Fast track Exit Scheme under the Companies Act, 2013

Published on 04 May 2016 by Team

On 26 December 2016, Ministry of Coporate Affairs (MCA) issued a Notification notifying Section 248, 249, 250, 251 and 252 of Companies Act, 2013 (Chapter XVIII). This chapter deals with Removal of Names of Companies from Register of Companies.Under the fast track exit scheme, the Companies can apply for closure. A company can apply for a shut down under the new process when:

  • A company has failed to commence any business within one year of incorporation,
  • The subscribers to MOA have not paid the subscription amount within 180 days and no declaration filed to this effect,
  • Not carrying any business or operation for a period of two years (earlier it was one year) and has not sought to call itself a dormant company,
  • When a company voluntarily wants to shut down, it can, after clearing all its liabilities, by obtaining consent of at least 75% of shareholders in terms of paid-up capital.

Who can apply for closure?

As per section 560 of the Companies Act’1956, Any defunct company desirous to strike off its name from the register of Registrar of company can apply in Form FTE for strike off its name from the register maintained by ROC as per Guidelines for ‘FAST TRACK EXIT MODE’

What is a defunct Company?

For the purpose of applying for the FTE scheme, a defunct company means a company which has:

  • Nil asset and nil liability, and
  • Not commenced any business or activity since incorporation or
  • Not been carrying any business operation since last one year before making an application under Fast Track Exit Scheme.

Procedure for application for closure of Company

Apply for approval of Board for applying for closure

The Company has to pass a board resolution for applying for the FTE. The Company should authorize one of the directors to sign any documents or execute any deeds/affidavits in r/o the same. Before passing the resolution, the company has to ensure that it fulfills the criteria of a defunct company. All bank accounts, Registrations with the govt. authorities have to be closed/ canceled before application for closure of Company.

Once board resolution is passed, the directors of the company have to make/ give an affidavit individually stating therein the following:

  • The directors swear that they are the directors of the company applying for closure.
  • They state that the company has closed all the bank accounts in its name.
  • The affidavit also states that the company has nil assets/liability.
  • The affidavit also declares that the company has not been carrying on any business for the past one year at least or it did not carry on any business since incorporation.
  • Reasons for not carrying on any business are also to be given.
  • It also stated that the company has no statutory dues as on the date of declaration and that there are no litigations pending before any court of law against or involving the company.
  • The affidavit can be made on a stamp paper of Rs. 100/- duly notarized by the notary public.

After the affidavit is made, the directors of the company have to execute an Indemnity Bond. The indemnity bond can be executed either individually by every director or collectively by all directors.

The directors undertake:

  • To indemnify any person for any losses that may arise pursuant to striking off the name of the company.
  • To pay and settle all lawful claims arising in future after the striking of the name of the company
  • To settle all lawful claims and liabilities which have not come to our notice up to this stage, even after the name of the Company has been struck off in terms of section 560 of the Companies Act, 1956

The details of the affidavit are to be given in the indemnity bond, therefore this bond should be made after execution of the affidavit.

  • The reasons for not doing any business are to be given.
  • The indemnity bond has to be witnessed by two persons.
  • The indemnity bond can be executed on a stamp paper of Rs. 200/-.

After all the above documents are ready, the company has to apply in Form FTE available on the MCA Website for the closure of the company to the jurisdictional ROC.

  • The documents stated above are to be attached to the form.
  • The form is digitally signed by the authorized director and filed on the MCA Portal. The application fee will be Rs, 5000/-.

On application, the ROC will flash the name of the company on its website for a period of 30 days, to give notice to anyone who may have the objection to the striking off the name of the company. On the lapse of the period of 30 days, the Registrar will issue a certificate that the company is closed and that its name is struck off from the register of companies maintained with the ROC.

Procedure to be followed by the Registrar

Notice

 On receipt of application notice shall be given under Section 560(3) giving thirty days time, unless the cause is shown to the contrary, its name be struck off from the Register and the company will be dissolved.

Inviting Objections

The Registrar shall put the name of applicant and date of making the application on the MCA portal www.mca.gov.in, allowing thirty days time for raising an objection, if any, by the stakeholders.

