People occasionally mix up the terms “dissolution” and “winding up,” which both refer to the end of the business. When a firm is being wound up, a liquidator is chosen to resolve the matter and distribute the assets to the creditors and other important parties. After the winding process is complete, dissolution occurs.

What is Winding Up Company?

The process of winding up of a company involves gathering and selling the company’s assets in order to pay off any outstanding obligations. Debts, expenses, and charges are initially paid off and divided among the shareholders when a corporation is wound up.

After being liquidated, the Company is formally dissolved and no longer exists.

The legal process of winding up of a company allows a corporation to close its doors and stop all ongoing operations. After the Company winds up, its existence ends, and the assets are watched over to ensure that the interests of the stakeholders are not compromised.

A Private Limited Business is an artificial legal entity that is subject to a number of requirements. If the company does not uphold these requirements, it may be subject to fines, penalties, or even disqualification of the Directors from forming more companies. It is usually preferable to dissolve a business that has ceased operations or has no transactions.

The Company’s shareholders may decide to dissolve the business at any moment. All outstanding debts must be paid regardless of whether there are workers, secured or unsecured creditors, or both. All company bank accounts must be closed following the payment of debts. In the event that the Company is dissolved, the GST registration must likewise be given up.

The winding up petition can be filed with the Ministry of Corporate Affairs after all registration have been given up.

A company is dissolved as a result of the winding up process. The firm is put under the management of a liquidator. The company’s assets are liquidated, and the money are used to settle its obligations. Any remaining funds, if any, are distributed to the members in proportion to their capital investment once the company’s debts have been satisfied.

The corporation is still in existence between winding up and dissolution and can still be sued in a legal or NCLT setting. The liquidator submits a request for a dissolution order to the NCLT after concluding the winding-up procedure. As a result, the company’s dissolution marks the completion of the winding up procedure.

The corporation may be wound up in one of two ways: either by a mandatory winding up or a voluntary winding up. The NCLT receives an application for winding up from the creditors, the ROC, or the firm itself, which starts the mandatory winding up procedure. After passing a specific resolution, the firm applies to the NCLT to begin the winding-up procedure, which starts the voluntary winding-up process.

When one of the following occurs, a creditor or ROC may force a corporation to be wound up:

• if the business is unable to pay its debts.
• if a business was created in a dishonest way.
• if the business violates the integrity and sovereignty of India, state security, law and order, morality, or decency.
• If the tribunal determines that winding up the corporation is equitable and just, then
• if the business fails to submit its annual reports or financial statements to the ROC for the previous five financial years in a row.
• if the Insolvency and Bankruptcy Code declares the firm insolvent.

A specific resolution must be passed, a liquidator must be appointed to sell the company’s assets, and liquidation reports must be prepared for a voluntary winding-up of the business. To wind up the company’s affairs and erase its name from records, these reports must be delivered to the ROC.

What is Striking Off a Company?

The Registrar of Companies issues a Certificate of Incorporation at the time of incorporation, confirming the Company’s existence. Unless the business requests it or is required by law, the name of the firm cannot be deleted once it has been placed into the register. The registrar may suo moto Strike Off the Firm by issuing notice to the company at its registered office location when the company fails to start up its operations or fail to file yearly returns.

Strike of Company Meaning:

If we interpret the term “strike-off” literally, this implies deleting the company’s name from the Register of Companies kept by the Registrar of Companies. It is more likely to the company being closed down, and after being struck off company, it will cease to exist and be unable to carry out any further operations.

You Can Contact MUDS if You Wish to Resurrect Your Struck-off Business.

A firm must typically be officially dissolved within three months, however this time frame might vary greatly if the process is complicated. But when the winding-up notice is published in the Gazette, a corporation will no longer exist after at least three months. However, some businesses could submit an application for striking off company’s name using the fast track exit option.

• Companies that have not operated or carried on any business for the past two years from the date of application, companies that have not operated or carried on any business within a year of incorporation, and companies with no assets or liabilities may apply under the fast track exit mode to have their names removed.

Companies that are not eligible for Strike off:

The following situations will not qualify a firm for striking off under the Companies Law:

• The firm was formed after November 2nd, 2018, however no 20A has been submitted.
• It hasn’t been a full year since incorporation.
• For an active business that has conducted transactions during the last two years.
• DIN has been disabled.
• Every director is ineligible.
• The ROC has already notified the corporation of the strike off.
• Any outstanding legal actions are ongoing.

By simply sharing your business name with the MUDS team, you may easily remove an incorporated or registered firm from the list of companies kept by the state registrar. Both a dormant corporation and a firm that is currently operating can submit an application for the strike-off.

Online processing is used for the company strike-off process. The Company Strike-Off List in India is also available from MCA records. A request to have the name of the corporation or voluntary Strike Off Company removed must be filed in Form STK-2 and include the required payments.

Difference between Winding up and Dissolution of Company

There are two distinct processes in the process of ending a company: winding up and dissolution. Before the business is dissolved, a liquidator acting under the Tribunal of Laws settles and distributes the firm’s assets among its creditors and shareholders. This procedure is known as “winding up.”

The National Company Law Tribunal has the authority to dissolve a company when the winding-up procedure is complete. In this case, the company’s name will be removed from the Register of Companies and it will be announced in the Official Gazette that it has ceased to exist.

Wind Up of Company

According to the Insolvency and Bankruptcy Code of 2016, winding up refers to the liquidation of the corporation, and there are many types of wind up:

• Compulsory dissolution of the Company
• A company’s mandatory dissolution might take the form of a voluntary dissolution imposed by the company’s creditors.
• voluntary closure of the company
• method for the voluntary winding up of a private limited corporation brought about by a corporate person.

A company’s winding up is a two-step procedure that starts with the insolvency resolution process and ends with the company’s liquidation. While the firm is being wound up, the corporate entity is still in existence; however, following dissolution, the corporate entity is no more.

The Central or State Government, the company, its donors, a Registrar, or the firm itself may all file a petition for winding up.

If it believes it will be helpful for the winding-up process, a company may continue to operate during the Indian winding-up process. However, following dissolution, the corporation ceases to exist and ceases to conduct business.

Dissolution of Company

A business may be dissolved in one of two ways.

