Company Strike-Off Procedure in India: Grounds, Process, and Implications

Every company is incorporated with the vision of conducting business and growing. However, not all ventures succeed, and sometimes, a company becomes defunct or inactive. Keeping such entities on the official Register of Companies serves no purpose. This is where the Company Strike-Off procedure in India comes into play. It provides a legal mechanism for the Registrar of Companies (RoC) to remove the name of a company from its register. This effectively dissolves the company without undergoing a lengthy liquidation process.

Understanding this procedure is crucial for directors, shareholders, and entrepreneurs. It ensures a clean exit for non-operational entities and helps avoid future compliance burdens or penalties. As a leading CA in Mumbai, CA Sweta Makwana & Associates guides businesses through intricate corporate compliance processes. We ensure smooth and legally sound company closures.

What is Company Strike-Off?

Company strike-off is a simplified method for dissolving a company. It means the company’s name is removed from the RoC’s register. Once struck off, the company ceases to exist as a legal entity.

Key Distinctions:

  • Simpler than Winding Up/Liquidation: Strike-off is generally less complex, faster, and more cost-effective. It is suitable for companies with no or minimal assets and liabilities.
  • Purpose: Its primary aim is to clear the RoC’s records of defunct companies.

Grounds for Company Strike-Off under the Companies Act, 2013

A company’s name can be struck off the register under two main scenarios: voluntarily by the company itself, or involuntarily by the Registrar of Companies (RoC).

1. Voluntary Strike-Off by the Company (Section 248(2))

A company can apply to the RoC for the removal of its name if it meets any of the following criteria:

  • It has not commenced its business within one year of its incorporation.
  • It has not been carrying on any business or operation for a period of two immediately preceding financial years, and has not made any application for obtaining the status of a Dormant Company.

2. Involuntary Strike-Off by the Registrar of Companies (Section 248(1))

The RoC can initiate the strike-off process if it has reasonable cause to believe that:

  • The company has not commenced its business within one year of its incorporation.
  • The company has not been carrying on any business or operation for a period of two immediately preceding financial years.
  • The subscribers to the memorandum have not paid the subscription money and a declaration to that effect has not been filed.
  • The company has not filed financial statements or annual returns for any of the immediately preceding two financial years. This is a very common trigger for RoC action.

Process for Voluntary Company Strike-Off (Section 248(2))

Companies opting for voluntary strike-off must follow a structured procedure as per the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016:

  1. Board Meeting: Convene a Board Meeting to approve the proposal for strike-off and authorize a director to take necessary steps.
  2. Shareholder Approval: Obtain consent of at least 75% of the members (shareholders) by value, either through a special resolution passed at an Extra-ordinary General Meeting (EGM) or by written consent.
  3. Extinguishment of Liabilities: The company must ensure that it has no outstanding liabilities. This includes:
    • No public deposits or outstanding interest.
    • No outstanding secured or unsecured loans.
    • No outstanding statutory dues (e.g., Income Tax, GST, PF, ESI).
    • No dues to employees.
  4. Bank Account Closure: All bank accounts of the company must be closed.
  5. Required Documents for Form STK-2: The company must prepare and file an application in Form STK-2 to the RoC, along with the following mandatory attachments:
    • Indemnity Bond in Form STK-3: From each director, individually and collectively agreeing to indemnify any person for any loss that may arise after the strike-off.
    • Affidavit in Form STK-4: From each director, confirming that the company has no assets or liabilities.
    • Certified true copy of the Board Resolution and Special Resolution/Consent of members.
    • A statement of accounts for the last three months, showing NIL assets and liabilities, duly certified by a Chartered Accountant.
    • Copy of relevant order of the regulatory authority (if applicable, e.g., RBI, SEBI).
    • Copy of No Objection Certificate (NOC) from concerned regulatory authorities (if applicable).
  6. Filing with RoC: File Form STK-2 along with the prescribed fees.
  7. Public Notice: Upon receiving the application (or initiating suo motu action), the RoC publishes a public notice (in Form STK-6) on its website. This notice invites objections from stakeholders (creditors, etc.) within a specified period (usually 30 days).
  8. Final Publication: If no objections are received, or if objections are suitably resolved, the RoC publishes a notice (in Form STK-7) in the Official Gazette. From the date of this publication, the company stands dissolved.

Implications of Company Strike-Off

The strike-off of a company has several significant implications for the entity itself, its directors, and shareholders:

  1. Cessation of Business: The company ceases to exist as a legal entity and cannot carry on any business or operation. Its corporate existence is removed.
  2. Director Disqualification: This is a crucial consequence. Directors of a company that has been struck off often face disqualification for a period of 5 years from being appointed as directors in any other company (under Section 164(2) of the Companies Act). This applies if the company failed to file financial statements or annual returns for any continuous period of three financial years.
  3. Continuing Liability: Even after the company’s name is struck off, the liability of every director, manager, or other officer who was managing the company, and of every member, continues. This applies for the payment of outstanding debts and liabilities incurred before the date of strike-off. Any assets of the company can still be realized for the discharge of these liabilities.
  4. No Legal Standing: The struck-off company cannot conduct business, open new bank accounts, or legally sue or be sued in its own name (except for purposes of realizing assets or discharging liabilities).
  5. Restoration of Name: The company’s name can be restored to the Register of Companies by an order of the National Company Law Tribunal (NCLT) within a specified period (e.g., typically three years from the date of strike-off, under Section 252). This can be sought by the company, a member, or a creditor if they can prove that the company was active or that its strike-off has caused prejudice.

Why is Professional Guidance Important?

While seemingly straightforward, the company strike-off procedure has many nuances. Professional guidance is invaluable to:

  • Ensure Eligibility: Confirm that the company genuinely meets the grounds for strike-off.
  • Compliance: Adhere to all statutory requirements, forms, and timelines.
  • Liability Management: Properly extinguish all liabilities to prevent future legal issues.
  • Prevent Director Disqualification: Avoid the severe consequence of directors being disqualified.
  • Documentation: Prepare and submit accurate and complete documentation.
  • RoC Liasion: Handle communications and queries from the Registrar of Companies effectively.

The Indispensable Role of a CA

For a clean and hassle-free company strike-off in India, a Chartered Accountant (CA) firm like CA Sweta Makwana & Associates is indispensable:

  • Eligibility Assessment: We assess your company’s eligibility for strike-off.
  • Due Diligence: We conduct thorough checks to ensure no hidden liabilities or non-compliances exist.
  • Documentation Preparation: We meticulously prepare all necessary forms (STK-2, STK-3, STK-4) and supporting documents.
  • Financial Statements: We help prepare the required statement of accounts (last three months) ensuring it shows NIL assets and liabilities.
  • Filing & Follow-up: We handle the entire filing process with the RoC and follow up until the company’s name is officially struck off.
  • Advisory on Implications: We advise directors and shareholders on their continuing liabilities and implications like director disqualification.

Conclusion

The Company Strike-Off procedure in India offers a crucial exit route for defunct or non-operational companies. It helps avoid ongoing compliance burdens and potential penalties. However, it’s not a simple formality. It involves strict legal grounds, a defined process, and significant implications for all stakeholders, particularly directors.

A strategic and compliant approach, supported by expert professional guidance, ensures a clean and effective dissolution. This protects the interests of directors and shareholders alike.

Considering a company strike-off? For expert advice on corporate compliance, strike-off procedures, and comprehensive business advisory, get in touch with CA Sweta Makwana & Associates today. We are committed to simplifying complex legal processes for your business.

Explore our Corporate Advisory Services for holistic support in all your corporate structuring and compliance needs.

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