What are Defaulter Companies?

One might have come across with situation that the person must have not been permitted to file any of the company compliances while filing statutory forms of the company even when the form is right and has been pre-scrutinized according to the law. The MCA portal must be showing an error message stating that the director who has signed the form is director of defaulting company due to non-filing of mandatory company compliances that is filing of annual returns and/or balance sheet. Likewise, if you will check the company status then it will appear as Inactive Company. This all clearly indicates that the company has made default in filing mandatory company compliances and thus the company has been declared as defaulting company and this is why it shall not be allowed to file any company form on the MCA unless the defaulting company status has been removed.

In this blog we will discuss the concept of Defaulting Company and the process of removing defaulting company status.

 

Meaning of Defaulter Company

Defaulter Company is a company which is registered with Ministry of Corporate Affairs but it has failed to file its balance sheet or annual returns or any other document which is mandated by the companies act, 2013 consecutively for few years. The status of company can be either Active Company or Inactive Company. When the company regularly files the required documents, returns or any annual statements with the MCA then the company’s status shall be Active and when the company has failed to do so then the status will be shown as Inactive on the MCA portal. Moreover, the directors of the defaulting companies are also termed as defaulting directors.

 Any person can check the status of any company on the MCA Portal; In fact, the MCA maintains and publishes the list of defaulter companies, defaulter directors and defaulting Company secretaries regularly on the MCA portal. The MCA does not allow any defaulting company for filing of any forms of such defaulting company.

 

Defaulting Company & Defaulting Director – Error Message

When any company becomes defaulting company then the following error message shall appear every time at the time of filing any form with the MCA –

“The Director signing the e-form is also a director of a defaulting company which has not filed due balance sheet and/or annual return. Hence the director is not allowed to file this form. Such defaulting company is required to file all the balance sheets, annual returns first, and then only the director will be allowed to sign the e-form for filing.”

It means that any company having the defaulting director shall not be allowed to upload any e-form on the MCA. Let’s understand this with example.

Let’s say there is a Company “ABC Private Limited”, incorporated in F.Y. 2005-2006 and it has failed to file annual returns and balance sheet since its incorporation. Subsequently, the company decides to file annual return for the F.Y. 2020-2021 but the MCA shall show the error message stated above.

From this we can interpret that the company has become defaulting company and all the director of this company shall also become the defaulting directors.

Now, the defaulting company ABC has 3 directors A , B and C and now all of them have become defaulting directors. Thus, this company shall not be allowed to upload any e-form pertaining to this company on the MCA until the defaulting status of the company is not removed.

Let’s suppose A is also a director of XYZ Private Limited, therefore the company XYZ shall also become the defaulting company as the status of its one of the directors is defaulting. Therefore XYZ shall also not be allowed to file any e-form having such director’s signature. It means, defaulting directors shall be disqualified from filing any form with the MCA for any of his company.

Now, the question arises how the company shall be revived to file undertake its business and to file company compliances with the MCA.

This is why, it is always suggested to complete the mandated compliances on a timely manner in order to avoid such situations.

 

Removal of Defaulting Company Status

There is only one method to rectify the defaulting status of the company and that is the company shall file all the overdue compliances with the MCA, whether it is annual returns or/and balance sheet and/or any other documents which should have been filed earlier in accordance with the Companies Act, 2013.

If we understand it through above example, then the defaulting company i.e. ABC Company shall have to file all the overdue annual returns and balance sheets. When all the compliances shall be completed then the defaulting status shall automatically be removed and thus it shall become the Active Company.

However, the company shall have to pay additional fee in the form of penalty for not filing compliances on or before due-date.

Now, many people ask that what if the company does not want to continue its business operations for the time being or forever. Then in such cases the company and its directors shall apply for voluntary strike-off of the company’s name from registrar if the company does not want to continue the business forever and in case the company is willing to run the company but does want to undertake any business for time being then such company shall apply for dormant status before the MCA. In case the company does not know what measures should be taken then be vigilant enough to contact either any professional for what measure should be taken to avoid the defaulting status and heavy penalty.

 

Conclusion

Every company must comply with the compliances mandated under the Companies Act, 2013 or any other law applicable on companies for the time being in force. It is very necessary to complete these compliances timely as the company and its directors might have to pay heavy penalties in case of default. Moreover, if the company continues to make such default then it can be listed as defaulting company as discussed above.

In case the company does not know what measures should be taken then the company or its directors shall immediately contact the professionals’ to avoid the negative implications of default.

We hope now you must know concept of Defaulting Company. In case you have any further queries/clarifications related to Defaulting Company Status then contact your Trustworthy Advisors Manthan Experts to guide you through the Dormant Company just by dialing at +91-9643-969-969 or mail at info@manthanexperts.com.

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Knowledge Update

Guide to Registering a Dormant Company

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