Strike off a Company

Prepared by Sanjay Kumar S

Compliances and Regulations under Companies Act 2013 (Sec 248 – 252)

The process of striking off is an alternative mechanism to the winding up of a company. Strike off simply means removing the name of the company from the Register of Companies by the Registrar of the company (ROC).

Manner of Strike Off	1.By the company Voluntarily
	2.If ROC directs the company

 

– By ROC [Sec 248(1)]

ROC can direct for strike off a company if it has reasonable cause to believe that–

1.   a company has failed to commence its business within one year of its incorporation or
2. a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company or
3. subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and form INC 20A is not filed within 180 days.
4. the company is not carrying on any business or operations, as revealed after the physical verification after registered office of company is found by Registrar of Companies.

 

– By the company Voluntarily [Sec 248(2)]

A company may file an application to the Registrar of Companies after closing off its liabilities. This could be performed by passing a special resolution by obtaining the consent of seventy-five per cent of its members.

 

Procedure followed by ROC

1. Service of notice by ROC: The ROC is required to send a notice in Form STK 1 to the company and all the directors of the company, of his intention to remove the name of the company from the Register of Companies.
2. Reply to the Notice from the company: On receipt of such a notice, the company and all the directors of the company, are required to send their representations along with copies of the relevant documents, if any, explaining the reasons as to why the name of the company should not be removed from the ROC. Such a representation should be given within a period of thirty days from the date of the notice.
3. Consideration of the representation made by the company: The ROC will consider the representation made by the company and all the directors of the company. If the ROC is not satisfied with the representation made by the company and its directors, it may proceed to strike off the name of company.

4. Publication of notice of strike off by ROC: The notice for removal of the name of the company should be in form STK 5 for the information of the general public and should be published in the Official Gazette and in a newspaper.

5. Intimation to regulatory authorities: Intimation about the proposed action of removal or striking off the names of company should be sent to the Income-tax authorities, central excise authorities and service-tax authorities having jurisdiction over such a company. Such intimation should be given to enable the authorities to present their objections, if any. Such objections are required to be given within a period of thirty days from the date of issue of the letter of intimation.

6. Striking off / Removal of the name of the company: After expiry of thirty days from the date of issue of the letter of intimation, if there are no objections received within thirty days from the general public or respective authority, the ROC can proceed to strike off or remove the name of the company from the Register of Companies.

7. Provision for realization of amount due: The ROC before passing an order for Striking off / Removal of the name of the company should satisfy himself that sufficient provision has been made for realization of all amounts due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time. The ROC can obtain necessary undertakings from the managing director, director or other people in charge of the management of the company. Notwithstanding the undertakings, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the Register of Companies.

8. Notice of dissolution of the company by the ROC: After the expiry of the time mentioned in the notice, the ROC can strike off the name of the company from the Register. The notice of striking off the name of the company from the Register of Companies and its dissolution should be published in the Official Gazette in Form STK 7 and the same should also be placed on the official website of the Ministry of Corporate Affairs. The company shall stand dissolved on the publication of this notice in the Official Gazette.

Following Companies cannot be removed Suo moto by Registrar

• Listed companies.
• Companies delisted on account of non-compliance of listing regulations, listing agreement or any other statutory laws.
• Vanishing companies.
• Companies which have been listed for inspection or investigation – if such directive is being carried out/pending/completed but the prosecutions concerning such inspection or investigation are pending in the Court of law.
• Companies which have not yet responded to notices of select provisions.
• Companies which have not furnished the follow-up instructions on any report under section 208 of the Act.
• If the prosecutions related to the above two provisions are pending in a Court of law.
• Companies against which any case for prosecution is pending in a Court of law.
• Companies, whose application for compounding is pending before the competent authority for compounding the offences committed by it or any of its officers in default.
• Companies accepting any public deposits which are outstanding.
• Companies having any charges which remain to be satisfied.
• Companies registered under Section 8 of the Act.

