8 March 2017

FAST TRACK EXIT | COMPANIES ACT 2013

The Ministry of Corporate Affairs (MCA) vide notification on 26 December 2016 notified Sections 248 to 252 of the Companies Act 2013 (Act) which deals with powers of the Registrar of Companies (ROC) to remove names of companies from the register of companies and the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 (Removal Rules), which prescribes the procedure for the removal of names of companies from the register of companies.

Under Section 248 of the Act, if a company (a) has not commenced business within one year from the date of incorporation; or (b) Is not carrying on any business for 2 (two) immediately preceding financial years and has not made any application for obtaining the status of a dormant company then:

• The ROC may suo moto take action and issue a notice to the company and its directors for its intention to remove the name of the company from the register of companies and seeking representations and documents for the same; or

•  A company fulfilling the above 2 (two) conditions, can make a voluntary application to the ROC for removing the name of the company from the register of companies. However, the company making a voluntary application shall extinguish all its liabilities before making such application and pass a special resolution or take the consent of 75 % (seventy five percent) of the members in term of the paid up share capital for removal of the name.

Voluntary application by a company: In case of voluntary application to the ROC for removal of name from the register of companies, the following process has to be followed: 

• The notice of the voluntary application has to be published in the Official Gazette, official website of the Ministry of Corporate Affairs, leading newspaper as may be prescribed by the Removal Rules and the official website of the company;
• Intimation has to be given to the regulatory authorities and their no objection certificate shall be required;
• The application must be accompanied with the prescribed documents including the statement of accounts and indemnity bond by the directors and shall be submitted to ROC;
• If ROC is satisfied with the application and that sufficient provision has been made for discharge of all its liabilities, it shall pass an order and strike off the name of the company from the register of companies and publish the notice thereof in the Official Gazette. After publication in the Official Gazette, the company shall stand dissolved.
• Once a company stands dissolved, the Certificate of Incorporation shall be deemed to be cancelled except for the purpose of realising the amount due to the company and for the discharge of the liabilities of the company.

Exception: A company shall not make a voluntary application for removal of its name from the register of companies if it has, during the previous 3 (three) months, changed its name or shifted its registered office from one State to another, disposed off any property for the purpose of gain in the normal course of trading, has made an application to the Tribunal for sanctioning a scheme or arrangement and the same has not been concluded, or the company is being wound up by the Tribunal.

Fraudulent Application: If a company fraudulently makes a voluntary application for removal of its name from ROC to defraud the creditors or evade its liabilities, and thereafter the company stands dissolved, the persons in charge of the management shall be jointly and severally liable to any persons who incurred a loss as a result of the company being notified as dissolved.

Under the Removal Rules, ROC shall not remove the name of the following companies from the register of members, i.e. (a) listed companies; (b) companies delisted due to non-compliance of listing regulations; (c) companies where investigation is ordered and being carried out; (d) companies against which any prosecution for an offence is pending in any court;(e) companies which have accepted public deposits which are outstanding;(f) companies having charges pending for satisfaction.

Aggrieved Party: Any person who is aggrieved by an order of the ROC notifying a company as dissolved, may appeal to the Tribunal within 3 (three) years from the date of passing of the order by the ROC.

MHCO COMMENT: The new provisions of the Act elaborate on the criteria of companies which can make an application for removal of the name from the register of companies. Further, the Removal Rules provide a simplified procedure for the same. Private companies which are not functional or not carrying on business for a 2 (two) year period, and are desirous of getting dissolved, can take the benefit of this provision of the Act and make an application under the aforesaid sections, instead of following the procedure for winding up, which is a time consuming and expensive process. 

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or legalupdates@mhcolaw.com for any assistance.