Company Registration

All You Need To Know About Strike-Off Notice

calendar25 Apr, 2023
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All You Need To Know About Strike-Off Notice

Under the terms of Section 248 sub-clause (1) of the Companies Act, the ROC may provide notice to the company to have its name removed from the register of companies if the company fails to initiate activities within a year or ceases all business operations for a period of two years. ROC’s notice is typically referred to as a strike-off notice.

The Companies Act of 2013[1] under Section 248 – Section 252 specifies the strike-off mechanism. An alternative procedure to winding up an organisation is the striking-off process. Defunct companies (A company that is not conducting any business or that is not in operation is referred to as a defunct company) or those who want to close their company voluntarily can file their application with ROC (Registrar of Companies) under Section 248 to have their company struck-off from the Registrar of companies. Correctly preparing the necessary paperwork per the law is one of the best & easiest ways for businesses to have their names removed from public records without any problem. Significantly, only solvent companies may be dissolved. Before the business can be shut down, any outstanding obligations must be settled in full.

The author of this article has outlined the procedure for dissolving a corporation, as well as how to create a strike-off notice and any other pertinent legal considerations.

What Are The Different Ways To Close A Company?

What Are The Different Ways To Close A Company?

What is Section 248(1) of Companies Act?

According to the authority granted to the ROC by Section 248 (1) of the Companies Act, the ROC may Suo Moto issue a notice intending to Strike-off the company (that is, to remove the name of the company from the register of companies) under the following situations:

  • In the event that the company has failed to launch its business activities within a year of its establishment; or
  • In the event that a company has not conducted commercial activities for two years and has yet to apply to become a dormant company during that time.
  • In general, the failure to file financial statements and annual returns for the two prior fiscal years is why the ROC intends to issue a strike-off notice.

The following other provisions related to the strike of notice are listed:

  • The Companies Act of 2013, under Section 249, discusses limitations on filing applications filed under Section 248 in specific circumstances;
  • Section 250 of the Companies Act of 2013 discusses the repercussions that a corporation must endure after being declared dissolved;
  • Section 251 of the Companies Act of 2013 discusses false requests to have names removed;
  • The Companies Act of 2013, under Section 252, discusses appeals to tribunals.

What Are The Reasons To Strike-Off Notice Of A Company?

The following reasons are listed in Section 248(1) of the Act as reasons why the ROC may strike a company’s name from the register. The following reasons might be used to legislate the strike-off provision:

  • When a company fails to launch its operations within a year of establishment;
  • The company has not conducted any business or activity for the two (2) consecutive financial years and has not applied to the ROC during that time for the status of a dormant company under Section 455 of the Company Act of 2013;
  • The subscribers to the company’s memorandum have not made the subscription payments they agreed to make at the time of the company’s formation, and a statement to this effect has not been filed within a period of 180 days of the company’s incorporation as required by Section 10A(1) of the Act; or
  • In a case where the company has not carried out its business activities after the physical verification of the registered office as per Section 12(9) of the Company Act of 2013.

Strike-off

In this section, the author has discussed a number of situations in which a company is prohibited from submitting petitions for strike-off if, at any point in the previous three months, it has:

  • Renamed itself or moved the location of its registered office to a different state.
  • Made a disposition (subject to restrictions) for the value of the assets or rights it retained.
  • Any activity other than what is required or practical to submit an application under the relevant regulation, and so forth.
  • Filed a request with the Tribunal asking for the approval of a compromise or an arrangement, but no agreement has yet been reached on the matter.
  • Been voluntarily wound up under Chapter XX, by the Tribunal, or under the Insolvency and Bankruptcy Code (IBC), as of 2016.

Non-Qualifying Companies

The list of companies which are excluded from the strike-off clause is mentioned below:

  • The listed companies.
  • Companies that were delisted for failing to comply with the listing agreement, listing requirements, or any other applicable legislation.
  • Disappearing businesses.
  • Businesses that have been designated for inspection or investigation, provided that the directive is being followed, is ongoing, or has been completed, but legal proceedings regarding the inspection or inquiry are still pending.
  • Businesses that have not yet reacted to notices of certain restrictions.
  • Businesses that have not given follow-up instructions on any reports required by Section 208 of the Act.
  • If legal proceedings in connection with the aforementioned two sections are ongoing.
  • Businesses that are the subject of active criminal investigations.
  • Companies that have filed an application with the appropriate authority for compounding the charges committed by them or any of their personnel who were in default.
  • Companies that are taking any outstanding public deposits.
  • Organisations with charges that need to be paid.
  • Business entities incorporated under Section 25 of the Companies Act of 1956 or Section 8 of the Companies Act of 2013.

What Will The Liability Of Members And Directors Be As A Consequence Of The Strike-Off?

