Running a company in profit is a prime motive of every promoter or founder of a company. However, every day is not same and circumstances may warrant a promoter or founder to take a tough decision with his/her heavy heart of closing down the company. The voluntary closure of company can be either through winding up or application by company for striking off of its name to Registrar of Companies (ROC). Till now, MCA allowed companies to file an application for strike off in an easy manner with minimum conditions but recently, few changes in Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 have made the provisions more stringent.

1. Prologue

The basis for strike off of any company under Companies Act, 2013 (the Act) is failure of commencement of business within one year of its incorporation or non-carrying out any business or activity for last two financial years without having the status of dormant company under section 455 of the Act.

If any of the above scenario happens, following two modes work as a device for striking off of name of company from register of companies maintained by ROC:

(a)    Strike off by ROC under section 248(1) of the Act

(b)    Strike off by company on its own under section 248(2) of the Act

The present discussion will cover second mode only where a company files the application in the prescribed form STK-2 to the ROC for removing the name of the company after extinguishing all its liabilities and after complying with some conditions.

2. Conditions for filing strike off application

The Companies intending to make an application for strike off of their names from the register of companies must satisfy the following conditions mentioned in section 249 of the Act:

(a)    It has not changed its name at any time in the previous three months;

(b)    It has not shifted its registered office from one State to another in previous three months;

(c)    It has not 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 for gain in the normal course of trading or otherwise carrying on of business at any time in the previous three months prior to making an application for strike off of name of company;

(d)   It has not engaged in any other activity at any time in previous three months except the one which is necessary 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;

(e)    It has not made an application to the Tribunal at any time in the previous three months for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or

(f)     It is not being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016 in previous three months.

3. Filing of overdue returns - A pre-condition for filing application for strike off of name

With effect from 10^th May, 2019, an application for striking off of name of company in Form No. STK- 2 will be allowed only if a company has filed overdue returns in Form No. AOC-4 (Financial Statement) or AOC-4 XBRL, as the case may be, and Form No. MGT-7 (Annual Return), up to the end of the financial year in which the company ceased to carry its business operations. [Proviso to Rule 4(1) of Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016]. 

4. List of Companies excluded from applying strike off of name

As per rule 3 of Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016, following categories of companies are not eligible to file application for strike off of its name from company’s register:-

(a) Listed companies;

(b) Delisted companies;

(c) Vanishing companies

(d) Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;

(e) Companies where notices under section 234 of the Companies Act, 1956 (1 of 1956) or section 206 or section 207 of the Act have been issued by the Registrar or Inspector and reply thereto is pending or report under section 208 has not yet been submitted or follow up of instructions on report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the Court;

(f) Companies against which any prosecution for an offence is pending in any court;

(g) Companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default;

(h) Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;

(i) Companies having charges which are pending for satisfaction; and

(j) Non-profit companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.

5. Practice Note on filing of application for strike off of company’s name

(a)  Ensure that the company is compliant with annual filings. Otherwise, file all overdue returns in Form AOC-4 or Form AOC-4 XBRL, as the case may be, and Form MGT-7.

(b)  Make sure that company is complying with all conditions prescribed in section 249 as discussed in point 2 above.

(c)   Convene a board meeting to pass board resolution for strike off of company’s name subject to shareholders’ approval.

(d)  Hold a general meeting and get shareholders’ approval by way of special resolution.

(e)  Obtain approval of concerned regulatory authorities, if required.