The Striking Off Process for Companies Under the Companies Act, 2013

Nandinee Sharma ||Legal Thikana||Liabilities Of A Company Post-Strike Off

For a company to come into existence it has to be registered under the Companies Act, 2013. After the Company is registered the Registrar of Company issues a Certificate of Incorporation and the name of the company is added to the register. Subsequently the company comes into existence.

However if a company becomes inoperative or dormant or has become inactive then it can be struck off by the Registrar of Company according to the due process of law as given under the Companies Act, 2013. Striking off of a company is the process of closing down an inoperative Company. It is an alternate instrument to winding up of the company. It is considered as the easiest way to shut down a company. A company can be struck off by the Registrar of company by virtue of Section 248(1) or upon voluntary application by the Company itself to the Registrar in order to remove the name for the company from the register.

Section 248(1) lays downs the circumstances under which a Company is struck down. These grounds are listed as follows:-

If the Registrar of Company has reasonable cause to assume that:-

a. a company has failed to commence its business within one year of its incorporation    

b. a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company 

c. The subscribers to the memorandum have not paid the subscription which they had undertaken taken to pay within the period of 180 days from the date of incorporation of a company and a declaration under section 11 (1) to this effect has not been filed within 180 days of its incorporation .

 d. the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12 

The Registrar will send a notice addressing all the directors of the company in Form STK 1. After this the onus is upon the Company to send a reply within 30 days stating reasons as to why the said company should not be struck off.

After receiving the response from the directors of the company if the Registrar still remains malcontent he may proceed with the procedure of striking off of the company and publish a public notice under Form STK 5.Upon being content that the company is not functioning in accordance with this section, the ROC removes the name of the company from the register of companies and publishes the notice regarding the same in the Official Gazette in Form STK 7. The notice must also be issued on the official website of the Ministry of Corporate Affairs.

In the case of Sitaram Singh Construction Pvt. Ltd. v. Union of India 5 , the ROC did not publish any notice regarding the strike of in the official Gazette or send any notice to the company as required under section 560(3) of the Companies Act, 1956 and section 248(4) after amendment of 2013).

The company kept functioning whilst not filing its annual returns. However, since the procedure of publishing the notice was not obligated by the Registrar the notice of strike off under Section 560(5) was quashed and the company was to be revived. After a Company has been struck of it has to stop all trading or sale of assets among other functions. The Certificate of Incorporation is cancelled and the name of the company is removed from the register of companies.

A company can have voluntary strike off by:-

a. by application made to the registrar of company under section 248(2). 

b. the approval of shareholders is required through a special resolution before the application for strike off is made.

For a company to file an application regarding striking off of the company a general meeting is called. Following which a special resolution has to be passed in the general meeting. 4 Section 248(1) (e) of the Companies Act, 2013 5 (2010) 156 Comp Cas 127 (Pat) 3 Furthermore the approval of 75% of the shareholders has to be obtained to proceed with the application.

It is mandatory for the company to pay off all debts and liabilities before calling for such a meeting. At least 30 days prior to filing the application the statement of account must be procured in Form STK 8. A no-objection certificate signed by an authorised authority must be filed along with the application for strike off.

When the Registrar is satisfied that the company filing the application meets all the required criteria he/she can remove the name of the company and the company seizes to exist.

LIST OF COMPANIES THAT CAN BE STRUCK OFF:-

i. Public Company

ii. Private Company

iii. One –Man Company

iv. Companies under section 8 of Companies Act, 2013 (non-profit organization)

LIABILITIES OF A COMPANY AND DIRECTORS POST-STRIKE OFF:-

In accordance with section 248(6) of the Companies Act of 2013 the ROC must ensure that the company is done with all its liabilities and paid off its debts before passing an order under Section 248(5). Section 248(6) states that-

“The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realization of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company: Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies”6 . Section 248(6) of the Companies Act, 2013 It has been clarified through the proviso that all the assets of the company would be available to discharge of all liabilities and obligations even after the company has been dissolved.

In the case of Dwarka Portfolio Pvt. Ltd v. ACIT (ITAT of Delhi) it was laid down that even after a company is struck off the liabilities continue to exist. The ITAT stated that under section 179 of the Income Tax Act the revenue department may recover the duties levied on the company. Furthermore, under section 223(6) of the Income Tax Act any tax can be recovered by the Revenue Department even after the company has been struck down.

The ITAT observed that, if the revenue department will directly recover the tax due from the Directors of the Company, without any interference of the Court/Tribunal, then it would deprive the Directors of their rights that are protected under the law. The ITAT ruled that the assessee could not be denied its right to determine tax liability in furtherance of due process of law, even if it has been struck off by the Registrar of the Companies. It was rightly observed by the ITAT that although the Company has been struck off, the rights and liabilities attached to it can seize to exist. The liabilities and obligations must be discharged off as provided under Section 248(6) of the Companies Act of 2013.

It is upon the Registrar of Companies to make sure that the company has discharged all its liability and obligation. Similarly if any right has been vested upon the company which is operative even after dissolution then the right shall stand and it cannot seize to exist.

In the same manner section 248(7) states that-“The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved”.

From this section it can be construed that the directors of the company must dispose off all their duties even after the strike off process has taken place. However they cannot be held liable personally if non personal liability existed prior to the dissolution of the Company.

In the case of Srikishen Dhoot v. Kamalapurkar the court observed that even though the liability of a director exists even after the name of the company has been removed from the register it does not held the director personally liable if the liability was limited prior to the dissolution. The liability still remains limited and in the same accord as it was when the company existed.

Similarly in the case of Smt. Narmada Choudhury And Ors. vs Motor Accident Claims Tribunal ,it was observed that liability of a Director of the company in the course of conduct of the business of the company on account of misfeasance, if any, is investigated in the course of winding up of a company as manifested by the provisions of Section 543. When such liability is determined then and then only the Directors can be proceeded against individually in their personal capacity; otherwise, for any debt due by the company they cannot be proceeded against by any creditor of the company in their individual capacity, either before or after its dissolution.

Moreover it must be considered that the directors may also be jointly and severally held liable under relevant provisions of the Indian Penal Code as well as under section 448 of the Companies Act of 2013.

It can be deduced from these relevant landmark cases that a company even though no more in existence can still have certain rights and liabilities. A struck off company is not exonerated from all its liabilities or debts if any. The company must fulfill all the required responsibility that it undertook. A company along with all its directors, managers or any other officer who held authoritative positions must discharge of any pending liabilities, loans, or debts in the same manner as to when the company was still functioning. Notwithstanding of the fact, it must be kept in mind that the responsibility or liability may not be enhanced and no director, manager or officer can be held personally liable if she/he if they were not so before the dissolution took place.

Landmark Case Laws on Striking Off of Companies and Director Liability