Summary of Guidelines for Fast Track Exit mode for defunct companies under section 560 of the Companies Act, 1956

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Background:- There are a number of companies, which are registered under the Companies Act, 1956 (the Act), but due to various reasons they are inoperative since incorporation or commenced business but became inoperative or defunct later on. Such companies may be desirous of getting their names strike off from the Register of Companies maintained by Registrar of Companies (ROC) without going through elaborate liquidation procedure. As per section 560 of the Act, ROC may strike off the name of companies on satisfying the conditions therein. As per present practice, a company desirous of getting its name struck off, has toapply to ROC in e-form 61. All pending statutory returns are required to be filed along with e-form 61.In order to give an opportunity for fast track exit by a defunct company for getting its name struck off from the ROC, the Ministry Corporate Affairs (MCA), Government of India (GOI) has on 7 June 2011 decided vide General Circular No.36/2011 to modify the existing route through e-form – 61 and has prescribed the “Fast Track Exit mode Guidelines” (the FTE Guidelines) for defunct companies under section 560 ofthe Act.

Effective date of FTE Guidelines- FTE Guidelines will be effective from 3 July 2011

Salient Features of FTE Guidelines- FTE Guidelines are applicable to a defunct company. For the purposes of the FTE Guidelines, any company will be called as “defunct company”, which has nil asset and liability and

1. has not commenced any business activity or operation since incorporation; or
2. is not carrying over any business activity or operation for last 1 year before making application under FTE.

Any defunct company which has active status or identified as dormant by the MCA may apply for getting its name struck off from the ROC.

The application received by the ROC pursuant to the FTE Guidelines will be processed by ROC and some of the key steps of the process are as under:

a) The ROC shall examine the application and if found in order, shall give a notice to the company under section 560(3) of the Act giving time of 30 days stating that unless cause is shown to the contrary, its name be struck off from the Register and the company will be dissolved;

b) The name of applicant and date of making the application under the FTE Guidelines shall be displayed on the MCA portal www.mca.gov.in giving time of 30 days for raising objection, if any, by the stakeholders to the concerned ROC;

c) In case of company like Non-Banking Financial Company, Collective Investment Management Company which are regulated by other Regulator namely RBI, SEBI, respectively, the ROC, at the end of every week, shall send intimation of such companies availing of the FTE Guidelines during that period to the concerned Regulator and also an intimation in respect of all companies availing of the FTE Guidelines that period to the office of the Income Tax Department giving time of 30 days for their objection, if any.

The FTE Guidelines are not applicable to the following companies:-

i. listed companies;

ii. companies that have been de-listed due to non-compliance of Listing Agreement or any other statutory Laws;

iii. companies registered under section 25 of the Act;

iv. vanishing companies i.e. a company, registered under the Act and listed with Stock Exchange which, has failed to file its returns with the ROC and Stock Exchange for a consecutive period of 2 years, and is not maintaining its registered office at the address notified with the ROC or Stock Exchange and none of its Directors are traceable;

v. companies where inspection or investigation is ordered and being carried out or yet to be taken up or where completed prosecutions arising out of such inspection or investigation are pending in the court;

vi. companies where order under section 234 of the Act has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending in the court;

vii. companies against which prosecution for a non-compoundable offence is pending in court;

viii. companies accepted public deposits which are either outstanding or the company is in default in repayment of the same;

ix. company having secured loan;

x. company having management dispute;

xi. company in respect of which filing of documents have been stayed by court or Company Law Board (CLB) or Central Government or any other competent authority;

xii. company having dues towards income tax or sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities or any local authorities.

Conclusion – The FTE Guidelines is an improvement over the previous Easy Exit Scheme (EES) and will provide an opportunity to the defunct companies to exit with minimal compliance.