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Pvt ltd - fail to bring minimum paid up capital

CA Ajay (CA) (97 Points)

07 March 2012

What if a Pvt Ltd company promotor fail to bring minimum paid up cap of 1 lac.

Promotor dont want to close the company.

since last two year no activity in company.

What is the implications and auditors duty.

What is the solutions ?

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8 Replies

Kashyap Joshi (Proprietor ) (260 Points)
Replied 08 March 2012

The company in the above circumstances will be a defunct company.. The ROC can suo motu commence the activities for striking off the name of the company from the register u/s. 560 if he has a reason to believe that the company did not commence its operation and did not raise the minimum paid up capital. The solution is to write a reply to the ROC after receiving the notice from the ROC and prove, that the company had genuine reasons and beyond its control, not to comply with the provisions of the law.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 March 2012

Please read my article. It help you to understand the provisions in a better way.

Failure to enhance paid-up capital to minimum limit - Analysis

There are many complexities in the company law like other laws. Here an attempt has been make to take up a query that may raise its head in the mind of the professional, students and practitioners in the context of issues related with company law.

Sub-section (3) of section 3 of the Companies Act, 1956 required every private company, existing on the commencement of the Companies (Amendment) Act, 2000, i.e. on December 13, 2000, with a paid up capital of less then Rs. 1 lakh to enhance its paid up capital to Rs. 1 lakh, within a period of two years, i.e. by December 12, 2002. Similarly every existing Public Company having paid up capital less then Rs. 5 lakh as on December 13, 2000 was required to enhance its paid up capital to Rs. 5 lakh by December 12, 2000 in terms of sub-section (4) of Section 3 of the Companies Act, 1956.

In terms of sub-section (5) of Section 3 of the Companies Act, 1956 such companies which did not raise their paid up capital accordingly are to be deemed to be defunct companies with in the meaning of Section 560 of the Companies Act, 1956 and their names shall be struck off from the register of companies by the Registrar of Companies.

Thus, if such a company has not raised its paid-up capital, accordingly, it is to be deemed to be defunct company and its name can be struck off by the registrar by following the procedure laid down in Section 560. But if the registrar had not so far struck off the name, the company will remain on the register as a company in existence. In terms of the extant provisions of the Act, a company’s existence can be brought to an end by any of the following 3 modes only:

By winding up the company.
By dissolution of the company without winding up in case of amalgamation of companies; and
By striking its name under section 560 on its being a defunct company.

Though a company which has not raised its capital as above is to be deemed to be a defunct company, it remains very much a company in existence and, therefore, it can sue and be sued. If it so desires, it may raise its capital to fulfill the statutory requirements though the period specified for raising the capital to the minimum limit under section 3 has expired and in that event the registrar will be barred to initiate any action under section 560.

There is, however, no penal provision for not raising the paid-up capital to the statutory minimum. The residuary penal provision of Section 629A which specifies penalty where no specific penalty is provided elsewhere in the act is also not applicable in this regard because the specific consequence of not raising the capital has been specified in sub-section (5) of Section 5 of the Companies Act, 1956.

The Registrar of Companies and others are, however, entitled to treat the company as a defunct company even though its name has not been struck off under section 560 because Section 3(5) says that such a company shall be deemed to be a defunct company. Of course, section 3(5) also says that the name of such a company shall be struck from the register by the Registrar. But the Registrar has to strike off the name of such a company under section 560 and section 560 provides for specific procedure involving principal of natural justice to be followed.

Procedure to be followed by the Registrar for striking off the name of defunct company

The procedures for striking the name off the Register of companies have been elaborated in section 560 for different circumstances as discussed hereunder:

Registrar on believing that a company is not carrying on business or in operation shall take the following steps:

(1) Inquiry to know whether company is in operation or not

If the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he will send a letter by ordinary post to the company at its registered office under section 560(1) inquiring about the same. [Refer Section 560(8)]

(2) Dispatch of registered letter in case no response received against first letter

If the Registrar receives no response to his first letter within one month, he shall within next fourteen days send to the company another letter by registered post. In this letter, he will make a reference of his first letter sent by ordinary post and mention that no answer has been received thereto. He shall add further that if no answer is received within a month of the dispatch of the registered letter, he shall proceed to get a notice published in Official Gazette, with a view to strike the name of the concerned company off the Register of companies. [Refer Section 560(2)]

(3) Publication of Registrar's notice in Official Gazette

If the Registrar receives no reply to his registered letter within one month or receives a reply to the effect that the company is not carrying on business or in operation, he may use his discretion to get a notice published in the Official Gazette and also send a notice to the company mentioning that the company's name shall stand deleted from the Register of companies after the expiry of three months from the date of that notice, unless a cause to the contrary is shown to him within this period. [Refer Section 560(3)]

(d) Striking the name off the Register of Companies

If up till the expiry of three months of the notice, company does not show any cause to the contrary, the Registrar shall strike the name of the company off the Register and publish a notice thereof in the Official Gazette. [Refer Section 560(5)]

Regards

Ankur

dipali shinde (company secretary) (163 Points)
Replied 10 March 2012

Dear Mr.Garg,

As per your article, if a company fails to fulfil the Minimum Paid - up capital requirements then until the ROC takes action for declaring the company defunct, the company may at any time before the ROC takes such action fulfil the requisite requirements and bring the paid up capital upto minimum required.

