13 June 2022
Business Closure- MCA amends rules pertaining to strike-off a company's name

The Ministry of Corporate Affairs (MCA) vide notification dated 9 June 2022, has notified Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2022 (Amendment Rules). The principal rules deal with the removal of names from the register of companies popularly known as "Strike-Off" of non-operational companies.

The key highlights of the Amendment Rules are summarized in below:

Provision Comments
Re-submission opportunity A new sub-rule to Rule 4 has been added wherein the Registrar is empowered to send the form STK-2 for re-submission. Likewise, the Registrar is empowered to grant two instances of re-submission to rectify any defects in the application, failing which the application shall be treated as invalid and stand rejected.

Our Comments:
Earlier, the principal rules did not provide the number of re-submissions and timeline for making such re-submission. But, in practice, it is observed that the Registrar used to grant multiple opportunities. However, now the Amendment Rules provide stricter timelines, according to which re-submission to rectify any defects can be made only twice.
No retrospective effect The Amendment Rules came into force w.e.f. 9 June 2022 and clarify that any re-submission made before the commencement of the said Amendment Rules shall not be counted for the purposes of reckoning maximum no. of re-submission of such forms.

Our Comments:
The clarification is welcome as it expressly states that the Amendment Rules will not have a retrospective operation and previous instances of re-submissions will not be counted as such. Accordingly, any pending application for removal of name of the Company will have two opportunities for re-submission from the date of notification.
Modification of Form STK-1, STK-5 and STK 5A
The Amendment Rules have modified Forms STK-1, STK-5 and STK-5A to add additional grounds for removal of name of the Company in line with amended section 248(1)(d) as amended by the Companies (Amendment) Act, 2019.

Our Comments:
Section 248(1)(d) was inserted vide the Companies (Amendment) Act, 2019. That provided additional ground on which the Registrar can remove the name of the Company. Accordingly, the Registrar is empowered to remove the name of the company if "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 180 days of its incorporation under sub-section (1) of Section 10A".
Our Comments
The Amendment Rules have now restricted the number of re-submission opportunities to rectify the defect in the application. Earlier, there was no such restriction, and multiple re-submissions were granted. While the Amendment restricting the re-submission is welcome, as it will expedite the process of disposing of the application, however, it has cast onerous responsibility on the applicant to ensure that the application is complete in all respect at first hand to avoid any delays and lacunas. It would also be fair to expect that the authorities should not come up with onerous requirements that are not expressly required under the statute as that would result in abuse of process. In practice, this holds true in the case of foreign companies who wish to strike-off their non-operational subsidiaries, and any unforeseen defect may lead to protracting of the timeline as foreign documents need to be legalized. Also, the modification to form on the ground of failure to bring subscription money is in line with the statute. However, a similar amendment should also be made for an affidavit to be given by the applicant, as such an affidavit does not reflect this additional ground. In practice, it is experienced that no form (including a form for application to remove the name of the company) can be filed unless subscription money is brought in. Thus, there remains an apparent contradiction between statutory provisions due to a technical roadblock and interpretational issues.
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