SKP Business Alert
Volume 8 Issue 11 | 9 January 2017

Removal of Names of Companies also known as Fast Track Exit Scheme notified

The Ministry of Corporate Affairs (MCA) vide its notification dated 26 December 2016 has notified sections 248 to 252 of the Companies Act, 2013 (Act) dealing with the removal of the name of the company from the register of companies. By the notification dated 28 December 2016, it has also notified the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 (Rules), framed to define the procedure to be followed for the removal of the name of a company from the register of companies.
 
The salient features of the 
above-mentioned sections are:
  • Unlike the Companies Act, 1956 where only the Registrar had suo moto powers to remove the name of a company from the register of companies on account of the company not carrying on business, the Act authorises companies themselves to apply to the Registrar for removal of their names from the register.
  • The Registrar can strike off a company from the register if:
    • A company has failed to commence business operations within one year of its incorporation; or
    • A company has not been carrying on business for two immediately preceding financial years and has not applied for treating it as a dormant company.
  • A company can also file an application before the Registrar for removal of its name from the register of companies on any or all of the grounds mentioned above.
  • For filing such an application, a company has to establish that it has no liability and that it has obtained the approval of shareholders holding not less than 75% of the total shares.
  • The Act states that in the case of a company that is regulated under a special Act, the approval of the regulatory body constituted or established under that Act needs to be obtained first.
  • It prescribes 10 categories of companies which cannot apply under this section seeking removal of its name from the register.
  • On receipt of the application in the prescribed form, the Registrar is supposed to issue a public notice and simultaneously send the same to the income tax authorities, central excise authorities and service tax authorities to see if they have any objections. If no objection is received within 30 days of issue of the notice, it shall be presumed that they have no objection to the proposed strike off.
  • On expiry of 30 days of the notice issued, the Registrar will strike off the name of the company from the register and publish the notice in the Official Gazette. After the Gazette has been published, the company shall stand dissolved.
  • It is to be ensured by the Registrar that the liabilities and obligations of the company are met and notwithstanding the strike off of the company, the assets are made available for meeting the liabilities of the company.
  • It is provided that the liability of every director and manager who was exercising the power of management and every member of the company shall continue to exist and may be enforced as if the company has not been dissolved.
SKP's comments
The grounds for removal of the name of the company from register of companies are widened under the Act. The 1956 Act did not provide for a voluntary application for a company to strike off its name from the register of companies.

The Fast Track Exit (FTE) Scheme was framed under the old Act but did not specify the authority under which it had been framed. In the Act, it has been statutorily provided for a company to apply voluntarily for striking off its name after complying with the provisions prescribed. The procedure to be followed is precise and simplified. These provisions do not apply to companies registered under section 8 (non-profit organisations) of the Act. 
An exhaustive category of companies which cannot apply to remove themselves from the register is given. On the flip side, pre-requisite of a period during which a company is not carrying business operations has been increased to two years as against one year which was the case earlier.

Also, it appears that the personal liability of every director, manager 
or other officers who were exercising the power of management and every member of the company can be enforced against them. Furthermore, there is no time limit prescribed for a liability claim.
 
Nevertheless, the companies which are not carrying on business in the two immediately preceding years and have satisfied their liabilities will find this an easy and fast route to exit as compared to winding up.

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