Analysis of Strike-off under Companies Act, 2013

Striking off the name of a Company from the register of Companies is an alternative of winding up of a Company and it is regulated by Companies Act, 2013.

Analysis of Strike off under Companies Act, 2013

Introduction

The Companies Act, 2013, has prescribed following two methods for closure of companies.

  1. Striking-Off –
  2. Winding-Up –

 Section 248 of the Companies Act, 2013 facilitates Striking-off of the company through two modes that are –

  • Mandatory Striking off by the Registrar of Companies [Section 248(1)]
  • Voluntary Striking off by the Company itself [Section 248(2)]

 

 

What is Striking Off of Companies?

Striking Off of the company means the closure of a company which is not operating any business or has become defunct or dormant company.

What is the Applicability of Striking off?

Applicability of Section 248 –

Next point to learn is which companies can get strike-off under section 248. So, the answer is any company can avail the strike off under the provisions of the Companies Act, 2013. Thus, striking off is applicable on –

  • Private Company
  • Public Company
  • One Person Company
  • Companies falling under Section 8 of the companies act, 2013

 (Section 8 Companies are not eligible for voluntary strike-off) 

Which Companies cannot be struck off under Companies Act, 2013?

Companies that cannot be Strike Off – [Proviso of Rule 3(1) of the Company (Removal of Name of Company from the register of companies Rules, 2016]

Following are the companies that cannot be struck off –

  1. Listed Companies
  2. Delisted Companies (due to non-compliance of listing companies’ rules or any other law dealing with same)
  3. Vanishing Companies
  4. Companies against which certain criminal proceedings are pending
  5. Companies whose application for compounding an offence is pending before competent and concerned authority (offence may be committed either by company or by its officers)
  6. Companies that accepted outstanding public deposits or the public deposits that have not been repaid by the company
  7. Companies against whom charges for satisfaction are pending
  8. Companies registered under Section 25 of the Companies Act, 2013
  9. Companies against whom investigation or inspection have been ordered and thus actions thereto are required to be taken up or actions have been taken but prosecutions arising from such action are pending in the respective court
  10. Companies against whom notices under Sections 234 or 206 or 207 of the Companies Act, 2013 were issued by ROC and reply by the company thereto is pending under section 208 or any prosecutions arising from such inquiry or investigation are pending

What are the Grounds for Strike off of companies under Section 248?

Section 248 of the Companies Act provides the three following grounds for striking off of the companies –

  1. Firstly, When the company has failed to start its business within one year from the date of its incorporation
  2. Secondly, when the subscribers to the memorandum of the company haven’t paid the subscription which they undertook to pay within 180 days from the date of the company’s incorporation and a declaration as per Section 11(1) has also not been filed to this effect within the same period that is 180 days from the incorporation date
  3. Thirdly, when the company is not carrying or operating any kind of business for the duration of 2 immediately preceding financial year and moreover the company has failed to file the application within such period in order to obtain the status of a dormant company as per Section 455 of the Companies Act, 2013.

    What is the Process of Strike-Off by ROC?

    A. Strike Off by ROC – Section 248(1)

    Along with Companies Act, 2013, Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 also prescribes the procedure for strike off by ROC.

    Registrar of Companies is empowered under Section 248(1) to initiate the process of strike off of the company.

    Steps Involved –

    1. Show cause Notice – Form STK-1

    If the ROC is satisfied that there is a reasonable ad sufficient reason to strike off the company then it shall serve a show cause notice in writing in Form STK-1 on all the directors at their registered address.

    • Mode of service –

    It shall be served through registered post with acknowledgment due or through speed post.

    • Content of Notice –

    it must contain the reasons for removing or striking off the company’s name.

    • Objective of Notice –

    Intent of serving such notice is to intimate the reasons for striking off and to seek company’s representation against proposed strike-off.

    • Time to file Representations

    Representations must be sent by company within 30 days from the date of such notice.

    2. Representation –

    When the company has received notice then the company shall file its representation on the proposed striking off to state why the company’s name shall not be struck off from the register of companies.

    3. Consideration of representation by ROC –

    Thereafter, the ROC shall consider the Company’s representation to decide the closure of company.

    • If the ROC is satisfied with the filed representation then it shall stop the striking off process, and
    • if the ROC is not satisfied with company’s representation and has reasons to strike off company’s name then it shall proceed with striking off the name of company.
    4. Publication of Strike-off Notice – Form STK-5

    The ROC shall publish a public notice in Form STK-5. It is published to invite the objections against the proposed strike off within 30 days from the date of such publication.  Then, if a person has any objections can fie his objections with ROC within such 30 days period.

    Such notice is published on the

    5. Inform the Regulatory authorities

    After the publication of public notice, the ROC shall also inform all the concerned regulatory authorities such as Income tax authorities, Goods and Services Tax authorities etc. about the proposed strike off of the company. it is essential in order to allow them to file objections against such proposed strike off if any.