Notice to tax and other relevant authorities

The Registrar need to inform Income Tax Department about companies availing FTE mode and ask for objections within thirty days. RBI, SEBI, etc is to be notified in case of Non-Banking Financial Company and Collective Investment Management Company.

Striking off name

 The Registrar of after expiry of such time mentioned above shall strike its name off the Register and shall send notice under Section 560(5) of the CA, 1956 for publication in the Official Gazette and the applicant company shall stand dissolved from the date of publication of the notice in the Official Gazette

Restoration order

Under section 560(6) an application for restoration shall be made by the aggrieved company, member or creditor. A company shut down under FTE can be restored on the Register by a Court order within 20 years of it striking off.

FTE Barred When!

An application under FTE route shall not be made if, at any time in the previous three months the company. Its name has been changed or shifted its registered office from one state to another and has made a disposal for value of property or rights held by it, immediately before cesser of trade or otherwise carrying on of business, for the purpose of disposal of gain in the normal course of trading or otherwise carrying on of business. Also, has engaged in any other activity except the for one which is mandatory or expedient for the purpose of making an application under that section, or deciding whether to do so or concluding the affairs of the company or complying with any statutory requirement.

Thus Company has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded or Sis being wound up under Chapter XX, whether voluntarily or by the Tribunal.

Process of applying for dormant status

Process for obtaining the status of a dormant company is: Call a Board Meeting for fixing the date, time of EGM.

  • Issue Notice of General Meeting
  • Engage an Auditor/ Chartered Accountant to issue the certificate. 
  • Hold Extra Ordinary General Meeting
  • Pass Special Resolution.
  • Authorize director to make application for Dormant with ROC. 
  • File E-form MGT-14 with ROC for filing special resolution.
  • After filling of form MGT-14, File FormMCS-1 with the registrar.

Attachments with Form MGT-14:

  • Copy of Special Resolution.
  • Notice of EGM along with Explanatory Statement.

Attachments with form MSC-1:

  1. Copy of Board Resolution.
  2. Copy of Special Resolution.
  3. Auditor’s Certificate.
  4. Statement of Affairs duly certified by Chartered Accountant or Auditor(s) of the company.
  5. Latest Financial Statement and Annual Return of the Company is mandatory as an attachment in Case the Same are filed with Registrar.
  6. Certificate regarding no dispute in the management or ownership
  7. Consent of lender, if any loan is outstanding.

Processing Type

The eForm will be auto-approved (STP). 

Certificate

A system generated Certificate of the status of a Dormant Company is issued by Registrar and sent to the user as an attachment to the email after approval is granted. Once the form is approved the status of the company shall be changed to ‘Dormant under section 455’.

Conditions for applying for Dormant Status

  • No inspection, inquiry, or investigation has been ordered or taken up against the company or no prosecution has been initiated against the company and pending under any court.
  • The company does not have any public deposits or interest thereon outstanding for payment.
  • There is no outstanding loan, secured or unsecured. If there are unsecured loans then the consent of the lender should be obtained and enclosed along with the form.
  • There should be no dispute or difference amongst the management or promoters of the company and a certificate to that effect is enclosed.
  • The company does not have any outstanding tax dues either to central or state government or local authorities.
  • The company has not defaulted in payment of its workmen’s dues;
  • It is not a listed company.

Compliances by a dormant company:

  • A minimum number of directors for the dormant company: A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company.
  • Return of dormant companies: A dormant company shall file a “Return of Dormant Company” annually, inter alias, indicating financial position duly audited by a chartered accountant in practice in Form MSC-3 along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of thirty days from the end of each financial year. Provided that the company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company.

Notes

The Registrar on its own motion can also change the status of a company to dormant if it has not filed financial statements or annual returns for two financial years consecutively. The Registrar will do so only after giving the Company a reasonable opportunity of being heard.

The proviso to Rule 8 of the Companies (Miscellaneous) Rules, 2014 says that a dormant company cannot remain as a dormant company for more than 5 consecutive financial years. If it remains so, then the Registrar shall commence the process of striking off the name of the company from the Records, i.e. the company will be removed. So maximum tenure for a dormant company is 5 consecutive financial years.

To conclude, the companies which are not carrying on any business and have no significant transactions can either apply for closure or for dormant status depending upon the long term plans of the company.

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