 

Conditions to be satisfied before filing an application

1. Convene a board meeting where board of directors will approve following transactions:

• Approval of strike off a company,
• Authorization of any director of the company to apply to ROC,
• Issuance of notice for extra ordinary general meeting.

2. After passing the board resolution, if any liabilities exist the company will extinguish all its liabilities.
3. Convene extra ordinary general meeting for passing of special resolution.
4. In case any other authority regulates such companies, then approval of such authority is required.

Procedure of Strike Off

1. Application to ROC: File E-form MGT-14 within 30 days of passing of the resolution with normal fees and E-Form STK-2 with ROC. The prescribed challan for filing of this form is INR 10,000/-.

2. Attachments Required for Form STK-2:

• Copy of statement of account duly certified by chartered account in form STK 8 (not earlier than 30 days from the date of making application)
• Copy of Board resolution
• Copy of Special resolution Indemnity bond in STK-3 duly notarized (Collectively given by directors) Affidavit in STK 4 duly notarized (Individually)
• ID proof of directors
• Bank Account closure statement

3. ROC shall publish notice in STK 6 inviting any objections from the public for the proposed strike off. The objections, if any, must be sent to the respective ROC within 30 days of publication of the notice.
4. ROC will release a notification in the Official Gazette in Form STK-7 about the Company’s strike off and Dissolution.
5. Publication of notice of strike off by ROC: The notice for removal of the name of the company should be in form STK 5 for the information of the general public and should be published in the Official Gazette and in a newspaper.
6. Intimation to regulatory authorities: Intimation about the proposed action of removal or striking off the names of company should be sent to the Income-tax authorities, central excise authorities and service-tax authorities having jurisdiction over such a company. Such intimation should be given to enable the authorities to present their objections, if any. Such objections are required to be given within a period of thirty days from the date of issue of the letter of intimation.
7. Striking off / Removal of the name of the company: After expiry of thirty days from the date of issue of the letter of intimation, if there are no objections received within thirty days from the general public or respective authority, the ROC can proceed to strike off or remove the name of the company from the Register of Companies.
8. Provision for realization of amount due: The ROC before passing an order for Striking off / Removal of the name of the company should satisfy himself that sufficient provision has been made for realization of all amounts due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time. The ROC can obtain necessary undertakings from the managing director, director or other people in charge of the management of the company. Notwithstanding the undertakings, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the Register of Companies.
9. Notice of dissolution of the company by the ROC: After the expiry of the time mentioned in the notice, the ROC can strike off the name of the company from the Register. The notice of striking off the name of the company from the Register of Companies and its dissolution should be published in the Official Gazette in Form STK 7 and the same should also be placed on the official website of the Ministry of Corporate Affairs. The company shall stand dissolved on the publication of this notice in the Official Gazette.

Restrictions on making application by the Company

If the company –

1. has changed its name or shifted its registered office from one State to another.
2. has made a disposal for the value of property or rights held by it (subject to conditions).
3. has engaged in any other activity other than what is necessary or expedient for making an application under the concerned provision, and so and so forth.
4. Filed an application to the Tribunal for the granting of Compromise or Arrangement, and a consensus for the same hasn’t yet been arrived at.
5. Been wound up under Chapter XX, whether voluntarily, by the Tribunal or under the Insolvency and Bankruptcy Code (IBC), 2016.

An application for striking off the name of the company under Section 248(2) of the Act shall be withdrawn by the company or rejected by the ROC as soon as the above stated conditions are brought to notice. Incase of violation of the above provisions, the company shall be punishable with a fine which may extend to one lakh rupees.

Status of Struck off Company

If a company stands dissolved under section 248, it shall on and from the date mentioned in the notice of dissolution cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realizing the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.

