India: Over 200,000 Defaulting Companies Deregistered

Last Updated: 21 September 2017
Article by SKP  

As per reports, the central government and the Ministry of Corporate Affairs (MCA) has deregistered over 200,000 companies from register of companies. Deregistration is another way of dissolving a company at the behest of regulatory action but in that case liability of directors or shareholders may remain open as long as for 20 years. This move was aimed at a pretext of such companies operating as shell companies. The Indian law does not define Shell Company but the Finance Ministry in the recent past had characterised potential shell companies. It is understood that, the objective behind this move could be one of the measures to curb the channelisation of black money. More information on this is as follows:

  • Deregistration: The Registrar of Companies (ROC) has a power under company law to strike-off (deregister) the company in case he has reason to believe that the company has failed to commence business within one year from date of its incorporation or is not carrying out business operations for two preceding financial year. Accordingly, the ROC has identified such companies and issued them prior notices under company law to show cause as why they should not be deregistered.
  • List of Struck off companies: The list of the companies struck off is available on the website of MCA.
  • Bank Accounts frozen: Subsequent to deregistration, the Finance Ministry has advised banks to freeze the Bank Accounts of such deregistered companies. Authorised signatories of such bank accounts will not be able to operate bank account.
  • Directors cease to act as director: If on deregistration, the director of such company cease to act as director and may face penal consequences as per law if any wrongdoing is revealed in the company.
  • Next section of companies in government's radar: In addition to the struck off companies, Banks are also advised to carefully deal in the companies that have active status on the website of the Ministry of Corporate Affairs but

    • defaulting in filing its financial statement(s) or
    • Annual Return (s) of particulars of charge on it assets on the secured loan and
    • Companies not complying with its mandatory statutory obligations to file this vital information for availability to its stakeholders

SKP's Comments

In view of the above actions being taken by the government, it is advisable that the companies who are not carrying on any business and had not acquired a status of the dormant company to take necessary actions and compliances to avoid facing any such action of deregistration against them. Some of the options which are available to non-operating or deregistered companies are:

  • Obtain the status of a dormant company if they intend or plan to carry on any business in the future;
  • In order to access the bank account or to re-register the company, an application may be made by the concerned person to the National Company Law Tribunal for the restoration of the company deregistered.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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