The Companies Act, 2013 (“Act”), and the regulations made thereunder have made it very simple to incorporate a company in India. The rules prescribe a very efficient and detailed method of incorporation of Indian companies even as subsidiaries of foreign corporations. However often the question does arise as to how does one close or wind up a company in India and whether such closure or winding up is as simple and efficient as incorporating a company in India.
There are several methods to voluntarily wind up or close a company in India as set out hereunder:
Winding up of a company under Section 271 of the Act and under the Companies (Winding Up) Rules, 2020;
Winding up of a company unable to pay its debts under the Insolvency and Bankruptcy Code 2016; and
Application for striking off of a company’s name from the register of companies under Section 248 (2) of the Act.
The procedure involved in (1) and (2) and cumbersome and lengthy and hence the third option is often pursued by companies wishing to cease operations. This article analyses the provisions pertaining to (3) above.
Under Section 248 (2) of the Companies Act, 2013 a company may file an application to the Registrar of Companies (“ROC”) for removing the name of the concerned company on the following grounds:
(a) the company has failed to commence its business within one year of its incorporation;
(b) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay within a period of one hundred and eighty days from the date of incorporation of a company and a declaration under Section 11 (1) to this effect has not been filed within one hundred and eighty days of its incorporation;
(c) a company is not carrying on any business or operation for a period of two
immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455,
The Company may file such an application if it has (1) extinguished all its liabilities and (2) consent to filing of such application has been approved by a special resolution or consent of seventy-five per cent of the members in terms of paid-up share capital and (3) if the concerned company is regulated by any specific regulatory body, approval of such regulatory body shall be obtained and enclosed with the application.
The Registrar shall, on receipt of such application, issue a public notice, which shall also be issued in the Official Gazette for the information of the general public. At the expiry of 30 days from the date of issuance of the notice, unless cause to the contrary is shown the ROC may strike off the name of the concerned company from the register of companies. The ROC shall also publish a notice thereof in the Official Gazette of such striking of and on the publication of such notice, the concerned company shall stand dissolved.
The Registrar, before passing an order, shall (i) satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary; (2) obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company:
However, under Section 248(6) the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
Furthermore, under Section 248(7) the liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company shall continue and may be enforced as if the company had not been dissolved.
Comments: While Section 248 (2) provides for a simplified process to close companies, the two year wait time and the continuance of liabilities of the officers and members make it less attractive as an option for winding up.
Article by Mini Raman, 1st published in Axfait.