Why Do Companies Get Struck-Off?
Companies can be struck-off for various reasons, primarily related to non-compliance or inactivity:
- Failure to commence business within one year of incorporation.
- Not carrying on any business or operations for two consecutive financial years, without applying for dormant status under Section 455 of the Companies Act, 2013.
- Failure to file annual returns and financial statements consistently.
- ROC’s initiative (suo motu action) if it believes the company is non-operational after an inspection.
- Voluntary application by the company for striking off its name.
How Companies Get Struck-Off: ROC Action vs. Voluntary Application
The striking off can happen in two ways:
- Suo Motu Action by ROC: The Registrar of Companies can initiate the striking off process under Section 248(1) if a company fails to comply with statutory requirements, especially regarding financial filings. The ROC will typically issue notices before formally striking off the company’s name.
- Application by the Company (Fast Track Exit): A company can voluntarily apply to the ROC for strike-off under Section 248(2) if it intends to close operations. This is often done under the “Fast Track Exit” scheme when there are no significant assets or liabilities.
Difference Between Struck-off vs. Winding Up
While both striking off and winding up of the company lead to the cessation of a company’s legal existence, they differ significantly:
What Happens When a Company is Struck-off?
Being struck-off has serious consequences for a company and its directors:
1. Company Loses Its Legal Identity
A struck-off company loses its legal corporate identity, meaning it cannot carry on business operations, enter into contracts, sue, or be sued in its name.
2. Company Assets and Bank Accounts
When a company is struck-off, it may appear inactive, but its financial and asset-related implications remain significant. Here’s what happens:
- Freezing of Bank Accounts: Bank accounts of a struck-off company are frozen by the concerned bank upon receiving notice from the ROC.
- Assets remain vested in the company: While a struck-off company loses its active status, its assets (both movable and immovable) legally remain vested in it. However, the company cannot access, manage, or transfer these assets.
3. Director's Liabilities
Directors of a struck-off company may still be held liable for the company’s outstanding liabilities. The strike-off does not automatically absolve directors of their duties and responsibilities.
4. Disqualification of Directors and Fines
Under Section 164(2) of the Companies Act, 2013, directors of struck-off companies may be disqualified from joining other companies for up to five years due to non-compliance. They may also face penalties and fines.
How to Reinstate a Struck-off Company?
The primary legal route for reinstating a struck-off company in India is through the National Company Law Tribunal (NCLT). Here’s the details:
Revival of Struck-Off Company Under Section 252
Section 252 of the Companies Act, 2013, governs the revival of struck-off companies. It allows aggrieved parties to file an application with the NCLT for the restoration of the company’s name.
An appeal for revival if the company was struck-off due to:
- Non-compliance – Failure to file annual returns, financial statements, or other statutory requirements.
- Inactivity – No business operations for two or more consecutive financial years.
- Administrative oversight – The Company was wrongly or inadvertently struck-off by the ROC.
Restoration can be requested if there is a genuine intent to operate the business again, settle liabilities, or protect company assets and legal rights.
Who Can Apply for Revival?
An application for revival can be filed using Form NCLT-9 by:
- The company itself (through its directors or members).
- Any member of the company.
- Any creditor of the company.
- Any workman of the company.
- The ROC, if it is later found that the company was wrongly or inadvertently struck-off.
Time Limit for Revival
The time limit for filing a revival petition under Section 252 is crucial:
- For the company, its members, creditors, or workmen: The application must be filed with the NCLT within 20 years from the date of the strike-off notice in the Official Gazette.
- For the Registrar of Companies: The ROC can apply for restoration within 3 years if the strike-off was inadvertent or based on incorrect information.
Grounds for Revival of a Struck-off Company
Under Section 252 of the Companies Act, 2013, the NCLT will consider various factors to determine if a struck-off company should be revived. The key is to demonstrate that the company was either actively carrying on business at the time of striking off or that it is just and equitable to restore its name to the register.
To prove that your company was operational or has a valid reason for revival, you need to provide compelling evidence. This can include:
- Ownership of Immovable Property: Proof that the company owns land or other immovable assets, indicating ongoing interest and potential for future activity.
- Active Bank Accounts: Bank statements showing active transactions, even if minimal, indicating the company’s financial presence. A letter from the bank regarding the freezing of the account due to a strike-off can also be helpful.
