DORMANT COMPANY

Inactive Company

The expression ‘inactive company’ is defined under Explanation (i) to Section 455(1) of the Companies Act, 2013 as a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last 2 financial years, or has not filed financial statements and annual returns during the last 2 financial years.

Significant Accounting Transaction

The expression ‘significant account transaction’ is defined under Explanation (ii) to Section 455 (1) as any transaction other than-

• payment of fees by a company to the Registrar;
• payments made by it to fulfil the requirements of this Act or any other law;
• allotment of shares to fulfil the requirements of this Act; and
• payments for maintenance of its office and records.

Dormant company

A dormant company is a registered company that is legally recognized but inactive, with no significant business activities, operations, or transactions. 

Section 455 (1) of the Companies Act, 2013 provides that where a company is formed and registered under the Companies Act, 2013 for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

The Central Government made ‘Companies (Miscellaneous) Rules, 2014 dealing with the obtaining the status of a company as a dormant company, the compliances to be made by the dormant company and the procedure of seeking the status of ‘active company’ from dormant company.

Application

The proviso to Rule 3 provides the ineligibility of a company to obtain the status of a dormant company.  The ineligibility conditions are as detailed below-

• inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
• prosecution has been initiated and pending against the company under any law;
• the company is having outstanding public deposits and in default in payment of the same with interest;
• the company is having any outstanding loan, whether secured or unsecured;
• there is dispute in the management and ownership of the company;
• the company is having outstanding statutory taxes, dues, duties etc., payable to the Central Government or to any State Government or local authorities etc.;
• the company is in default in the payment of workmen’s dues;
• the securities of the company are listed on any stock exchange within or outside India.

A company, which wants to change its active to dominant status, may pass a special resolution in the general meeting of the company in this regard or getting the consent of the ¾ of the shareholders, in value, in writing, may apply to the Registrar of Companies in Form MSC – 1 in which the following information is to be furnished-

• Company information;
• Details of passing of special resolution;
• The details of related special act; director’s information;
• Grounds for application-

• Any future projects;
• Holding an asset or intellectual property; and
• The company has not carried out any significant transaction since its incorporation;
• The date from which the company has not been carrying any transaction;
• The details of non-filing of the required returns.

The application is to be signed digitally by the person authorised by the company through resolution.  The said form is to be verified by the practicing Chartered Accountant, Company Secretary and Cost Accountant.

 The fee payable along with the application in MSC – 1 shall be as detailed below-

• A company limited by guarantee shall pay Rs.2000/- as fee.
• A company having authorised share capital-

• Upto Rs. 25 lakhs – fees payable by small companies and OPC – Rs.1000/-; fees payable by other companies – Rs.2000/-
• More than Rs.25 lakhs and up to Rs.50 lakhs – fees payable by small companies and OPC – Rs.2500/-; fees payable by other companies – Rs.5000/-;
• More than 50 lakhs small company and OPCs are not required to pay any fee;
• More than 50 lakhs and up to Rs.5  crores the fee payable is 10,000/-
• More than Rs.5 crores and up to Rs.10 crores, the fee payable is Rs.15,000/-;
• More than Rs.20 crores, the fee payable is Rs.20,000/-.

The Registrar, after considering the application, shall issue a certificate in Form MSC – 2 allowing the status of dormant company to the applicant.

Register

The Registrar of Companies is to maintain a Register of Dominant companies in the portal of MCA or any other portal as notified by the Central Government.  The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.

Directors

The dormant company is to have 3 directors in case the company is a Public Limited company; 2 directors in the case of a private company and one director in the case of One Person Company.  The directors are not liable to be retired on rotation basis.

Return

The dormant company is to file annual return in Form No. MRC – 3 along with the report of the financial position of the company duly audited by a practising Chartered Accountant within a period of 30 days from the end of the financial year.  The company shall continue to file its returns of allotment and change in directors as to whether the company allots any security to any person or there is any change in the directors of the Company.

Seeking ‘active’ status

Section 455(5) provides that a dormant company may become active status on an application made in this behalf.  Rule 8 provides that the said application shall Form MSC – 4, along with the prescribed fee.  The said form shall be accompanied by a return in Form MSC -3 in respect of the financial year in which the application for obtaining the status of the active company is being filed.  The Registrar shall, after considering the application, issue a certificate in Form MSC – 5, allowing the status of an active company to the applicant. 

If a dormant company does or omits to do any act mentioned in the grounds of application in Form MSC – 1 submitted to the Registrar of Companies for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within 7 days from such even, file an application, for obtaining the status of ‘active’ company.

Removal of name

If the Registrar believes that a dormant company has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under Section 206 of the Companies Act.  The Registrar may give the company a reasonable opportunity of being heard.  If the Registrar finds that the company has actually been functioning, the Registrar may remove the name of such company from the Register of Dormant Companies.