What is Strike Off?
Strike off in general term is known as to remove or erase someone from somewhere from which it used to exist. In business term strike off of Companies means cessation of existence of a Company and removing the name of the Company from the database of list of companies maintained with the Ministry of Corporate Affairs of India.
Types of Strike Off
Company can exit from its corporate entity in two ways. In both cases existence of Company puts to an end.
- Suo Moto/Voluntary Strike Off: When a Company itself makes an application to the Registrar of Companies for removal of its name from database of Registrar, it is called as Strike off by the Company on its own.
- Compulsory/Mandatory Strike Off: The Registrar of the Companies when satisfied that Company is not carrying any business or not complied certain provisions, the Registrar on its own issue notice to the Company for its striking off.
Rationale for Strike Off by the Registrar of Companies
In recent past years, regulators have realised that there are various companies in India which are incorporated as per the Act but they are not doing any business or conducting any activity. Such Companies are generally called as shell companies which are created for purpose for money laundering or to show paper transaction to avail tax exemptions.
The Companies Act, 2013 does not define the term Shell Company. However, the Organization for Economic Cooperation and Development (OECD) defines a Shell Company as a company which is formally registered or otherwise legally organized in an economy but which does not conduct any operation in that economy other than in a pass through capacity.
To remove such companies and to maintain record of only active companies, Ministry has decided to start a drive to cleanse the database of government.
As per official documents, 2.97 lakh companies were identified under this category as on 31.03.2017 and after following due process names of 2,26,166 companies were struck off from the register of companies as on 31.12.2017.
Over 4.3 lakh inactive companies, including shell companies, had been struck off the Register of Companies since Financial Year 2018, with around 55,000 companies being struck off after the latest effort to identify such corporates. There were around 11.87 lakh active companies as on January 31, 2020, according to government data.
When the Registrar calls for Compulsory Strike Off
Every Company while in its subsistence is legally bound to comply with the provisions of the Act and to submit returns or documents in timely manner as prescribed under the Act and to carry business for which company was incorporated. However, when the Registrar has reasonable cause the believe that any Company is not following the provisions of the Act and is in default for certain compliance, then in such case the Registrar has power to remove the name of the Company from Register of Companies.
Section 248(1) states that in below given conditions, the Registrar has power to remove name of company after serving notices and giving reasonable opportunity of being heard:
- When a company has failed to commence its business within one year of its incorporation.
- When 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. i.e. Non submission of annual return and annual financial statements.
- When the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation.
- When the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12. i.e. inspection of registered office of the Company.
Steps taken by the Registrar to strike off Companies
The Registrar of Companies has to follow due procedure to strike off name of the Company so as any of the interest of the stakeholders of the Company not get affected.
Section 248 of Chapter XVIII, “Removal of Names of Companies from the Register of Companies” of the Act mention provisions for Mandatory strike off which is summarised below:
Forms of Strike off at Glance when Registrar struck off Companies
|STK 5||Public notice given by the Registrar when Registrar gives notice to Company|
|STK 7||Notice of Strike off of Company by the Registrar|