In the case of ShrikishenDhoot v. Kamalapurkar, [(1965) 1 Comp LJ 233], the Court ruled that in accordance with Section 248(7) of the Act, the liabilities of members, directors, managers & officers of the company continue even after the dissolution of the company under this section and are enforceable against them as if the company had never been dissolved. This judgement can be used to answer the question above. It is important to remember that even after the business is dissolved, any directors’ or members’ existing liabilities will remain in effect. They will only be held accountable if they were individually liable for the claim before the firm was dissolved.

Additionally, in the case of Narmada Chaudhary and Others v. Motor Accidents Claims Tribunal (1985 58 CompCas 596 Gauhati), the Hon’ble Gauhati High Court held that the liability of members of a defunct company is limited to the extent of their contribution as in case of the company’s winding up. As a result, the obligations of any members, directors, managers, or officers of a company that have been struck off under Section 248 of the Act are restricted to their duties to the business alone; they are not personally accountable to third parties.

Restoration of a Company within 20 Years

By court order, a company that has been dissolved under Section 560 may be reinstated on the Register of Companies. During the reinstatement, the Court may, by the order, give such directions and make such provisions as are necessary to put the company and all other parties in the same position as if the company’s name had not been struck off. The only parties that may submit a request for restoration are the companies, the member, or the creditor. It must be proven that the petitioner was a member or creditor of the company at the time it was dissolved and that anybody claiming to be one later on – whether they were aware of the dissolution or not—was not eligible to do so. One who purchases stock or debt from a business whose name has been stricken off the register and who is aware of this fact at the time of purchase is not considered a ‘person aggrieved’ within the meaning of this sub-section. A third party lacks locus standi to submit an application unless he is a creditor. The personal representatives of a dead member or creditor are included in the definitions of ‘member’ and ‘creditor’ in Sub-section (6) of Section 560. It is appropriate to order the restoration of a company’s name when a lawsuit is actually pending against it and is being contested by it at the time that its name has been removed from the register, especially when the directors were aware of the contested litigation and were actively participating in it.

What Is The Procedure For Sticking Off The Name Of The Company?

The process for removing the names of dissolved firms that aren’t conducting any business from the register of companies kept by the Registrar is outlined in Section 560. Based on the data in his possession, the Registrar must be satisfied that the company is not conducting business, particularly in the case of organisations that have not submitted the required returns and documents, such as annual reports and balance accounts for the preceding years. Under this clause, the ROC may also remove a business’s name at the request of the corporation.

There are two circumstances in which this is possible:

  1. The Registrar struck off on his own initiative.
  2. Rejecting the company’s application.

Let’s go into further depth about each of the situations.

  • Striking Off By Registrar On His Own Motion

The process is as follows for the Registrar to remove a company from the Register of Companies on his own initiative in accordance with Section 560:

When the Registrar has good grounds to think that a company is not doing business or operating, he or she must write a letter by mail to the firm asking if it is conducting business or operating. The business should have one month to respond.

If the Registrar does not receive a response to the letter mentioned above within a month of sending it, he or she will send a second letter to the company referencing the first letter and noting that – – No response to the first letter has been received; and – If an answer is not received to the second letter within a month of its date, a notice will be published in the Official Gazette with a view to striking the company’s name off. This second letter must be delivered through registered mail and delivered within fourteen days of the first letter’s expiration date, which is one month after the first letter was delivered.

Final removal notice: If the company replies to the second letter indicating that it is not operating or carrying on business, or if the Registrar does not hear back from the company within a month of sending the second letter, he may proceed to strike the company off the Register of Companies. Two actions will be taken to accomplish this:

Sending a notice to be published in the Official Gazette stating that, unless a reason is given to the contrary, the name of the company stated in the notice will be removed from the registry and the company will be dissolved three months after the date of the notice;

Sending the aforementioned notification through registered mail to both the business and the tax authorities. If the Registrar determines that a company is in liquidation and that either no liquidator is acting or that the company’s affairs have been fully wound up and the returns required to be filed by the liquidator have not been filed for a period of six months, the Registrar shall follow a similar procedure of publishing the notice in the official Gazette. Additionally, a copy of this notification must be sent by registered mail to the company or liquidator, as appropriate.

Notification and removal of the company: If the company fails to provide sufficient justification prior to the expiration of three months from the date of the notification specified above, the Registrar may strike the company’s name from the register and publish notice of this in the Official Gazette. The corporation will be dissolved as soon as this notification is published in the Official Gazette. Below is a sample notification that was published in the official gazette.