First time a firm is sold to another business as part of a rehabilitation or merger plan. In this scenario, the Tribunal will issue an order dissolving the transfer of the firm without winding it up.

In the second scenario, the business will go through a winding-up procedure in which its assets will be realised and the money would be utilised to settle its debts. The remaining money, if any, will be divided among the parties involved after the debts have been paid, and the tribunal will then issue an order dissolving the business and removing its name from the Register of Companies.

Process of Winding up and Dissolution of Company

The Tribunal decides whether to wind up a firm, and in India, the process is entirely a matter for the courts to decide. The winding-up procedure is carried out and managed by a liquidator. The dissolution process begins afterwinding up of a company.

The registrar of companies keeps a record of a company’s dissolution. There is no role for the liquidator in this activity; it is simply administrative. A stage that must come after a firm is wound up is dissolution.

What Factors Cause a Company to Dissolve?

When opposed to a Limited Liability Partnership (LLP), one drawback of a partnership firm is related to business continuity. An LLP is regarded as a distinct legal entity and will continue to operate even in the event of one of the LLP Partners’ passing or disability. On the other side, there may be a death, an inability to work, or a number of other factors as listed below. In this article, we examine some of the main causes of a partnership firm’s breakup.

Causes of Partnership Firm Dissolution

For a number of reasons, a partnership firm may be dissolved or shut down. Any of the following factors might cause a partnership business to dissolve, willingly or involuntarily:

Abandonment by Agreement

Any partnership firm may be dissolved by giving written notice to each of the partners. The partnership firm may be dissolved if unanimous consent is received from all of the partners. The most typical sort of dissolution is referred to as voluntary dissolution.

Removal by Notice

A partnership business that is at-will might be dissolved at any time by any one of the partners by giving the other Partners notice. The written justifications for the partnership firm’s dissolution must be included in the notice from the Partner. If there is no predetermined date for the firm’s dissolution under this manner of dissolution, the notice is effective as of the day it is issued, and the firm is dissolved after that date has passed.

Bankruptcy of the partners

The partnership firm should be forcibly dissolved if all of the partners are found to be bankrupt or even if only one of them appears to be inactive or mentally unstable.

Participation in Illegal Business

When some commercial activities of the partnership firm are prohibited by local law, the business firm’s operations may in some cases be deemed unlawful. In this situation, the partners may decide to dissolve the partnership company or may do so after giving notice to them.

Partner’s Demise

If a partner dies while carrying out the duties of an acting chairman among the remaining partners of the business firm, the partnership firm must be dissolved.

Finality of Term

If the Partners so agreed and the partnership deed of the company specifies a deadline for dissolution, then those conditions must be followed.

Finished Work or Contract

It is possible to establish a partnership firm to carry out a certain business objective or contract. Therefore, the partnership business may be dissolved in accordance with the agreement upon conclusion of the project or contract.

Departure of Partner

If any one of the registered partners does not want to carry on with the business owing to disagreements with other partners or financial loss, the partnership firm may be dissolved.

Major Difference between Winding up & Striking off a Company in India

• Generally Assumed

Based on a quick analysis of the aforementioned procedures, one could be tempted to draw the conclusion that there is no distinction between the two processes in terms of bringing the firm to a close. Both must follow certain procedures in order to comply with the law.

• Reality

However, there is a significant distinction between striking off and winding up procedures based on actual regimes. On average, the winding-up procedure takes more than two years to complete, which is significantly slower. The striking off process is more quicker and easier than the other. However, only in the event of “defunct firms” may it be legal to monitor this method.

• Liabilities

For dissolved businesses or firms, striking off company is the ideal method because there are no or very few responsibilities. When a company no longer needs to exist, it must wind up its affairs since it has assets and obligations. However, compared to winding up of a company, the striking off company operation is less costly. In a winding-up situation, costs are incurred for the court or tribunal, the liquidator’s expenses, etc.

Conclusion

Given the ease of the process, the short amount of time required, and the fact that striking off  is less expensive when a firm has ceased operations, it is a good choice to accomplish closure. However, in order to complete this procedure, the corporation must settle all outstanding debts and statutory obligations and be clear of any litigation or existing legal actions. Businesses typically cease operations when their net value is completely or severely diminished and they are not profitable.

A vide circular was issued by the Ministry in July 2011 to quicken the winding-up process. The process under the most recent Companies Act need to be carried out more simply and efficiently, taking into account the size and structure of the firm.

If you want professional help on any part of winding up of a company or striking off company, our MUDS group will be available to you. We will work with you to guarantee total adherence to all regulations based on your intended actions, resulting in the successful and on-time completion of your task.

The post Difference between Winding up & Striking off a Company in India appeared first on MUDS.

With the implementation of the Companies Act 2013 the Ministry of Corporate Affairs applied strict norms on companies defaulting on the set compliances mentioned in the act. The Companies Act 2013 had many changes compared to the old Act of 1956. The new Act comprised of strict provisions for non-complying companies which included directors; disqualification. The Act says if any company fails to meet the compliance standards set by the government, then the Registrar of Companies can remove their names from its list of regularised and also, order disqualification of directors for five years. 

In this article, we will understand 

• The situations in which companies are considered defaulters.
• Why and for how long the directors are disqualified?
• What are the ways to remove the director’s disqualification?
• Judiciary’s perspective on cases of removal of director’s disqualification thorough a case from Allahabad High Court. 

We will also understand the process of removal of a director from the perspective of a directors’ disqualification removal case in Allahabad High Court. This will help us understand the general viewpoint od judiciary on cases related to the removal of directors’ disqualification. 

Rules for Companies to fall in Defaulter’s List

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of Companies Act. The act considered the director of the company responsible for actions of the company and so, has a policy of strict actions against them in case their company defaults. 

Grounds for Disqualification of Directors

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 

• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If any Court confirms that the director is not of sound mind.  