Impact on Stakeholders

Strike off of a company can have a significant and lasting impact on stakeholders of the company such as –

1. Creditors are one group of stakeholders who can be greatly affected by the strike off of the company. They are individuals or organizations that are owed money by the company. A creditor is a person or organization to whom the company owes money. Striking off means that the creditor can no longer claim the money it owed from the company because it no longer exists. This can be especially devastating for small businesses or individuals who are relying on the payment to keep their own operations running.
2. Shareholders are another group of stakeholders who can be impacted by the strike off. They may lose the value of their investment in the company, as well as any dividends or other returns they were expecting. Shareholders may also be unable to sell their shares or claim any money back from the company.
3. Customers and suppliers can also be impacted by a Strike off of the company. Customers may not be able to claim refunds or compensation for goods or services they have purchased from the company. Suppliers may not be able to claim payment for goods or services they have provided to the company. This can cause financial hardship for customers and suppliers, and may also negatively impact their own businesses.
4. In addition to the financial impact, a Strike off of a company can also have a negative impact on the reputation of the company and its directors. This can make it hard for the management of the company to re-establish new businesses or find employment in the future.

Options for other stakeholders to recover their losses in case of striking off of a company

– Creditors

• Creditors can make a claim through the government’s insolvency service, or pursue legal action against the company’s directors for wrongful trading or misfeasance. Employees may be able to make claims through the government’s Employment Insurance scheme.
• One option is to pursue legal action against the company’s directors for wrongful trading or misfeasance. This can be a complex and time-consuming process, and there is no guarantee that the creditors will be able to recover their losses in this way.
• Another option is to make a claim through the government’s insolvency service. This is a process where creditors can claim money they are owed from a government fund that is set up to compensate them in the event of a company’s insolvency. However, the fund may not have enough money to cover all of the creditors’ losses, and the process can take a long time.

– Shareholders

• Shareholders may be able to claim compensation through the government’s shareholder protection scheme. However, these options may not be able to fully compensate the stakeholders for their losses, and the process can take a long time.
• It is essential for stakeholders to be aware of the risks of engaging with a company, and to take steps to protect themselves in the event that the company is struck off.

Impact on Employees

Upon striking off a company, its employees may lose access to benefits like retirement plans, health insurance, and other perks that were provided by the company. This can cause additional financial stress and uncertainty for employees, especially if they have dependents who rely on these benefits.

Options for employees to recover their losses in case of strike off of a company

Employees may be able to make claims through the government’s Employment Insurance scheme. They may also be able to pursue legal action against the company’s directors for wrongful dismissal or other employment-related issues. However, these options may not be able to fully compensate employees for their losses, and the process can take a long time.

Striking off a company can bring emotional turmoil and uncertainty for employees. It is crucial for employees to be aware of the risks of working for a company, and to take steps to protect themselves in the event that the company is struck off.

 Consequences on the Directors of the Struck off Company

As per section 248 (7) of the Companies Act 2013, the directors of the company which has struck off from the register will be personally liable to discharge the liabilities & obligations of the company. The responsibility of directors to pay the outstanding dues, debts, deposits held by the company, and other liabilities subsists post-strike off.

In case a company has not filed its Annual Return for three continuous financial years, then every person who has been a director or is currently the director of the specific company could be disqualified under the Companies Act, 2013. If a director is disqualified, his/her DIN would become inactive, and the person would not be eligible to be appointed as a director of any company or a period of five years from the date of disqualification. Further, disqualified Directors would also not be allowed to incorporate another company for a period of five years.

Consequences under Income Tax Act, 1961

Consequences can arise under the Income Tax Regulations not only for the struck off company and its shareholders but also for those entities using such companies as part of their corporate structure.

The tax liability of the shareholders of the struck off company will arise when they receive the capital contribution on final settlement of accounts. While this is not a direct consequence of striking off but the same will arise on winding up of such struck off company.

Further, if there is any pending tax liability of a private company that is struck off then the same may be recovered from the director of such company as per section 179 of the Acts.