Company Registration

Dormant Company under the Companies Act, 2013

calendar06 Dec, 2022
timeReading Time: 4 Minutes
Dormant Company under the Companies Act, 2013

Section 455 of the Companies Act, 2013 introduced the concept of Dormant Companies under Indian law as the concept of dormant companies was absent from the erstwhile Companies Act, 1956. Dormant refers to the state of being temporarily inoperative or dormant. A dormant company is one which has been registered under the Companies Act, 2013 but does not have any “significant accounting transaction” or is an “inactive company” which has been applied to Registrar to be declared as a dormant company.

Meaning of Dormant Company

As defined under Section 455 of the Companies Act, 2013, This Company is “formed and registered under the Act for a future project/to hold an asset/intellectual property & has no significant accounting transaction”/”an inactive company” making an application to the “Registrar in such way as may be prescribed for getting the status of a dormant company”.

Significant Accounting Transaction is defined under the explanation of the same section as:

any transaction other than-

  • Payment of fees by the Company to the Registrar;
  • Payment made to it to fulfill the requirements of this Act/any other law;
  • Allotment of shares to comply with the requirements of this Act &
  • Payments for maintenance of its office & records.”

A company that carries out no other transactions except the ones mentioned above shall be considered a dormant company. However, a company carrying out any other transactions other than the ones mentioned above shall lose its dormant status.

An inactive Company is also defined under the Explanations of the section. It states that:

A Company which has not been carrying on any business/operation/has not made any important accounting transaction during the past 2 Financial Years/has not filed financial statement & annual returns during the past 2 financial years.”

Section 455 of the Companies Act 2013 also empowers the Registrar to take suo moto action against a company which has not filed its annual returns or financial statements consecutively for two fiscal years. The Registrar shall send a notice to such Company and then enter such Company’s name in the register of dormant companies. The Registrar is also empowered under the Act to strike off the name of companies which do not fulfil the requirements of Section 455 of the Companies Act, 2013 from the register of dormant companies. The Registrar is also empowered to strike off the Company’s name, which has been dormant for the last five consecutive fiscal years from the register of the Dormant Company.

A company which has been newly incorporated can also be declared as a dormant company if such a Company has not conducted any business since its incorporation but has filed returns with the Registrar of Companies.

There are many benefits which can be derived from a company (dormant) status. Even though a company is dormant, the name and trademark of the Company still belong to the Company and others are barred from using the same. A dormant company which is formed for a future project shows the intention of the Company to trade and helps reserve and retain the domain name.

Requirements to Be Declared As a Dormant Company

There are certain requirements which a company must meet for it to achieve the status of this Company. These requirements are laid down under the Companies (Miscellaneous) Rules, 2014. The proviso to Rule 3 lays down the conditions a company is required to fulfil and are as follows:

  • There must have been no investigation, inquiry or inspection ordered or carried out against the Company
  • The Company must not have any secured or unsecured outstanding loan in its name
  • The Company must not have erred in paying workmen their dues
  • There must be no prosecution either initiated or pending against the Company under any law.
  • The Company must not have any outstanding public deposits, nor must it have many any defaults in the payment of such deposits.
  • The Company must not have any statutory duties, dues, or taxes which are outstanding and payable to the State Government and Central Government or local authorities.
  • The Company’s securities must not be listed not any stock exchange either within or beyond India
  • There must be no dispute regarding the ownership or management of the Company and a certificate in this regard must be submitted along with Form MSC-1

Rule 6 of the Companies (Miscellaneous) Rules, 2014 states that the dormant Company must have at least 2 directors for a private company, three directors for a public company and one in a One Person Company.

Procedure to Be Declared As a Dormant Company

A company fulfilling the requirements under Section 455 of the Companies Act 2013 must follow the steps mentioned below to obtain the status of a company (dormant):

  • A Special Resolution (SR) must be passed by a company in its general meeting or obtain the consent of at least three-fourths of the shareholders in value after duly notifying them.
  • An application must be filed through Form MSC-1 by the Company to the Ministry of Corporate Affairs and pay the requisite fee under the Companies (Registered Offices and Fees) Rules, 2014.
  • Once the Registrar is satisfied with the sufficiency of the application as per the requirements mentioned under Section 455 of the Companies Act, 2013, the Registrar shall issue the certificate to certify the Company as a dormant Company.
  • The Registrar shall enter the Company’s name in the register of dormant companies.

If, while filing Form MSC-1, the dormant Company fails to do any act in accordance with the grounds mentioned under the form, the directors are under a duty to file an application within seven days of such an omission under Rule 8 (1) of the Companies (Miscellaneous) Rules, 2014 to obtain the active status.

Once a company has been declared dormant, the company can file an application under Section 455(5) of the Companies Act, 2013 to convert the dormant Company to status of active Company. The application shall be filed through Form MSC-4 along with a return under Form MSC-3 with the prescribed fees with respect to the fiscal year for which the active status is being applied for. If the Registrar is satisfied with the sufficiency of the application, she shall grant the certificate under the Form MSC-5 granting the active status.

Conclusion

The concept of dormant companies was introduced by Section 455 of the Companies Act, 2013 under Indian law. It is a Company which has been incorporated and registered under the Companies Act, 2013[1] but does not have any significant accounting transaction or is an inactive company which has applied to the Registrar to be declared as a dormant company. A company which hasn’t filed annual returns/financial statements for two consecutive fiscal years can also be declared as a dormant company by the Registrar’s suo moto action.

Read Our Article: Change in Status of Company From Active to Dormant

Sherin Jose

Sherin has degrees in Law and English Literature from the University of Delhi. She is adept at legal research and writing and enjoys discussing and analysing important legal developments. Her primary interests lie in Corporate, FinTech and IPR Law and she is always on the lookout for exploring new developments in the area. She is an avid reader who loves classics and contemporary fiction. She likes to travel, bake and obsess over cat videos in her free time.

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