- Statutory Compliance with Other Departments: Evidence of compliance with other regulatory bodies like GST, Income Tax, Provident Fund, ESIC, etc., even if ROC filings were missed. This shows a broader operational presence.
- Ongoing Licenses or Registrations: Proof of valid and active business licenses or registrations (e.g., trade licenses, professional tax registration, FSSAI license, Shop & Establishment registration, etc.) that require the company to be a legal entity.
- Pending Litigation or Contracts: Documentation of any pending legal cases (as a plaintiff or defendant) or unfulfilled contracts, demonstrating a need for the company’s legal existence to continue or resolve these matters.
- Filing of Income Tax Returns (ITR): Copies of filed ITRs, even if “Nil,” can indicate an ongoing legal existence.
- Existence of Assets/Liabilities: Any evidence of assets or outstanding liabilities (e.g., loans, trade payables/receivables) that require the company’s revival for proper handling.
- Board Resolutions: A copy of the Board Resolution authorizing the filing of the NCLT petition for revival.
Checklist: Documents Required for the Revival of Struck-Off Companies
When drafting and filing the NCLT petition, ensure you have the following documents ready:
- Petition in Form NCLT-9.
- Affidavit verifying the petition in Form NCLT-6.
- Certified copy of the ROC’s strike-off notice or Official Gazette publication.
- Memorandum and Articles of Association (MoA & AoA) of the company.
- Certificate of Incorporation.
- Board Resolution authorizing the filing of the NCLT petition.
- Audited financial statements (Balance Sheet, Profit & Loss Account, Auditor’s Report) for the years preceding the strike-off. Even if the company was not in active business, “Nil” balance sheets should be prepared.
- Bank statements of the company for the relevant period to prove business operations, if any.
- Income Tax Returns (if available).
- List of directors and shareholders.
- Proof of service of the petition to the ROC and the Income Tax Department.
- Vakalatnama/Memorandum of Appearance.
- Any other documents proving the company’s operational status or reasons for revival (e.g., property documents, active licenses, pending litigation documents).
Procedure for Revival of Struck-off Companies
The process for reviving a struck-off company through the NCLT involves several steps:
Step 1: Drafting and Filing the Revival Petition with NCLT (Form NCLT-9)
The process begins with the preparation and submission of a petition in Form NCLT-9 to the appropriate bench of the National Company Law Tribunal, stating:
- Reason for strike-off
- Grounds for revival
- Relief sought
- Supporting documents (financials, returns, etc.)
File an affidavit verifying the petition (Form NCLT-6) and other supporting documents (board resolution, MOA, AOA, etc.). A prescribed filing fee (usually ₹1,000) must be paid as per current NCLT procedures.
Step 2: Serving Copies to the ROC and the Income Tax Department
A copy of the petition, along with all supporting documents, must be served on the ROC and the Income Tax Department at least 14 days before the hearing date (or as directed by the Tribunal). This allows these authorities to review the petition and present their observations or objections to the NCLT.
Step 3: The Hearing at the NCLT
The NCLT will schedule a hearing where the petitioner (or their authorized representative, such as a Company Secretary or lawyer) will present their case. The ROC may also present its views or objections. The Tribunal will assess the evidence and arguments presented by both sides.
Step 4: The NCLT Order for Restoration
If satisfied that the company was active or it’s just and equitable, the NCLT may order the restoration of the company’s name to the Register of Companies. The order may include specific directions, such as filing all pending annual returns and financial statements and paying any outstanding fees or penalties.
Step 5: Filing the NCLT Order with the ROC (Form INC-28)
Once the NCLT order is issued, a certified copy of the order must be filed with the Registrar of Companies in Form INC-28 within 30 days from the date of the order. This formally notifies the ROC of the NCLT’s decision to restore the company’s name.
Step 6: Filing All Pending Documents and Paying Penalties
As per NCLT directions, the company must file all pending annual returns (Form MGT-7) and financial statements (Form AOC-4) with the ROC, along with applicable late filing penalties under Sections 92 and 137 of the Companies Act, 2013.
Step 7: ROC Publishes Order and Your Company is "Active"
Upon successful filing of the NCLT order and all pending documents, the ROC will publish the restoration order in the Official Gazette. At this point, the company’s status in the MCA records will change back to “Active,” and legally, the company is then considered to have never been struck-off.