Ways to Remove Directors’ Disqualification

During the initial few years of introduction of the new Companies Act, it was a common understanding that there was no remedy available for directors who are disqualified by RoC.  It was thought that waiting for the five years exile period to end is the only way to resume directorship work. However, there was another option which encompassed the revival of the disqualified company after struck off from RoC. Once the company is revived, its directors could also apply for the revival of their role. There were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

It is the responsibility of the company’s director to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme (CODS) where directors could file the relevant document to get their DINs reactivated. The scheme involved the payment of a moderate fee and condonation of hefty penalties due to defaulting on a payment. Many companies at that time used this scheme for revival and removal of directors’ disqualification. This is how this scheme worked:

• The disqualified directors were needed to submit all the statutory document with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in Section 403 of the Companies Act. 
• The small fee needed was only 30000 Rs. With an e-CODS form and so saved companies form hefty penalties. 

Remedies Applicable for Directors’ Disqualification Cases after CODS 

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of disqualification were left with two options.  Either they should apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revised, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. But this procedure could only be followed if the companies wanted revival, the other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

Drafting a Concise Writ Petition

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Understanding Judiciary’s View on Writ Petitions through a Case

Let’s understand how filing a Writ Petition can help in the removal of directors’ disqualification and how Allahabad High Court quashed cancellation of DIN of 161 directors by RoC Uttar Pradesh.  

In this case, the petitioners were directors of companies which defaulted on submitting their yearly financial statement continuously for a period of three years. The resulted in RoC applying Section 164(2) of the Companies Act leading to company’s name being struck off from RoC and disqualification of their directors. The directors were also disqualified from the directorship of other companies (which were not defaulters). The petitioners also alleged that no show-cause notice was served to them before disqualification and RoC didn’t verify any facts before ordering the cancellation of their DINs for five years. It was argued by petitioners that the ruling of Section 164(2) that disqualifies directors from the directorship of other non-defaulter companies is an irrational and unreasonable violation of the fundamental rights mentioned under Article 19 (1) (g). With these and other arguments, the petitioners asked for the removal of disqualification from directorship and also asked the court to order RoC to reactivate their DIN numbers. 

Order of Allahabad High Court (Disqualification of Directors)

In its orders, the Allahabad High Court’s bench of Justice Rajeev Mishra and Justice Sudhir Agrawal quashed cancellation of DINs of directors and allowed writ petitions partly. The court said,

“The above discussion leads to the consequence that all writ petitions have to be allowed partly and action of respondents in deactivating DIN of petitioners is to be quashed. We accordingly allow writ petitions partly. We also quash the list published by ROC, declaring petitioners in all these writ petitions as disqualified to be Directors of companies and debarment of being Director for a period of five years. Uttar Pradesh ROC, now, shall be at liberty to give notice to petitioners to verify and establish the facts whether disqualification alleged to have been suffered by petitioners-Directors so as to attract Section 164 (2) of Act, 2013, actually exists or not. After giving them the opportunity and being satisfied that such disqualification has occurred, it will proceed further in accordance with the law.”

The above order is a welcome sign for all the directors who are looking for removal of their disqualification from Allahabad High Court. This order could pave the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. The case has also led the way for directors who were working in multiple companies but removed from directorship just because one of their company defaulted. 

Why Do You Need an Experienced Representative?

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favorable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and, quashed orders of RoC in some cases. So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.  

The post A Case Study Explaining Directors’ Disqualification Removal through Writ Petition appeared first on MUDS.

As per the provisions mentioned in the Companies Act 2013, an director of a company can be disqualified for five years from the directorship of his/her company and also banned to join any other organization as a director if his/her current organization fails to submit their financial statement for a period of three years consecutively. Now the obvious question is whether this disqualification can be removed or not? And if it can be removed what are the ways to do it. To answer all these questions we have explored various aspects of the removal of director disqualification in different sections of this article. By the end of the article, you will be able to understand,

• On what grounds directors are disqualified from the organisation?
• Hyderabad High Court’s perspective on such cases
• What was the impact of these new provisions in the act?
• What are the remedies for disqualified directors?

We will also understand the process of removal of a director from the perspective of a directors’ disqualification removal case in Hyderabad High Court. This will help us understand the general viewpoint od judiciary on cases related to the removal of directors’ disqualification. 

Different Grounds for Directors’ Disqualification

The Companies Act of 2013 required companies to furnish documents related to their finances and operations every year. Defaulting on submission of these documents for a continuous period of three years had stricter provisions of punishment compared to the previous version of Companies Act. The act considered the director of the company responsible for actions of the company and so, has a policy of strict actions against them in case their company defaults. 

The directors of the company are responsible for the smooth operation of the company and therefore they are responsible for any action taken by the company that leads to failure in complying with the directions of Government. The following points will give information on rules or issues which can lead to directors’ disqualification,

• Any directors of the company who has been convicted under section 188 by the Court regarding party transections during last five years. 
• If the directors fail to inform about their respective shares in any company held by them alone or in collaboration. 
• If any director has applied for his/her adjudication as an insolvent or if the directors’ application for the same is still pending. 
• If the director is convicted in any offence by the Court and sentenced to imprisonment for more than 6 months.
• If the organisation fails to redeem any debentures on their due date or fails to pay the interest due.
• If the company of the director has not filed its financial statements and annual returns for three years consecutively. 
• If the company has failed to repay the deposit made to it or pay interest on those deposits. 
• Failure to pay the declared dividend and continuing so for one year or more could also lead to disqualification of the company’s director. 

• If any Court confirms that the director is not of sound mind. 
• The Court also has the authority over the disqualification of directors’ who are undischarged insolvent. 
• If any court or tribunal has earlier ordered the disqualification of the director. 

Analysis of Hyderabad High Court’s Order 

Ever since the norms for director disqualification have come into place the high Court’s throughout India are using flurry of writ petitions being filed for relief. Let’s understand how filing these Petitions have helped the petitioners in their cases through a case study of M/s. Dr Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr. 

“In this case, it was argued by the sides that the action of disqualification was considered due to non-filing of financial statements from April 01, 2014. The three years from 2014 were about to be completed only on 31 March 2017 but the date for filing of annual financial returns for the said years was 30 October 2017. The court thus, director the MCA to reactivate the DINs of the directors and allowed them to file their financial statement of their defaulting company from 2011 to 2016.”

This case paved the way for other directors to file for relief in the High Court if they want to remove disqualification without the revival of their company. Even after the CODS was over, filing of the Writ petition to remove directors’ disqualification is still the proven way to end the exile for directors. 

