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

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Let’s start with what does strike off literally mean:

In layman’s language, strike off means “sudden attack”. But for us, it means temporary removal of the name of the company from ROC i.e. the company obtains the status of being dormant.

“But here is where the difference between “striking off” and “winding off” lies, while “striking off” means temporary closure allowing a company to restore itself in future, “winding off” means permanent closure of a company.”

        –Divya Gupta (Market Analyst, MUDS Management Pvt Ltd)

Earlier section 560 of Companies Act 1956 used to deal with such issues but from June 2017, Section 248 of Companies Act 2013  deals with striking off defunct companies off the register (an alternative to the winding up of the company). However, the remedy is available in form of section 252 of the Companies Act 2013, which provides such aggrieved companies a chance to restore themselves.

Now, let us try to understand which all companies could be strike off company:

1. The one those have failed to commence its business within a year of its incorporation.
2. Those who have not been carrying any business or operation immediately for a period of two financial years. (Note: The company has not even filed an application for obtaining a status of the dormant company)

Role of ROC:

Registrar of Companies or ROC is the one who has all the authority to strike off not only defunct companies but also even those companies which have failed to do all their statutory filings. The Registrar not only issued served notice mandated by law to all such companies but also subsequently struck off.

Who all can Apply for Revival:

Before jumping to the process of revival, let us look who all can make an appeal in NCLT to restore the company as per provisions of sections 252(3). It could be :

• Company
• Any member/ Creditor
• Workmen

Procedure of Revival of a Struck-Off Company:

• Filing of application: As per NCLT rules under section 252(1) and 252(3), an application shall be filed before the Tribunal along with other necessary information.
• Following attachments would be required along with submission of application:
  • Copy of MOA and AOA of the Company
  • List of Directors of the Company
  • CTC of the order of Registrar for strike off
  • Available signed Balance Sheets of the Company
  • CTC of Board Resolution passed by the company for making a petition to NCLT to make appeal against the order of Registrar
  • Affidavit verifying petition
  • Copy of bank draft evidencing payment of application fee
  • Memorandum of appearance

• Service of Application: A copy of application shall be forwarded to the Registrar by the company.
• Passing of Order:  Once the hearing of the application in which both the parties will present their points, the Tribunal may pass on order, as deems fit.
• Filing with ROC: After satisfaction of the Tribunal, the applicant will have to deliver a certified copy to the  ROC within 30 days of the date of order in INC 28 along with pending financial statements and annual returns.
• Order in Gazette: Once the copy is received, ROC will publish the order in Official Gazette in company’s official name and seal.

As all ROC’s has issued show cause notices to the Companies fallen u/s 248(1) (c).  In notice ROC mentioned that it can strike off Company if appropriate reply not filed within 30 days and ROC will take appropriate action against the Directors.

After that at the end of the June, 2017 ROC has struck off the 100,000 (One Lakh) Companies from its record.

Conclusion:

As ministry has taken action against over 100,000 companies due to non- compliance and non- filing of the statutory form with ROC.  It could be seen as a part of the government’s initiative :

• To clean up Corporate Structure
• To curb Tax Evasion
• To prevent money laundering
• To strengthen the norms of Corporate Governance.

“It could be seen as a farsighted move where the government could distinguish between companies that are black and those that are in grey”.

– Shweta Gupta, Founder, and CEO, MUDS

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