    6. Sufficient Provision for realizing due amounts if any-

    The takeaway point to learn here is that before striking off the company’s name, ROC shall have provided a sufficient provision to realize the amounts due to the company including discharge of its liabilities.

    7. Strike off the company’s name from register –

    Lastly, ROC shall strike off the name of company from the register of companies.

    8. Publication of Strike Off – Form STK-7
    • Thereafter, ROC shall publish a notice of such strike off in the official gazette in Form STK-7.
    • It shall also be published on the official website of MCA.

    Hence, the company shall be terminated or dissolved with effect from the date of publication in the official gazette or from the date mentioned therein.

    What is the Process of Strike-Off by Company?

    B. Strike Off by Company – Section 248(2)

    In case of Strike Off by ROC, ROC starts the process. Similarly, in case of Strike Off by the company, company initiates the process of striking off. This is why it is called as Voluntary Strike off.

    Steps Involved –

    1. Board Resolution

    The first step in the process of striking off is to hold the Board Meeting. In Board Meeting, Board of Directors shall pass a resolution to strike off the company. Such resolution acts as a recommendation to the shareholders for striking off the company.

    2. Extinguish Liabilities

    Thereafter, the company shall extinguish all of its debts and liabilities as then only shareholders will serve a notice for shareholders general meeting to accept or reject the striking off decision of Board of Directors.

    3. Shareholders Special Resolution

    When the Board has agreed to strike off the company then the shareholders shall hold a general meeting whereby shareholders will vote on the striking off resolution. Since striking off amounts the end or closure of a company thus such resolution requires at least 75% votes of total members in terms of paid up capital (also referred as Special Resolution). If such special resolution is passed then it will authorize the Board members to file application with ROC to strike off of the company’s name from the registrar of companies.

    4. Get approval from concerned authorities –

    This step is applicable on the companies that are regulated by any other authority. As such companies have to take consent for such strike off from the concerned authority.

    5. File prescribed Forms

    Next step is to file the required following forms with the ROC to complete the process –

    • Application for striking off of the company
    • Form STK-2
    • Form STK-3 (Indemnity Bond which is duly notarized by every director)
    • Form STK-4 (Affidavit)
    • Form STK-8 Statement of assets and liabilities (must not be made more than 30 days before the application date and certified by Chartered Accountant)
    • Copy of Special Resolution passed above
    • Statement of pending litigations (if any)
    Click here to file prescribed forms.
    6. Publication of Public Notice by ROC (Form STK-6)

    As soon as the Registrar of companies receives an application to strike off the company, the ROC shall publish a public notice in Form STK-6. It is published to invite the objections against the proposed strike off within 30 days from the date of such publication.  Then, if a person has any objections can fie his objections to ROC within such 30 days period.

    Such notice is published on the

    • Official website of MCA
    • Official Gazette
    • Leading English Newspaper
    • One vernacular Newspaper of the place (where registered office if the company is situated)
    7. Inform the Regulatory authorities

    After the publication of public notice, the ROC shall also inform all the concerned regulatory authorities such as Income tax authorities, Goods and Services Tax authorities etc. about the proposed strike off of the company. it is essential in order to allow them to file objections against such proposed strike off if any.

    8. Show Cause Notice – Form FTE

     If no objections have been raised or all the objections are resolved and the ROC is satisfied or has reasonable grounds to strike off the company’s name then ROC shall serve the notice on company through email in Form FTE. This notice is a show cause notice thus the company has to show within 30 days of such notice that why the name of the company should not be struck off by the ROC.

    9. Strike off the company’s name from register –

    After the expiry of show cause period, ROC is satisfied that company shall be struck off then ROC shall strike off the name of company from the register of companies.

    10. Publication of Strike Off Notice – Form STK-7
    • Thereafter, ROC shall publish a notice of such strike off in the official gazette in Form STK-7.
    • It shall also be published on the official website of MCA.

    Hence, the company shall stand dissolved with effect from the date of publication in the official gazette or from the date mentioned therein.

    What are the Implications of Strike-Off?

    If a company is dissolved through strike-ff then it shall cease to function or operate as a company from the dissolution date. Conclusively, the certificate of incorporation shall also be deemed to be cancelled subjected to the payment or discharge of legal debts and liabilities of the company.

    CONCLUSION –

    Striking off the name of a company is indeed a tough task. We hope all of your doubts relating thereto are cleared and in case you are looking for a professionals’ team for undertaking the striking off task on your behalf then you are at the right platform. Contact our experts’ team for immediate help.

    Click Here to Get Absolute Assistance on Striking off of company’s name


    Knowledge Source:

    Closure of the Company

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