Ways in which Directors Can Seek Relief from Disqualification

During the initial few years of introduction of the new Companies Act, there were about 2.4 companies that were axed by the Ministry of Corporate Affairs (MCA) using the Companies Act in 2017. These companies started exploring the options for their revival and the directors hoped to get their DIN reactivated. When the MCA came up with the Condonation of Delay Scheme 2018, the company’s directors hoped to get their company revived without paying heavy penalties and apply for their disqualification removal.

It is the responsibility of the company’s director to file all the financial details of the company with the Ministry of Corporate Affairs every year as per the Companies Act. If the directors fail to submit these details for three consecutive years, then the Ministry could go on to remove the company from RoC and deactivate its directors’ DIN for five years. In the year 2018, the Central Government came up with Condonation of Delay Scheme (CODS) where directors could file the relevant document to get their DINs reactivated. The scheme involved the payment of a moderate fee and condonation of hefty penalties due to defaulting on a payment. Many companies at that time used this scheme for revival and removal of directors’ disqualification. This is how this scheme worked:

• The disqualified directors were needed to submit all the statutory document with the RoC to get their DIN activated temporarily.
• The documents are submitted with the statutory fee prescribed in Section 403 of the Companies Act. 
• The small fee needed was only 30000 Rs. With an e-CODS form and so saved companies form hefty penalties. 

Present Day Remedies for relief

There were many directors and company owners who could not get advantage from CODS Scheme to revive their business and thus, their directors also missed the chance at the revival of their careers. The directors’ who failed to use this scheme for the removal of disqualification were left with two options.  

• Apply in the National Companies Law Tribunal and hope to get company revival order. Once the company was revived, they could apply for the removal of their disqualification and reactivation of DIN. In this case, when the NCLT passed the order of company revival, then RoC used to verify this order and relevant documents of the directors. This procedure could only be followed if the owners of the companies wanted to revive it. 
• The other option for directors who just wanted to activate their DIN without applying for the revival of their company was to apply for removal of disqualification in the respective High Court through a Writ Petition. The option of writing a Writ Petition to High court is attributed to constitutional rights conferred by Article 226 of the constitution to seek relief. 

How to Create a Writ Petition?

1. The disqualified director must undertake to use his constitutional right to file the Writ Petition under Article 226 of the Constitution in the respective High Court. The High Court should be chosen according to the area of jurisdiction of the company. In the application, the petitioner should include the following information,

• List of date and events of disqualification.
• Affix an urgent application with a Notice of Motion. 
• Should give reasonable justification to court for not filing the statutory documents that led to the disqualification of company and removal of its name from RoC. 
• Inform Court about the current status of the company and its directors seeking relief. 
• List out the companies in which the petitioner is serving as a director. 
• File a copy of the impugned Press Release or Notice issued by the RoC that lists out the names of the disqualified directors. 
• Personal information such as name address and designation of each Memo of parties should be mentioned in the petition. 
• A prayer cause should be attached to dismiss the publication issued by the RoC under Companies Act’s Section 164 (2).

2. After this, the High Court issues orders after hearing the option for reactivation of the DIN of directors. The directors need to file the copy of the order and all other statutory documents to the RoC to continue with the process p0f registration. 
3. Once the defaulter petitioner fulfils all the required documents and completes payment of all the penalties, the RoC will start the process of reactivation. 

Hire an Experienced Representative 

Taking legal help to file a Writ Petition in the High Court is necessary considering the technicalities involved in the process. There are lots of details that should be considered before drafting the petition and only an experienced professional can handle this kind of job. Also, an expert professional from a legal firm will not only help you in the filing of the petition but also help in representing your case in the Court. An advocate from a reputed firm will attend all the hearing of the Court and put arguments effectively to ask for relief from disqualification. Once the Court grants a favourable order, the expert will help you in following the complete procedure mentioned in the order. He will also help you file all the necessary documents in RoC before activation of DIN. 

If you are worried about the outcome of filing a Writ petition in high Court or confused whether it will bring positive results, then this should serve as good news to you. There have been many instances across High Courts from all over the country where director’s disqualification has been removed after hearing on Writ petition filed by them. The judiciary has granted interim relief to many directors and, quashed orders of RoC in some cases. 

The Court is in general agreement with the aggrieved petitioners on the following points:

• Retrospective Application of Companies Act: In some cases, the Court also found the act being applied retrospectively for disqualification of directors. The Courts deemed this kind of application of act as unjustified. 
• Contradictory Provisions in the Previous and New Act: The High Court finds it objectionable that the provisions of the Companies Act of 1956 did not have these regulations for the private companies and their directors, and so the new Act should not impose it on them in 2017.
• Order of RoC is Against Natural Justice: In most cases of directors’ disqualification, the aggrieved petitioners have mentioned that they never got any notice regarding their removal from RoC before the orders. Therefore, they never had a chance to clarify to RoC why they were not able to meet all the compliance standards of RoC. This is against the constitutional right of any individual as it doesn’t allow one person to show the cause of their actions and passes the order unilaterally. 

So, you can safely assume that the judiciary generally gives a favourable decision to directors who give valid reasons for defaulting. This should serve as a ray of hope for disqualified directors who are sceptical of filing writ petition for disqualification removal of their directorship. Just select an experienced legal firm that can represent your case efficiently and hope for a positive outcome.  

The post 5 Reasons Why Removal of Directors’ Disqualification is Necessary appeared first on MUDS.

The ROC (i.e. Registrar of Companies) struck off many companies in September 2017 for not filing for a period of two financial years. It was believed that these companies were not doing any business as per section 248(2) of the Companies Act, 2013. Their Directors too were disqualified as per section 164 (2) (a).

Consequences of Disqualification

In a case when a company fails to file it’s Financial Statements and/or Annual Returns for three years in continuation, the Director of that company would be would not be eligible to be appointed as the Director of other companies for a term of five years. Also, his office would be liable to be vacated in all the organizations except the company which is in default.

