In case an Indian company wants to voluntarily shut its operations such a company can on its own apply for removal/strike off its name from the register of companies maintained by the Registrar of Companies ("ROC"). In this context, Section 2481 of the Companies Act, 2013 (the "Act") read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 ("Rules 2016") governs the removal of names of companies from the register of companies.
Under Section 248(2) of the Act, a company may opt to strike off its name from the register of companies after extinguishing its liabilities and passing a special resolution to this effect. The Registrar can strike off a company's name if2:
(i) it has failed to commence operations within one year of its incorporation; or
(ii) the 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.
(iii) where the subscribers to the memorandum have not paid the subscription amount undertaken to pay at the time of incorporation and have not filed a declaration within 180 days of its incorporation; or
(iv) the company is not carrying on any business or operations, as revealed after the physical verification carried out by the Registrar of Companies.
Recently on 17 April 2023, the Ministry of Corporate Affairs (the "MCA") notified the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2023 ("Amendment Rules 2023") which came into effect from May 1, 2023. The Amendment Rules introduced changes to the procedure for removal of the name of a company from the register of companies.
Further, the MCA notified the Companies (Second Amendment Rules), 2023 ("Second Amendment Rules 2023") on 10th May 2023 introducing further amendments to the Rules 2016, which came into force with immediate effect.
Changes Introduced
(i) Amendment Rules 2023: The Amendment Rules 2023 introduced the following changes:
- Rule 4(i) of the Rules 2016 has been amended which provides that an application for removal of name of a company shall be made to the Registrar, Centre for Processing Accelerated Corporate Exit ("CPACE") in Form No. STK-2 along with a fee of ten thousand rupees.
- A new provision Rule (3A) has been inserted which provides that the Registrar, Centre for Processing Accelerated Corporate Exit established under sub-section (1) of section 396, shall be the Registrar of Companies for the purposes of exercising functional jurisdiction of processing and disposal of applications made in Form No. STK-2 and all matters related thereto under section 248 having territorial jurisdiction all over India.".
- Form No. STK-2 (Application to ROC for removing the Name from Registrar of Companies), Form No. STK-6 (Public Notice) and Form No. STK-7 (Notice of Striking off and Dissolution) has been amended.
For Form No. STK-2, the following attachments are required:
(a) The statement of account in form STK 8 (not earlier than 30 days from the date of making the application)
(b) Indemnity bond in STK-3 (Collectively given by directors) or indemnity bonds by an authorized representative of administrative Ministry/ Department in Form No. STK- 3A (as applicable).
(c) Copy of the order/NOC of the concerned regulatory authority.
(d) Copy of relevant order for delisting, if any, from the concerned Stock Exchange.
(e) Affidavit in Form STK 4.
(f) Optional attachment, if any.
(ii) The Second Amendment Rules: The Second Amendment Rules introduced new provisions to Rule 4(1) of the Rules, which provides an application for removal of the company's name from the register of companies cannot be filed:
- Unless the company has filed overdue financial statements under section 1373 and overdue annual returns under Section 924 upto the end of the financial year in which the company ceased to carry out its business operations.
- If the Registrar's action has already been initiated against the company for removal of name of the Company, then such company can file the application for removal of name only after filing pending financial statements under section137 of the Act and all pending annual returns under section 92 of the Act before filing the application.
- In case a notice has been published by the Registrar in the Official Gazette under 248 (5)5 of the Act for striking off the name of the Company.
Conclusion
The Amendment Rules 2023 lays down provisions for setting up the Centre for Processing Accelerated Corporate Exit having territorial jurisdiction all over India and taking over the task from the ROC. Consequently, for removal of name of a company, the company is now required to file an application to the Registrar, CPACE. Thus, companies that no longer wish to carry on the business further for various economic reasons can now hope for quick regulatory clearance with the operation of the newly set up centralized CPACE.
The introduction of the CPACE is a welcome step for voluntary striking off by companies from the register of companies as it will accelerate the pace of strike-off applications pending with various ROCs. However, it is to be noted that the documents such as the statement of account (not earlier than 30 days from the date of making the application) indemnity bond and affidavit by every director are required to be filed along with the application form for striking off the company's name.
Further, the Second Amendment Rules 2023 introduces additional provisions pursuant to which the company cannot file an application for removal of name of the company unless the company has filed overdue financial statements and annual returns, or a Registrar's action has been initiated against the Company or the Registrar has issued notice for publication for striking off the companies from the register of companies.
Footnotes
1. Section 248- Power of Registrar to remove the name of company from the register of companies.
2 Section 248 (1) of the Act.
3. Section 137 of the Act: Copy of financial statement to be filed with Registrar.
4 Section 92 of the Act: Annual Return.
5 Section 248 (5) provides that "at the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved".
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