Important Keyword: Fast Track Exit, defunct company, dormant company, ROC strike-off, Ministry of Corporate Affairs, MCA strike-off process, winding up company India, business closure, defunct companies India.
Table of Contents
Introduction:
In India, many companies fail to commence business or stop operations due to various reasons. A defunct company is one that has no assets or liabilities and has either failed to begin its business within a year of incorporation or ceased all operations for an extended period. To simplify the closure of such non-operational companies, the Ministry of Corporate Affairs (MCA) introduced the Fast Track Exit (FTE) process on 5th April 2017. This process allows defunct companies to quickly strike off their names from the Register of Companies (ROC), streamlining the winding-up procedure.
This guide explains the Fast Track Exit process, the role of the Registrar of Companies (ROC), and the differences between defunct and dormant companies.
Understanding the Fast Track Exit Process:
The Fast Track Exit (FTE) is a simplified method that allows defunct companies to get their names removed from the ROC in a quick and efficient manner. This process can be initiated in two ways:
- Suo Moto by the Registrar of Companies (ROC): The ROC may strike off a company’s name if the company meets the following conditions:
- The company has failed to commence any business within one year of incorporation.
- The company has not been carrying on any business or operations for the last two financial years.
- The company has not applied for Dormant Company status under the Companies Act.
- Voluntary Application by the Company: A defunct company may also apply to the ROC for voluntary removal of its name from the register.
Procedure for Suo Moto Strike-Off by ROC:
- The ROC sends a notice to the company and its directors, stating the intention to remove the company’s name from the register.
- The company has 30 days to respond to this notice and represent its case.
- If no response is provided, or the conditions for strike-off are satisfied, the ROC will proceed to remove the company’s name from the register.
Difference Between Dormant and Defunct Companies:
The terms dormant and defunct are often confused, but they represent different statuses under the Companies Act, 2013.
Dormant Companies:
- A dormant company is a company that has not carried out any business or operations during the last two financial years.
- These companies are listed under a separate register of dormant companies.
- Dormant companies have the option to resume operations whenever they want and can apply to become active again.
Defunct Companies:
- A defunct company is one that either never commenced business or has not been operational for two financial years and has no significant assets or liabilities.
- These companies are eligible for the Fast Track Exit process and can be struck off from the ROC.
- Defunct companies are not interested in resuming operations and seek closure through the strike-off process.
Key Differences:
| Dormant Company | Defunct Company |
|---|---|
| Not carrying on business or operations for the past two financial years. | Not carrying on business for two years or failed to start operations after incorporation. |
| Can apply to become active again at any time. | Seeks closure through strike-off. |
| Listed under a separate register of dormant companies. | Removed from the ROC once struck off. |
Why Choose Fast Track Exit for Defunct Companies?
The Fast Track Exit process offers a hassle-free solution for businesses that are no longer operational and wish to be struck off from the ROC. The benefits of opting for the FTE include:
- Simplified Process: The FTE process is straightforward and allows companies to close down without going through lengthy liquidation procedures.
- Cost-Effective: Since the company has no assets or liabilities, the FTE process is less expensive than traditional winding-up procedures.
- Legal Compliance: It allows businesses to exit formally, ensuring they meet all legal requirements and avoid penalties for failing to file returns for non-operational companies.
However, it’s important to note that companies with any liabilities or ongoing legal issues are not eligible for the FTE process.
FAQs:
Q1: Can a company with outstanding debts apply for Fast Track Exit?
No, the Fast Track Exit process is only applicable for companies that have no liabilities. All dues and liabilities must be settled before applying for strike-off.
Q2: What happens if a company fails to respond to the ROC’s notice for strike-off?
If a company fails to respond to the notice within 30 days, the ROC may proceed with striking off the company’s name from the register.
Q3: Can a dormant company apply for Fast Track Exit?
No, dormant companies must first apply to become active or resolve their dormant status before opting for the Fast Track Exit.
Q4: Is it mandatory for a defunct company to apply for strike-off, or can they remain on the register?
While it’s not mandatory, remaining on the register without conducting business can lead to penalties for non-compliance with filing requirements. Hence, opting for strike-off is advisable for non-operational companies.
A Real-Life Example for Indian Businesses:
Let’s consider a small IT company in Bangalore that was incorporated but never commenced operations due to financial difficulties. The company has no assets, no employees, and no outstanding liabilities. Over the past two financial years, it has not engaged in any business activities. In this case, the company qualifies as a defunct company and can apply for Fast Track Exit to get its name removed from the Register of Companies. By opting for the strike-off, the company avoids penalties for not filing annual returns and officially winds up its operations.
Key Insights:
- Defunct companies with no assets or liabilities can simplify their closure using the Fast Track Exit process.
- The ROC can initiate the strike-off on its own (suo moto) or companies can voluntarily apply for strike-off.
- Dormant companies are different from defunct companies and can resume operations after filing to become active.
- Fast Track Exit is a cost-effective and simplified solution for non-operational companies seeking legal closure.
Conclusion:
The Fast Track Exit process introduced by the MCA offers an efficient and streamlined method for defunct companies to exit the business world. It helps reduce the burden on the ROC and ensures that non-operational companies can be removed from the system in a hassle-free manner. For businesses that have ceased to function and hold no assets or liabilities, the FTE process is an excellent way to officially close down and avoid future complications.
Download Pdf: https://taxinformation.cbic.gov.in/view-pdf/1001006/ENG/Notifications
