Procedure for strike off a section 25 company

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VICKY SRIVASTAV

VICKY SRIVASTAV (Querist)
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05 July 2013 Dear All,

what is the procedure for closing a Section 25 company under Companies Act, 1956.

Rajat Poddar

Rajat Poddar (Expert)
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05 July 2013 As per the Companies Act 1956, a company can close its operations and affairs by any of following methods:

1.Declaring the company as defunct
2.Wounding up the Company

Declaring the Company as Defunct

This is the most easy & shortest method for dissolving of any company. Where the company is carrying on any business or operation, it can make any application to the Registrar of Companies for declaring it as defunct company. After being declared as defunct, the name of the company is removed from the records of the Registrar of Companies. But before making an application to the Registrar of Companies, an application is required to made to Regional Director for revocation of licence granted and only, after when the licence as aforesaid is revoked , the Registrar of Companies can declare the company as defunct , subject to compliance of other conditions.

Though declaring a company as defunct is the suo moto, power of the Registrar of Companies, the Government of India from time to time issues necessary exit scheme, whereby non operational companies can apply to the Registrar of Companies for striking their names. Currently, a company can apply under Simplified Exit Scheme 2005 for striking off their name.

Striking off the name of the company does not materially affect the creditors of the company because such creditors may:

Enforce the claim against every director, secretaries, manager or any other officer of the company and against every member of the company, as if the name of the company had not been struck off; or
Apply to the court for winding up the company, whose name has been striked off.
Apply to court within 20 years from the date of publication of the notice intimating that the name has been struck off, for the restoration of the name of the company to the Registrar of Companies.

For declaring a company defunct, the company is required to file an application to the Registrar of company supported by affidavit of Directors and balance sheet carrying NIL assets and liabilities. The whole process of striking off takes around 3-4 months.

Wounding up the Company

Wounding up is the process to bring an end to the life of the company, whereby all the affairs and operations of the company are closed. After completion of the process of winding up, the company is dissolved and its name is removed from the records of the Registrar of Companies. A company may be wound up voluntarily on its own or mandatorily by the High Court. The winding up route is adopted when the Company is several years of existence and has been carrying operations. But before starting the process of winding up, the company needs to make an application to the Regional Director for revocation of licence and only after revocation of licence, the winding up process can be started

By voluntary winding

A company can be voluntarily wound-up:

when the period, if any, fixed for the duration of the company by the articles has expired. or the event, if any, has occurred, on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting passes a resolution requiring the company to be wound up voluntarily;
if the company passes a special resolution that the company be wound up voluntarily.

Winding up by the order of the Court

A company shall be mandatorily wound up by Hon’ble High court

if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting;
if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;
if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two;
if the company is unable to pay its debts;
if the Court is of opinion that it is just and equitable that the company should be wound up.

In the winding up process, the an application is made to High Court for winding up, who appoints a liquidator for winding up the affairs of the Company, the liquidator distributes the assets of the company for paying the up dues of the company in accordance with prescribed procedure and ultimately after satisfying all the liabilities of the company, the surplus if any is distributed among the shareholders . Winding up is time consuming exercise as compared to declaring the company as defunct and take around 7-8 months to complete the process, lots of formalities are required to be undertaken for completing the winding up process.