DORMANT COMPANY

A new concept on dormant company is introduced in the Companies Act, 2013 (‘Act’ for short) Section 455 of the Act deals with dormant company. Section 455 (1) provides that where a company is formed and registered under this Act for a future project to be 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.

Inactive company

Explanation (i) to Section 455 (1) defines the term ‘inactive company’ a s a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years.

Significant accounting transaction

Explanation (ii) to Section 455 (1) defines the terms ‘significant accounting transaction’ as any transaction other than-

• Payment of fees by a company to the Registrar;
• Payments made by it to fulfill the requirements of this Act or any other law;
• Allotment of shares to fulfill the requirements of this Act; and
• Payments for maintenance of its office and records.

Procedure

• A company shall be eligible to apply for dormant status only, if-
  • No inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
  • no prosecution has been initiated and pending against the company;
  • the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
  • the company is not having any outstanding loan, whether secured or unsecured;
  • The company does not have any outstanding statutory taxes, dues, duties etc., payable to the Central Government or any State Government or local authorities etc.,;
  • The company has not defaulted in the payment of workmen’s due;
  • The securities of the company are not listed on any stock exchange within or outside India. 
• A special resolution is to be passed in the general meeting of the company for this purpose or after issuing a notice to all shareholders of the company and obtaining consent of atleast ¾ of shareholders in value;
• The company may make an application in Form – MSC -1 along with such fee to the Registrar for obtaining the status  of a dormant company; 
• If there is any outstanding unsecured loan the company may obtain the concurrence of the lender and enclose the same along with Form MSC -1;
• Besides a certificate in regard to that there is no dispute in the management or ownership of the company is also enclosed along with Form MSC – 1;
• The Registrar shall after considering the application filed in Form MSC – 1akkiw the status of a dormant company to the applicant and issue a certificate in Form MSC – 2 to that effect;

Register of Dormant Companies

Section 455 (3) of the Act requires that the Registrar shall maintain a Register of dormant companies. Rule 5 of the Companies (Miscellaneous) Rules, 2014 provides that the register maintained under the portal maintained by the Ministry of Corporate Affairs on its web site www.mca.gov.in  or any other website notified by the Central Government shall be the Register of Dormant Companies.  Section 455 (4) provides that in case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

Requirements to retain the status

Section 455 (5) provides that a dormant company to retain its status as a dormant company shall-

• have such number of directors;
• file such documents and pay such annual fee as may be prescribed to the Registrar.

Rule 6 provides that a dormant company shall have a minimum number of three directors  in case of a public company, two directors in case of a private company and one director in case of a One Person Company.

Rule 7 provides that a  dormant company shall file a Return of Dormant Company annually, inter alia, indicating financial position duly audited by a Chartered Accountant in practice in Form MSC – 3 along with such annual fee within a period of 30 days from the end of each financial year.  The company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, wherever the company allots any security to any person or there is any change in directors of the company.

Dormant company to become an active company

Section 455 (5) provides that a dormant company may become an active company on an application made in this behalf. Application in Form MSC-4 may be filed along with the required fee and accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an 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.

Where a dormant company does or omits  to do any act mentioned in the grounds of application in Form No MSC – 1 submitted to the Registrar  for obtaining the status of dormant company, affecting its status of dormant companies, the directors  shall within seven days of such event, file an application for obtaining the status of an active company.

Strike off the name from Register

Section 455 (6) provides that 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.

Rule 8 (4) provides that where the Registrar has reasonable cause to believe that any company registered as ‘dormant company’ under his jurisdiction has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under Section 206 of the Act and if, after giving reasonable opportunity of being heard to the company, in this regard, it is found that the company has actually been functioning, the Registrar may remove the name of such company from the Register of Dormant Companies and treat it as an active company.