Here are a few situations to discuss the remedies available to a disqualified Director:-

1.When the name of a company is struck off but the Director is determined to continue with the company and subsequently removes his disqualification-

Under such a situation, a request for the revival of the Company has to be entered with the NCLT (i.e. The National Company Law Tribunal) having administration over the state in which the companies registered office is located. Once, the order of revival is received, it would be required to begin the physical annual filing with the Registrar of Company in order to remove the disqualification. The National Company Law Tribunal would only pass the order of revival if in case it is in public interest. It also needs to be shown that the company was doing business in terms of the number of employees, contracts signed and entered into etc.

In the lack of any provisions in the Companies Act for removal of disqualification by compounding payment of penalties. The only available option is to file a written petition in the High Court.

2. In case the name of the company is struck off but the director doesn’t want to continue with the company and only wants his disqualification to be removed-

Here, the petition for removal of disqualification would be made to the High Court in which the companies registered office is located. Once the stay order is received, the company is required to go for physical annual filing with the Registrar of Company for the removal of disqualification of the director.

3. When all the disqualified directors desire to remove disqualification and the status of the company is active-

There can also be a situation, where the company whose directors are disqualified is not willing to do the annual filing. In this situation, it is advised to appoint new directors whose status would be active. The problem here would be that there is no quorum, thus, the Board Meetings cannot be conducted.

Since the government has come out with the notification, there has been a series of written petitions seeking relief from disqualification. One of the very known cases, M/s. Dr. Reddy’s Research Foundation & Ors. Vs. The Ministry of Corporate Affairs & Anr, it was fought that the latest rules disqualifying if the directors of an organization fail to file the annual returns for a period of three financial years. The court finally orders to restore the DIN number of such Directors in order to enable them to submit the annual returns.

One might have noticed in the previous section that there are multiple reasons why a director of a company can be disqualified and removed from his post. Now, remedies from director disqualification require legal assistance. A director needs an experienced legal professional who can help him/her choose the right way to remove the disqualification. Therefore, all disqualified directors must get in touch with a reputed legal firm to find the appropriate way for the removal of their disqualification and reactivation of DIN.

“There are multiple reasons for which Directors are disqualified. For instance, default in filing of financial statements or faulty annual records. There are stringing measure being taken against them.”

-Shweta Gupta, Founder, and CEO, MUDS

The post Remedies for Disqualified Directors of Strike Off Companies appeared first on MUDS.

GROUND REALITY IN 2014 (Pre-Election):

POLITICAL ENVIRONMENT:

• The political situation was tense with all ruling parties of UPA sensing the dissatisfaction amongst the people.
• Lot of bickering among allies led to almost a standstill in the govt.
• Complacency and lack of vision spread negativity.
• BJP lapped the opportunity and announced Mr. Modi the candidate for PM post.

ECONOMIC ENVIRONMENT:

• Low GDP growth paired with high inflation projected a very gloomy future.
• Markets had plummeted as the investors in India, as well as abroad, had lost faith in the system and pulled out their money.
• Corruption ruled everywhere leading to the country ranking high in the survey of most corrupt countries in the world.
• On the index of ‘ease of doing business’ India ranked very lowly.
• Genuine businesses were very demoralized as the economy was on crutches.

PUBLIC OPINION:

• The public dissatisfaction with the govt. was palpable.
• The inaction and laxity of the people in power, against the corrupt, had generated an impression of supporting them.
• The youth of the country was disillusioned and anxious for the future as jobs were shrinking.

MEDIA EVALUATION:

• Media, as the fourth pillar of democracy, plays a major role in analyzing and presenting the actions of the govt.
• The UPA govt’s performance on the whole was disappointing but the financial mismanagement, black money, corruption, etc. took it to the lowest level.
• Media highlighted the misdoings of the govt. agencies leading to a negative perception in the minds of the people.

VOTE FOR CHANGE:

The general election of 2014 witnessed a vote for change and people voted in huge numbers for the BJP. Modi’s oratory skills, projected while canvassing, convinced people that he may be the ideal leader they were looking for. The biggest draw was his promise to fight against black money and corruption.

THE ‘MODI’ FIED ECONOMY:

Mr. Narendra Modi tried to keep his poll promise of cleaning the financial environment. In this process, two major decisions taken have jolted the economic world.

1#: DEMONETIZATION:

In a surprise move Mr. Modi announced demonetization of high value currency notes of 500 and 1000 denomination on 8th November 2016. This was done to-

• To convey a strong message
• To flush out black money from the system
• To limit the cash circulation
• To remove fake currency
• To eliminate dodgy funds
• To identify shell companies

2#: MASS STRIKE-OFF OF COMPANIES AND DISQUALIFICATION OF DIRECTORS:

• In continuing with its tirade against wrongdoers, the govt announced deregistration of 2.24 lakh companies in 2017.
• The names of the companies were removed from the Register of Companies by the concerned ROC.
• The companies had to stop functioning from the date of publishing of the Notice by the concerned ROC.
• The rippling effect of strike-off saw disqualification of Directors in huge numbers.
• 3.09 lakh Directors of such companies were barred for 5 years from the date of strike-off.
• The Directors were also removed from the Board of other companies even though they were active and legitimate.
• All bank accounts were frozen, increasing their problems manifold.
• Fines and penalties were levied as per the provisions of the Companies Act.
• Dues and liabilities continued to be in the name of the company and its directors.

Ignoring the statutory provision of compliance of Financial Statements and Annual Returns has cost the companies and their directors dearly.

– Isha Malik (Company Secretary, MUDS Management Pvt Ltd)

REASONS FOR DISQUALIFICATION OF DIRECTORS:

REASON 1#: Under section 248 of the Companies Act, 2013, the Registrar of Companies(ROC) can strike-off the company’s name if convinced that it had not complied according to the Companies Act.
REASON 2#: In the recent strike-off most of the companies had defaulted on compliance as they had failed to file the Financial Statements or/and the Annual Returns for 3 years consecutively.
REASON 3#: U/s 164(2) & 167(1) of the Companies Act,2013, if a company was deregistered for non-compliance then the Directors of such companies were disqualified from that date.
REASON 4#: In the Companies Act, 1956, ‘listed companies’ referred to Public Companies only but after the implementation of Companies Act 2013, from 01.04.0214. even the Private Companies were covered under it.
REASON 5#: Hence, when the section 164(2) & 167(1) of the Companies Act, 2013, was read together then it interpreted that automatic disqualification of directors of such companies shall occur.

