[The Viewpoint] Provisions of Strike off u/s 248 of the Companies Act, 2013 for non-compliance with mandatory legal requirements.

The Government has undertaken a special drive for the identification and removal of shell companies from the ROC’s register
 Ragini Singh
Ragini Singh

The names of a total of 1,12,509 companies have been struck off under section 248(1) of the Companies Act, 2013 from the Register maintained by the Registrar of Companies (ROC) during the period April 1, 2019, to July 12, 2022. Out of the total, the maximum number of struck off companies were in Delhi (19,464) followed by Maharashtra (16,023), Uttar Pradesh (12,823), West Bengal (11,044) and Tamil Nadu (6,989).

The Government has undertaken a special drive for the identification and removal of shell companies from the ROC’s register. While there is no definition of the term ‘shell company’ in the Companies Act, 2013, the Minister of State for Corporate Affairs explained the expression ‘shell company’ in a written reply to the Parliament in the following words, “it normally refers to a Company without active business operations or significant Assets, which in some cases are used for illegal purposes, such as tax invasion, money laundering, obstructing ownership, benami properties, etc.” It is pertinent to note that contrary to popular belief not all struck off companies are shell companies and further, not all shell companies are used for illegal purposes. Often fully functional companies are struck off by the ROC due to inadvertent non-compliance by such companies of statutory rules.

All companies registered under the Companies Act, 2013 are bound to make statutory compliances such as filing annual returns, financial statements, and other statutory returns. The name of any company which defaults in complying with the aforementioned requirements is liable to be struck off the register maintained by the ROC.

Sections 248-252 of the Companies Act, 2013 read with Companies Rules, 2016 contain provisions regarding the removal of companies’ names from the ROC’s register and the procedure for the same. Section 248(1) of the Companies Act, 2013 permits the Registrar of Companies (ROC) to suo motu take action for removal of a company’s name from its Register on the following, amongst other, common grounds:

  • Failure by a company to commence its business within one year of its incorporation; or

  • Failure of a company to carry on any business or operation for a period of two immediately preceding financial years if such company has not made any application for obtaining the status of a dormant company.

Before striking off any company from its register, the ROC issues a notice in Form STK-1 seeking reasons as to why the company’s name should not be struck off the ROC’s Register. However, if the ROC is not satisfied with the representation made by the directors of the company, the ROC may exercise its discretion to remove the company’s name from its Register. The notice for removal of name under section 248(1), i.e., Form STK5 is published on the official website of the MCA, in the Official Gazette, in a leading English newspaper and at least one vernacular language newspaper. The ROC, after having followed the mandatory steps as discussed, then strikes off the name of the Company by publishing Form STK7 in the Official Gazette and on the MCA website. On the publication in the Official Gazette of this Notice, the company stands dissolved with effect from the date mentioned therein.

Once a Company is struck off, it loses its legal identity, rights and responsibilities and as such cannot transact its day-to-day business. Any person aggrieved by the Order of the ROC may file an appeal before the National Company Law Tribunal within 3 years from the date of the order passed by the ROC. However, if the Company itself or any member or creditor or workmen of the Company wishes to file an appeal, such an entity may do so within twenty years from the date of the strike off. On the filing of such an application, if the Tribunal is of the opinion that the removal of the name of the company was not justified, it may pass an order for the restoration of the name of the company onto the ROC’s register, on the payment of an appropriate fine as directed.

In the case of M/s Schnell Global Industries Private Limited, the Company was struck off by the ROC Pune for non-filing of annual returns and financial statements of the Company for the period starting FY 2013-14 to FY 2016-17.

The Company was not able to comply with the statutory filings owing to certain internal disputes amongst the shareholders/promoters of the Company. The Hon’ble Tribunal vide order dated 08.07.2022 was pleased to exercise its discretion to restore the name of the Company onto the Register maintained by the ROC on the payment of a reasonable fine for the lapse in complying with the mandatory requirements.

The Hon’ble NCLT, in several judgements has restored the names of such struck off companies which have evidenced that they are going concerns and have provided cogent and sufficient reasons to explain their inability to make the requisite statutory compliances as per law.

Ragini Singh is a dual qualified lawyer (India and United Kingdom) and founder of Ragini Singh and Associates. The author would like to thank Chintan Chheda for his contributions to the article.

Disclosure – The author appeared in the case mentioned in the article.

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