This article is written by Ankit Rao pursuing a Diploma in General Corporate Practice: Transactions, Governance, and Disputes. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).
This article has been published by Sneha Mahawar.
Under the Companies Act, 2013 two modus operandi exist for closing the operations of a Company and striking off the Company name from the Register of Companies. Firstly, the Registrar is empowered and authorized to remove the name of the Company from the Register of Companies where he has reasonable cause to believe that the conditions laid down under Section 248(1) stand fulfilled. Secondly, the company can also on its own accord file an application under Section 248(2) to the Registrar of Companies requesting the removal of the name of the company from the Register of Companies. Sections 248 to 252 of the Companies Act lays down the framework and procedure to be taken into account while striking off the company whether initiated by the Registrar of Companies or Suo moto by the Company itself. The striking-off basically provides for the closure of a defunct company in an expedite and brisk manner.
Striking off company name by the registrar of the company or the suo moto by the company itself
The company can approach the ROC for removal of its name/strike off and the ROC can accordingly remove the name of the company from the Register of Company subject to the fact that the opportunity is given to the Company to deliver representations in regard to the notice sent, if following conditions as laid down in Section 248 of the Companies Act stands fulfilled:
- The concerned company has not commenced its dealings or business transaction even after the completion of a period of one year from its incorporation.
- The concerned company has not engaged in any business dealings and operations for a period of two forthright preceding financial years and the company has also failed to submit an application to be granted the status of a dormant company under Section 455 of the Companies Act.
- The subscribers to Memorandum have not paid the subscription amount which they were bound to pay and a declaration highlighting the same has not been done/filed within a period of 180 days from the Company’s Incorporation.
Thereby the conditions laid down by the legislature, in case of the fulfillment of which Company’s name can be removed/stricken off is the same both for the company and the ROC. The difference that exists herein is that the procedure to be adopted by both of them is different to the effect that the company has to move an application to the Registrar of Company whereas the Registrar has to send a notice to the company and directors and consider the representation sent by them before striking off the company.
Procedure for striking off company name by the registrar of companies
If the Registrar of Companies has reasonable cause to believe that the above-mentioned conditions stand fulfilled, then he can forward the notice to the said company and its officers/directors apprising them of his intention to remove the name of the said company from ROC. The Company is entitled to send representation to the ROC accompanied by relevant documents countering the statement put forth by the ROC in the notice sent and such representations have to be supplied to the ROC within a period of thirty days from the date when the said notice was sent.
Suo moto application to strike off company name from the registrar of companies
In order for the company to move such an application before the Registrar of Companies, a Special Resolution has to be passed by its members in the general meeting. Once, the Special Resolution has been passed with the concurrence of seventy-five percent of members in respect of the paid-up capital, the application can be moved to the ROC for striking off the company name. When such an application is moved to the ROC, it shall issue a public notice in the manner in consonance with the rules laid down under the Act before striking off the company name.
If there is an absence of the fulfillment of scenarios laid down under Section 249(1) of the Companies Act, the company is qualified to move an application with the Registrar of Companies. The documents to be accompanied along with the said application are an indemnity bond duly attested by all the directors of the company, a statement of liability shedding light on all assets and liabilities of the company which has to be, prior to the submission, certified by a Chartered Accountant, the statement regarding undecided/undisposed off lawsuits, certified true copy of the Special Resolution duly signed by every director of the company and an affidavit signed by all director in the form STK 4. The application has to be accompanied by the above-mentioned documents in order for the said application to be considered and to ensure that the application is passed and allowed in favor of the Applicant.
Restrictions on the power of a company to make an application under Section 248
The company is empowered with the powers to file an application on its own accord for the removal of the name of the company from the Register of Company, however as per Section 249(1) in certain scenarios its power to file such an application is absolutely restricted and curtailed. As per Section 249, an application Under Section 248(2) cannot be made Suo moto by the company if during the period of preceding three months:
- The Company has altered/modified its name or shifted the registered office from one state to another. If the company has shifted its registration from one district to another one, then there exists no impediment in moving for removal of name, however, if the shift leaps the boundary of a state into a different state, then for a period of three months no such application can be entertained. When a company shifts its registered office from one state to another, they seek approval from the Registrar of both the states, and a fresh certificate of incorporation is issued by the Registrar of State within 30 days, where the Company’s registered office is going to be moved. This restriction is in place only for a period of three months after the shift of the Company to a different State, after the expiry of such a period, the Company is permitted to make such an application to strike off the Company.
- The company disposes of the value of prerogative or valuable possessions/property owned by it, right before the termination of trade, for the sole objective of disposal of gain in the ordinary course of conducting trade or business. When Company disposes off its property immediately before shutting the business operations, then for a period of three months, the said company is disqualified from moving an application to remove its name from the ROC. The said embargo is incorporated because companies used to dispose of their properties, thereby fraudulently cheating their Creditors and other stakeholders, then shut down the company. Hence, in order to prevent such misuse of funds, the said restriction was put in place.
- The Company has registered/moved an application to the National Company Law Tribunal (Adjudicating Authority) for seeking approval of the arrangement or compromise and the concerned application moved has not yet attained finality. Thereby, if an application has been moved in pursuance of Section 230 of the Companies and no compromise or arrangement has been sanctioned by the Tribunal, in the meanwhile, the company cannot formally take measures or steps for striking off the company. The entire process of the approval of the scheme of arrangement or compromise is a lengthy one with various requirements and compliances to be fulfilled, therefore in the meanwhile, no coercive steps are allowed to be taken which can probably hinder the scheme under the direct scrutiny of the National Company Law Tribunal.
- The company is engaging itself or taking part in any activity apart from the one which is imperative or expedient in nature viz., filing an application, determining or taking steps for execution/registration of such an application, adhering to the due compliances as laid down by the legislation or culminating the affairs of the company.
- The company has wound up in pursuance or in accordance with the procedure incorporated under the Companies Act under Chapter XX or under the Insolvency and Bankruptcy Procedure Code, 2016. The provision concerning the wounding up of the company was recently substituted by Section 255 of the IBC in the manner specified in Eleventh Schedule and brought into effect from 15.11.2016 [S.O. 3453(E)].
If the above-mentioned conditions incorporated under sub-section (1) of Section 249 stands fulfilled, the company should not register an application with the Registrar of Companies to strike off the company as that would result in the company being in direct violation and contravention of rules laid down thereunder and accordingly the company shall be punishable with a fine that may extend to one lakh rupees as per Section 248(2). It is further stipulated in Section 249(2) that the application registered under Sub Section 248 shall be retracted by the Registrar of Companies immediately once the ROC is apprised about the fulfillment of conditions given under Sub-Section (1).
It is further imperative to highlight that not every company is allowed the prospect of being considered to qualify under the provision of strike off and the companies which do not fall under such domain include but are not limited to listed companies, Section 8 Companies, companies having charges which are yet to be satisfied and company accepting subscription/public deposits which remains outstanding.
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