MISINTERPRETATION, IGNORANCE OR AMBIGUITY?

• As the 2013 Companies Act was implemented from 1st April 2014, the financial compliance was thought to be from the year 2014-2015 as per the understanding of most of the companies.
• In reality, the previous year was also covered; hence, all such companies who had not complied since 2013, have been deregistered.
• The companies raised the objection of the Act being applied retrospectively, but it was clarified by the committee, appointed to look after such ambiguities, that it was a continued process therefore, can’t be termed as retrospective.
• The Directors disqualification was implied as ‘officer in charge’ or an officer who is in the know how of the matters of the company.
• The section 167(1) created confusion as it states any Director who has been affected by section 164, shall vacate the office. It gives no clarity on 164 (1) & (2) creating confusion as the two cover completely different aspects.
• One more problem that occurred was that some of the small companies were not at all aware of such regulations being in force.

THE PROCESS OF STRIKE-OFF:

STEP1#: Rule 3(2) specifies that the RoC (Registrar of Companies) sends a Notice of proposed action of strike-off stating the reason in it(if a company was non-operative for long time).

• The Notice shall be sent to the Company and all its Directors by Registered post.
• The company shall have 30 days’ time to represent their stand.

STEP 2#: Under section 248(1), Rule 7, the RoC shall send a pre-strike off Notice, form STK-5.

• It shall be sent to the Company and all its Directors.
• As per section 248(4) it should also be put on official gazette.
• Should be put on the MCA website as well.
• Should be published in Newspaper- once in English daily and second time in a vernacular daily.
• The Roc also required to inform the concerned regulatory and tax authorities.
• A 30-day period was granted for objections, if any.

STEP 3#: After expiry of thirty days, Roc should once again put the Notice in official gazette, under section 248(5), Rule 9, Form STK-7.

• This strike-off notice should be on the MCA website as well.

STEP 4#: After this, the company can be officially dissolved.

CONCERNS RAISED BY THE COMPANIES:

CONCERN 1#: Sheer numbers created a major concern for the entire industry as it impacted a lot many companies and directors, a harsh step according to them.
CONCERN 2#: The companies were not aware that they will be struck-off as they claim they had not received Notice of the ROC otherwise they shall have rectified their mistake.
CONCERN 3#: Some companies claimed that all the documents were in place but were not filed due to some administrative lapse and not intentional.
CONCERN 4#: Many small companies claimed ignorance about the mandatory filing.
CONCERN 5#: The harshest blow was for the disqualified directors who were removed from the Board of other companies too and were barred from being appointed for the next 5 years.
CONCERN 6#: The unjust disqualification of directors adversely impacted the companies which were active and legitimate yet landed in trouble.

The govt wanted to give a warning message to all the companies that compliance and due-diligence were essential for safe business.

-Isha Malik (Company Secretary, MUDS Management Pvt Ltd)

OPTIONS FOR REMOVAL OF DIRECTORS DISQUALIFICATION:

OPTION 1#: Can appeal to The Tribunal u/s 252(3) of the Companies Act 2013. An aggrieved company or its member or creditor or workman can appeal to the Tribunal by the way of filing an application within three years of the name being struck off.
The Tribunal has the power to restore the Company and remove the disqualification of Directors if it’s satisfied by the explanation and evidence.
OPTION 2#: Apply to The National Company Law Tribunal, under rule 27(A), 2017. An application can be filed by the affected company or its members or workmen with the NCLT within twenty years of publication of notice. Due documents have to be submitted, affidavit verified, and stipulated fee submitted.
The Tribunal then heard the case as per the specified Act. At the end, if the Tribunal was satisfied by the documents and evidence, it shall revive the company and remove the disqualification of directors.
OPTION 3#: The aggrieved directors can file a Writ Petition in the concerned court to get reprieve.
OPTION 4#: A new window introduced as Condonation of Delay Scheme, 2018, a one-time settlement opportunity for all except those which have been struck off u/s 248(5). This was the easiest and simplest way in which the companies can be restored, and the directors’ disqualification removed.

THE BEST OPTION: CONDONATION OF DELAY SCHEME, 2018

LET’S UNDERSTAND THE SCHEME:

In the wake of this stern action, a great uproar was created by the industry. The pressure was created to provide a quick solution to this mammoth problem. Thus, the Central Govt. took a step utilizing its powers under sections 403,459 and 460 and introduced the Condonation of Delay scheme (CODS), 2018. This was seen as a relief and an opportunity to rectify their mistakes.

PROVISIONS OF THE COD SCHEME, 2018:

• All companies, except those removed from the register under section 248(5) of the Companies Act, 2013, can apply.
• Duration of the scheme was from 01.01.2018 – 13.03.2018, which had been further extended to 01.05.2018.
• The DINs of the Directors shall be reactivated temporarily to facilitate the filing of overdue documents.
• The applicant defaulting company had to pay the filing fee as well as the additional fee as prescribed under section 403 of the Companies Act.
• Then after the company can seek Condonation of Delay by filing e-CODS, 2018 along with a fee of 30,000 rupees.
• The forms to be duly filled-

          # Form No. 208/MGT-7
          # Form No. 21A/MGT-7
          # Form No. 23
          # Form No. 66
          # Form No. 238/ADT-1

• Those companies that have not done the needful and their details were not in the records of MCA21 portal and found disqualified by the end of the scheme, then their directors shall be barred once again.
• Those entities which have been deregistered under section 248 of the Companies Act, 2013 and have appealed for revival of struck off companies under section 252, removal of directors disqualification shall take place only after the NCLT order.
• The companies which have not complied fully, the Registrars shall take action accordingly.

BENEFITS AND BENEFICIARIES:

• It’s a window which gives access to one-time settlement benefits to the defaulting companies, saving the time and money of other legal options.
• It was the fastest and easiest means for revival of struck off companies and restoration of DIN of the disqualified Directors.
• As per available information, already almost 14,000 companies have benefitted from this scheme by submitting the overdue documents.
• MCA clarified in a later published Circular that the Registrars of Companies can raise a ticket through Change Requirement Form (CRF) on the MCA portal.
• They can then reactivate the DINs of affected Directors.
• However, these Directors shall not be linked to any other company which had been struck off under section 248(1). This the RoCs can cross check before raising CRF.