  • Striking off on company’s application
  1. Upon receiving a request from the company to be removed from the register on the grounds that it is a defunct company, meaning it is no longer active or conducting business, the Registrar may use the authority granted to him by section 560. The process to be used is as follows:
  2. Board resolution: Although section 560 does not specifically state this, it would be preferable for the company’s Board of Directors to adopt a resolution directing the Registrar of Companies to submit an application to have the company struck from the Register of Companies in accordance with section 560. At the conclusion of the research, a model Board resolution is included as Annexure I.
  3. Application to Registrar: In accordance with the Board resolution, an application shall be sent to the Registrar in electronic form no. 61 for the firm’s removal from the Register and declaration that it is a defunct corporation. e-form 61 application must be supported by:
    • A copy of the board’s resolution
    • Application in detail (an example of an application form is included as Annexure II at the conclusion of this research);
    • Zero balance sheets
    • A properly supported statement signed by at least two directors, including the managing or whole-time director, stating that the company has no assets or liabilities and has not been conducting any business or operations should be lodged with the Registrar of Companies. (A sample affidavit is included as Annexure III at the conclusion of this research.)
    • An indemnity bond signed by two directors (at least one of whom should be the managing or whole-time director) stating that they will be responsible for any obligations of the business even after its name is removed from the register in accordance with section 560 of the Companies Act. (A sample indemnification bond is included as Annexure IV at the conclusion of this investigation.)
    • Any more details may be included as an optional attachment.
  4. Any additional information required in relation to this application should be sent electronically to the ROC using Form No. 67 as an amendment.
  5. Notification and striking-off: Upon receiving the application, the Registrar may proceed to strike the name of the company off the Register and publish notice thereof in the Official Gazette if satisfied that the application satisfies the basic requirements outlined in section 560 and the DCA’s (now Ministry of Corporate Affairs) guidelines for striking companies off. (The notification sample is located in Annexure V at the conclusion of this study.)

Forms for Strike-Off Process

The whole set of forms for the strike-off process is shown below:

S.no. Form Description
1 SKT-1 Notice by Registrar for Removal of name of a company from Register of companies
2 STK 2 Application by company to ROC for removing its name from register of Companies
3 STK 3 Indemnity Bond
4 STK 4 Affidavit
5 STK 5  Public Notice in case of Section 248(1)
6 SKT 6 Public Notice in case of Section 248(2)
7 SKT 7 Notice of Striking Off and Dissolution

What Do We Mean By Strike-Off Notice?

Under the terms of section 248 (1) of the Companies Act, the ROC may give notice to the company to have its name removed from the register of companies if it has failed to start up its business within a year or has not conducted any business operations for a period of two years. The notification that ROC has given is typically referred to as a Strike-off notice. In this article, we take a close look at the Section 248(1) strike-off notice.

  • Section 248 (1)

According to the authority granted to the ROC by section 248 (1) of the Companies Act, the ROC may suo moto issue a notice intending to Strike-off the company (i.e., remove the name of the company from the register of companies) in the following situations: If the company has failed to begin conducting business operations within a year of the date of its incorporation; or

In the event that a firm has not conducted commercial activities for two years and has not applied to become a dormant company during that time.

In general, the failure to file financial statements and annual reports for the two prior fiscal years is the reason why the ROC intends to issue a strike-off notice.

Points to Be Remember While Replying To Notice of Strike-Off

When writing your response to the notice of Strike-off, bear the following items in mind from the author’s discussion:

  • Whether the corporation intends to maintain its current business operations?

In this situation, the firm must submit financial statements, annual returns, and directors reports in the required formats for all the years that they were in default, along with additional fees, until the financial year (FY) in which they resumed commercial activities. When the outstanding filings are finished, ROC won’t terminate the business.

  • Whether the business wants to stop operating and close down?

In this situation, the company must submit an application in STK-2 before voluntarily closing the business. The corporation is required to submit financial statements, annual returns, and director’s reports on the required forms for all years that they are late, along with additional penalties, up to the financial year in which they do their business.

  • Is the company inactive, i.e., has it not yet begun its business activities but has future plans?

In this situation, the company is required to submit “NIL” financial statements, annual returns, and director’s reports in the required formats for all the years in default, along with additional costs until the financial year in which the firm is able to conduct business. When the outstanding filings are finished, ROC won’t terminate the business.

Conclusion

The ROC can eliminate non-operating firms that were formed to syphon off revenues thanks to the Strike-off provisions. It has accomplished this in the most recent years. Additionally, these laws give management the ability to apply to the ROC to liquidate enterprises that are no longer necessary. In comparison to other methods of business dissolution, the process for removing a company’s name from the Register kept by the ROC on an application by the firm itself involves far less time and money. Liabilities of members, directors, and managers as stated above do not end upon dissolution of the corporation pursuant to this section. Even after dissolution, they are still liable. If the appropriate bench of the national company law tribunal with territorial authority over the business finds that a company that has been dissolved according to Section 248 should be revived, it may do so within twenty years.

Read Our Article: Strike Off Company: Provisions And Norms

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