appeals (if any), pending investigations, or prosecutions if any against the company.

Further, a proviso was inserted into Rule 4 of The Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 by the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2020 on 29th June 2020. The said amendment applies to a Government company in which the entire paid-up share capital is held by either the Central Government or State Government and a subsidiary of such a company. The authorized representative of such a company who is not below the rank of secretary or its equivalent, in the administrative Ministry or Department of the Government of India or the State Government, as the case may be, on behalf of the company; must file an ‘Indemnity Bond’ in FORM STK-3A to the ROC. The said bond must contain the following aspects:

• To indemnify the claimants for all lawful claims against the company arising in the future after the striking of the name of the company;
• Any person for any losses that may arise pursuant to striking off the name of the company;
• The claimants for all lawful claims and liabilities, which have not come to notice up to this stage, and if any claim arises or is observed even after the name of the company has been struck off in terms of Section 248 of the Companies Act, 2013.

Reviving a struck-off company

A company that is struck off from the ROC may be revived by filing an application to the National Company Law Tribunal (NCLT) in FORM STK 7 wherein the order of striking off may be challenged.

Who may file an application for reviving a struck off company

If the ROC Suo Moto after issuing notice to the company under Section 248(1) of the Companies Act strikes off the name of the company, even if the company is an active company due to non-filing of reply, the directors of the company may approach the National Company Law Tribunal (NCLT) by bringing an appeal for restoration of the name of the company.

An appeal may also be filed to the NCLT within 3 years of the order of the ROC and if it appears to the NCLT that striking-off the name of the company is not justified, the NCLT may pass an order for restoration of the name of the company.

The ROC too may file an application to the NCLT within three years from the date of passing of the order of striking off the company under Section 248 if the ROC is satisfied that the company had been struck off due to wrong details furnished by the board of directors.

Any member, creditor, or workman aggrieved by the company having its name struck off from the register may file an application to the NCLT before the expiry of a period of 20 years from the publication in Official Gazette the notice of dissolution of the company if the applicant can prove:

1. The company was, at the time of its name being struck off, carrying on business or in operation; or
2. Otherwise, it is just that the name of the company is struck from the ROC.

Further, the NCLT is even empowered to order that the name of the company be restored to the ROC and can even pass an order and give such directions and make such provisions for placing the company and other persons in the same manner as if the company had not to be struck off from the ROC.

Grounds for revival in general

The NCLT usually looks into the following grounds while considering an application for the revival of a struck-off company. They are as follows:

• Whether the company holds any immovable property.
• Whether the company had complied with GST, income tax, and other authorities apart from the ROC.
• Whether there are any ongoing transactions that evidence the company is still active.
• Whether the company has renewed any license on an ongoing basis.
• Any other documents evidencing the company is active.

The procedure for the revival of the company

The application to the NCLT shall be made in Format NCLT 9 accompanied by a demand draft of Rs. 1,000 payable to the Ministry of Corporate Affairs (MCA). The following documents are to be accompanied by the said application:

• An affidavit verifying FORM NCLT-9.
• striking off order passed by the ROC.
• Certificate of incorporation.
• Memorandum of association.
• Copy of the latest audited financial statements since the financial year in which the said audited financial statements have not been filed with the ROC.
• Bank statements.
• Copy of the board resolution authorizing the filing of the application.

A copy of the petition is to be sent to the ROC within 14 days before the date of hearing in the NCLT. If the NCLT orders for the revival of the name of the company in the ROC, the company shall:

• File a certified copy of the order in eFORM INC 28 within 30 days, and
• File pending annual financial statements and annual reports to the ROC.

Case laws pertaining to the restoration of struck off companies

In the case of Rajiv Kapur v. ROC & Ors., the NCLAT ruled that a creditor of a company could file an action for restoration of struck-off companies as a “Creditor” falls under the ambit of “Concerned Parties.”

In the case of Kaynet Finance Ltd. v. Verona Capital Ltd., the appellants were appointed as stock brokers of the company that applied to be struck-off. The appellants generated false debits and issued fabricated contract notes to the company and thereby fraudulently siphoned off Rs. 112 crores. The NCLAT ruled that the said appellants would fall under the ambit of “Debtors” and not “Creditors” and do not fall under the category of “Concerned Persons” or “Aggrieved Persons.”

In the case of Alliance Commodities (P) Ltd. v. Office of ROC, the company was struck off by the ROC for non-filing of balance sheets and other statutory reports. The company contended that no notice was received by it. However, it was found that when the ROC sent the notice through a speed post, the company was carrying on active business and the notice was put forth by the ROC on its website. The NCLAT ruled that in presence of both these elements, the striking off by the ROC is valid under Section 248.

Conclusion

The provision of striking off companies acts as a means to ensure shell companies do not operate and companies do not get shut down with the intention to defraud creditors. The entire edifice of this provision rests on the fact that the company is not active, i.eThe company does not undergo transactions evidencing business or holds any immovable property. The possibility of revival of a struck-off company ultimately depends on the evidence put forth by the applicant, which evidences the aforementioned criteria. 

References

• https://www.icsi.edu/media/webmodules/publications/Lesson%2018%20(ACLP).pdf
• https://nclat.nic.in
• https://taxguru.in/company-law/revival-companies-companies-act-2013.html

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