SECURING THE FUTURE:

Mr. Modi time and again made it clear to all that the mission ‘Clean Money’ was a continuous process and shall continue till it sees light of the day. MCA, along with other agencies, was diligently working on the issue. It claimed in mid 2018 that very soon the next list of ‘strike off’ companies shall be in public domain.

As per news reports, the current fiscal year, 2018-2019 shall witness an equal or more number of companies being struck off. A rough estimate of 2.25 lakh companies and 7,191 LLPs (Limited Liability Partnership) may be blacklisted for not filing returns.

The Directors, were the custodians of fair practices, should guide the company in a manner that all records were updated and clean. Companies, in future, need to adhere to the ‘Rule Book’. Compliance in matters of accounts, funds, returns should be hundred percent. Self-regulation should be put in place so that adverse conditions do not arise. All signatories should know the fingerprints of the Companies Act and then take decisions accordingly.

Had the MCA taken concrete steps to spread awareness; lesser number of companies and directors shall have been affected.

-Shweta Gupta (Founder and CEO, MUDS)

Any doubts, query or curiosity, please feel free to contact us:
call at 9599653306 or mudsmanagement@gmail.com

The post MASS DISQUALIFICATION OF DIRECTORS – 360°ANALYSIS appeared first on MUDS.

In its earnest drive towards taming ‘Corruption’ the Govt. took a very stern action on errant Companies and as a result in 2017 alone 2.2 lakh companies were struck off and 3.1 lakh Directors were barred for 5 years as their DINs were deactivated.

PROVISIONS FOR RESTORATION/REVIVAL:

There were certain provisions which can be availed to restore the name of removed companies.
1#: Under the provisions of section 252(3) of the Companies Act, an appeal can be filed to The Tribunal within 3 years from the date of order of the RoC. The company, the members, the workmen, or the creditors, anyone can appeal.
2#: Any aggrieved party can file an application to the National Company Law Tribunal before the expiry of 20 years from the publication of the Notice.
3#: A Writ Petition can be filed in the concerned court for a reprieve.
4#: A new window introduced as the Condonation of Delay Scheme, 2018, was a one-time settlement opportunity for all except those who have been struck off u/s 248(5).

On analysis, it’s clear that the companies were either ignorant or confused by the ambiguities in the Companies Act, 2013, which led to such a huge number of strike-offs.
Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd)

RESTORATION THROUGH APPLICATION TO NCLT:

• All aggrieved companies who have been struck off can apply. It can be done by the
  – Company or
  – Any member or
  – Creditor or
  – Workman
• It had to be done within the period of 20 years from the publication of the Notice in the Official Gazette.

STEP BY STEP GUIDANCE:

STEP 1#: Rule 87A(1) Preparation of Petition- Form No. NCLT 9 will have to be filled for the petition.
STEP 2#: Rule 87A(2) Submission of the petition- A copy will have to be forwarded to the NCLT at least 15 days prior to the hearing.
STEP 3#: Rule 87A(3) Hearing by NCLT- NCLT will hear all parties and take note of the objections.
Thereafter, if the NCLT was satisfied that the concerned company was carrying on business at the time of being struck off, it can restore the name of the company.
STEP 4#: Rule 87A(4)- Directions by NCLT- After restoration NCLT shall direct that
– A certified copy had to be given to the RoC within 30 days from the date of the order.
– The RoC will then publish the said order in the Official Gazette.
– The applicant will bear the expenses.
– Company will also comply by filing the Financial Statements and Annual Returns as required by Companies Act,2013, in the stipulated time given by the RoC.
STEP 5#: Filing of order with RoC:
The Company then will have to file the copy of order with the RoC within 30 days from the date of the order.
STEP 6#: Publishing of order in Official Gazette-
The RoC then shall get the order published in the Official Gazette.
STEP 7#: The Final Step:
The company will comply with the requirements of the Companies Act, 2013, and file all the Financial statements and Annual Returns.

CASE-STUDY: NCLT reverses RoC’s order:

Poly Auto System Pvt. Ltd. Vs RoC Delhi, Principal Bench at New Delhi-
# Tribunal ruled that the RoC had to comply with all the procedures before striking off the name of the company from the register.
# The Tribunal opined that the Roc cannot take a casual approach towards any company without taking into consideration their assets and liabilities.
# The Tribunal ordered the restoration of the Company’s name after it had complied fully by filing all the documents. The RoC conceded as it had no objections towards the company after compliance.

CONCLUSION:

• The companies need to adhere to all the prescribed rules to keep itself safe and progressive.
• Once an action was initiated, they have to contact, consult and act in haste.
• They shall weigh all the options before taking a concrete step.
• Once the company is out of crisis, it had to treat this as a learning experience and be cautious at all times.

Problems are surmountable if diagnosed and treated early; the struck-off companies’ priority should be seeking the best advice and acting upon it swiftly.
Shweta Gupta (Founder and CEO, MUDS)

For any answers or help, please contact us:
call at 9599653306 or mudsmanagement@gmail.com

The post NCLT AND DIN RESTORATION: STEP BY STEP GUIDE appeared first on MUDS.

1#: The striking off of unexpectedly high number of companies in 2017 was seen as an initiative of ‘Operation Clean Money’ launched by the govt. on 31.01.2017 against black money.
2#: The ROCs started issuing notices to companies from April, 2017. These Notices were put up on MCA (Ministry of Corporate Affairs) site on different dates for different places.
3#: Govt. announced that the Registrar of Companies had struck off the names of 2.9 lakh companies from the register of companies on 5th September, 2017.
4#: MCA conducted a Press Release on 6th September and stated that in addition to 2.4 lakh companies, 3 lakh Directors got disqualified.

IMPLICATIONS OF STRIKE OFF:

IMPACT 1#: The companies will stop working from the date of the publication of the general notice
IMPACT 2#: All the Bank Accounts will be frozen.
IMPACT 3#: Under the terms mentioned in sections 164(2) and 167(1)A of the Companies Act, if a company fails to file the Financial Statements and/or Annual Returns 3 years in a row, the Directors will have to vacate their offices.
IMPACT 4#: Simultaneously they will be removed from the other companies too even if they were active and compliant.
IMPACT 5#: They will not be permitted to operate the bank accounts of the company.
IMPACT 6#: The dues and liabilities will continue to be on the Company and its Directors.

