Removal of Names of Companies from the Register of Companies

On December 26, 2016, the Ministry of Corporate Affairs (‘MCA’) notified Sections 248 to 252 of the Companies Act, 2013 (‘CA 2013’), which deal with removal of / striking the companies off the Register of Companies (‘Register’). Section 248 of the CA 2013 empowers the Registrar of Companies (‘ROC’) to remove the name of any company from the Register, if it has reasonable cause to believe that: (i) the company has failed to commence its business within one year of its incorporation; or (ii) the company is not carrying on any business or operations for a period of two preceding financial years. Additionally, Section 248 also permits a company, after extinguishment of its liabilities, to make a voluntary application for removal of its name from the Register for any of the grounds mentioned above. In furtherance of Section 248, the MCA has, on December 26, 2016, notified the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 (‘Removal of Companies Rules’), in place of the Guidelines for Fast Track Exit Mode for Defunct Companies issued under Section 560 of the Companies Act, 1956 (‘CA 1956’).

The significant changes introduced under Sections 248 to 252 of the CA 2013 and the Removal of Companies Rules are set out below:

i. Under the current regime, a ‘defunct company’ may apply for striking-off of its name from the Register if it has failed to commence business within a two year period from its incorporation or has ceased carrying on business for a period of one year or more. The earlier requirements under Section 560 of the CA 1956 for a defunct company to apply for striking-off of its name from the Register on having no assets and not commencing business or ceasing to carry on business for a period of one year appear to have been deleted under the CA 2013. However, there is some lack of clarity on this issue and we are awaiting the final forms in this regard;

ii. Pursuant to Section 248 of the CA 2013, a company is required to pass a special resolution or obtain consent of 75% members in terms of its paid-up share capital in order to make an application for striking-off of its name from the Register (such approval was not required under the CA 1956);

iii. Section 249 of the CA 2013 has introduced certain restrictions on companies from applying for removal (even if they fulfill the conditions under Section 248), if during the previous three months the company has undertaken certain actions, such as, disposal for value, of property or rights immediately before cessation of trade, and if such company has made an application to the National Company Law Tribunal (‘NCLT’) for the sanctioning of a compromise or arrangement and the matter has not been finally concluded, or is being wound-up, whether voluntarily or by the NCLT;

iv. In addition to listed companies, ‘not-for-profit’ companies, companies that have accepted deposits, etc., the ROC is now not permitted to exercise its removal powers in case of, companies whose application for compounding is pending for offences by the company / officers in default, and companies having charges that are pending satisfaction; and

v. The CA 2013 has clarified that upon passing of the removal order, the company would cease to operate except for the purpose of realizing amounts due to it and for the discharge of its liabilities or obligations. Further, the CA 2013 grants persons aggrieved by the ROC removal order, a period of three years for filing an appeal before the NCLT for restoration of the company name.