SHOCKING NUMBERS:

If the statistics of 2016 and 2017 are compared, the number of struck off companies in 2017 has seen such a drastic jump that it has sent a shock-wave in the industry.
Divya Gupta (Market Analyst, MUDS Management Pvt. Ltd)

COMPARATIVE STUDY BETWEEN UK AND INDIA:

THE PROCESS OF STRIKE-OFF:

Thus, we can see that there was a lot of similarity between the provisions of two countries. Even the appeal and revival clauses bear almost similar provisions.

STEP1#: Rule 3(2) specifies that the RoC (Registrar of Companies) will send a Notice of proposed action of strike-off of companies stating the reason in it(if a company was non-operative for long time).
The Notice will be sent to the Company and all its Directors by Registered post.
The company will have 30 days’ time to represent their stand.
STEP 2#: Under section 248(1), Rule 7, the RoC will send a pre-strike off Notice, form STK-5.
It will be sent to the Company and all its Directors.
As per section 248(4) it shall also be put on official gazette.
Shall be put on the MCA website as well.
Shall be published in Newspaper- once in English daily and second time in a vernacular daily.
The Roc also required to inform the concerned regulatory and tax authorities.
A 30-day period was granted for objections, if any.
STEP 3#: After expiry of thirty days, Roc shall once again put the Notice in official gazette, under section 248(5), Rule 9, Form STK-7.
This strike-off notice shall be on the MCA website as well.
STEP 4#: After this, the company can be officially dissolved.

CONCLUSION:

After the dissolution, the company concerned can avail options mentioned in the Companies Act, for revival/restoration. The specific sections explain the process in detail.

The other option was going for legal recourse specially if they feel that the RoC has not followed the required procedure at any given time

The strike-off is a complicated procedure and the RoC must make sure that it follows ALL the required procedures under the Companies Act, to a T.
Shweta Gupta (Founder and CEO, MUDS)

For any query or doubts, please contact us:
call at 9599653306 or mudsmanagement@gmail.com

The post HOW COMPANIES GOT STRUCK OFF ? appeared first on MUDS.

The post Proposed Amnesty Scheme by the Government – Effect on Strike Off Companies & Disqualified Directors appeared first on MUDS.

In 2017, the Ministry of Corporate Affairs (MCA) announced the deregistration of 2.4 lakh companies and 3.09 lakh Directors under the provisions of the Companies Act, 2013. This came as a huge shock and the Industry was left gasping; never ever in the history of Independent India such action was initiated against the companies.

Why Happened:

Reason 1: Steps Taken by Regulators as per Companies Act,2013:

• The Companies Act, 2013, which came into force from 01.04.2014, had some relevant changes in clauses, when compared to the Companies Act, 1956.
• All companies, Public and Private came in the ambit of its purview.
• The section 164(2) states that any company who has defaulted on non-filing of Financial Statements and/or Annual Returns for three years in a row will be deregistered from the date of default.
• The subsequent impact of this action will lead to the disqualification of all the Directors’ of such companies.
• In the context of this, the Registrar of Companies(RoC) took the action of strike-off.
• The Strike-off saw an automatic disqualification of all the Directors.

Reason 2: GOVT. Initiative to Fight Corruption & Black Money:

• To restrict black money flow: to counter shadow economy, which is a hurdle in the development of the nation.
• To identify dormant, fraudulent, shell, fake companies and then bar them from the space.
• To ensure compliance and due-diligence by the Companies and their Directors.
• To penalize those who have done huge transactions during Demonetization.
• To prove to the people its sincere efforts to improve the image of the country globally.
• To convey the ease of doing business- straight and fair.
• To prioritize ethical working.

Reason 3: Public Pressure & Media Hype:

• As Mr. Modi’s poll promise was majorly about taming the ‘Demon’ of corruption, the public had high expectations of witnessing strict measures.
• Media kept up popping the topic of corruption and black money, giving details of all the actions taken/not taken by the govt.
• Demonetization and strike-off were two steps which gave an impression that the govt. was progressing in the right direction.

How Can Companies Revive/Restore Themselves:

Option 1: Tribunal:

As per the Companies law, these entities can appeal to the Tribunal under section 252(3) of the Companies Act, 2013. Anyone, who has been impacted, can appeal within 20 years of the date of notification.

Option 2: NCLT:

Any member of the aggrieved party can apply under Rule 87(A) 2017. This can be done within 3 years of being barred/deregistered.

Option 3: Writ Petition:

The defaulters can take up the legal recourse by filing a Writ Petition in the concerned court.

Option 4: CODS, 2018:

The Condonation of Delay scheme, 2018 – a window introduced specially for providing an opportunity to the defaulting Companies and its Directors.

Suggested Read: Disqualified Directors: Ray of Hope!

What Next?

For The Companies:

1: To comprehend the rules, clauses and amendments of the Companies Act, 2013, thoroughly.
2: Due-diligence should be the basic principle.
3: To be ethical and straight-forward in their dealings.
4: To have a ‘no tolerance policy’ against corrupt practices.
5: Self-regulation should be in place.
6: Checks and balances should be there to tackle all wrongdoing in the initial phase.

For The Govt.:

1: To continue in full earnestness with the drive against erring companies.
2: To instruct all authorities, agencies, and branches to coordinate and collate.
3: To take advantage of technological advancement and install devices which can help in collecting relevant data.
4: To educate the target audience about the rules, laws, amendments, etc. through various channels.
5: To gain the confidence of the people at large.

 Conclusion:

The strike-off is a genuine step taken by the regulators to curb corruption and black money. The govt. has extended its full support to the authorities since it is striving sincerely to attain economic growth. The previous govt. was so lax towards such defaulters that any substantial action by the govt. is hyped by the people and the media.

The action of the govt and its authority have a Herculean task of taming the rogue elements; they are progressing in the right direction with great determination.
Shweta Gupta (Founder and CEO, MUDS)
 
For any unanswered questions or doubts, please contact us:
call at 9599653306 or mudsmanagement@gmail.com

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