Eg. Company is incorporated on 1st Jan 2009. Minimum paid up capital Rs.5,00,000/-.

Till date the company has not brought in the amount of Rs.5,00,000/- .

Thus subscribers to MOA have not brought in the subscripttion money.

ROC has till date not issued any notice under section 560.

The first AGM of the company becomes due in the year 2010.

So the Annual Return to be filed for the first AGM will not have the minimum paid - up capital.

Can we file such an Annual Return? Won't the ROC issue notice on basis of such annual return?

Shouldnt the minimum paid up capital be brought in before the first financial year end?

How should subscribers be issued share certificates in such a scenario?

With Regards

Dipali Shinde

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 10 March 2012

Hi Dipali,

Your 2009 incorporated company case has nothing to do with my above article which is based on section 3(5). I hope the text below will help you to understand the concept. Read and analyse it carefully.

Subscribers of MOA are deemed shareholders of the company. They don't need to take shares. As soon as they subscribe the MOA & file it with ROC along with other incorporation documents they become the members as well as shareholders of the company. Appreciate further have you ever filed form-2 for the subscribers? The answer would be No. That itself is a kind of proof that no allotment is required to be made to the subscribers.

Form-2 is not required to be filed for subscribers hence no formal allotment is required in case of subscribers. They are deemed members and shareholders of the Company.

Regarding receipt of payment from subscribers I would say ideally such amount should be deposited by the subscribers after incorporation of the co. in the newly opened bank a/c of the company and record the same in the first BM Minutes.

Alternatively, as there is no tracing (as far as ROC is concerned) of such amount, it may be deposited by them later. As a CS i would suggested you should opt I option to avoid any kind of future problem.

DATE OF ALLOTMENT TO SUBSCRIBERS AND DATE TO BE MENTIONED ON SHARE CERTIFICATE

Date of allotment to subscribers will be the date of incorporation of the company and the same date will also be used for printing on share certificate to be issued to subscribers.

Practically & legally this is very much possible. To conclude you may use Date of Incorporation of the company for the purpose of:

Printing on share certificate of subscribers
as date of Allotment to subscribers
For the purpose of filling the column in register of member to enter the name of subscribers.

Even if you receive the amount from subscribers after 6 months the date of deemed Allotment and date on share certificate would remain the same i.e. date of incorporation of the company.

Best Regards

1 Like

CA Ajay (CA) (97 Points)
Replied 13 March 2012

Thanks for reply.

Is there any probled in filling -form at MCA portal as share capital is zero for last 2 years, and now want to regularise the default.

As a statutory auditors, what need to be disclosed in financial statement ?

CA Ajay Salagare Pune

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CA Hemantkumar,M.COM,ACA,DISA,cVa. (Chartered Accountant) (98 Points)
Replied 08 July 2014

Dear sir

Whats the remedy now , the co prepared all financial statements and filed IT returns etc but Paid up capital was less than the prescribed minimum Paid up capital and was regularised only in FY 2011-12. The company is operative but not filed any returns with ROC.

Can we file annual returns now with Capital less than the prescribed limit?

Will u suggest how to proceed in this case

Thanks

Hemant

Sandeep Kumar Tandon (Proprietor) (26 Points)
Replied 15 June 2015

What will be the status and liability of a company which has not so far, raised its paid up capital to Rs. 1 lakh in case of Private company and Rs. 5 lakh in case of a Public company and the Registrar of Companies has also not struck off its name under section 560 in terms of section 3(3), (4) and (5) of the Companies Act, 1956.
A private Company was not carrying on any activity since long. The Directors / Shareholders assumed that the Company has become defunct as per law as it did not raise its Paid up capital. Is the Company liable for non-compliances since that date?

Sandeep Kumar Tandon (Proprietor) (26 Points)
Replied 15 June 2015

What if a Pvt Ltd company promotor fail to bring minimum paid up cap of 1 lac. Registrar has not listed the company as defunct.

Promoters want to close the company. Since last many years no activity in company. One of the two Directors/Shareholders expired. Not sure whether any one else appointed.

No records of filing of documents traceable with RoC/company for more than 20 years. What are the implications and liabilities on the Company and/or Directors/Shareholders. Any lumpsum compounding possible? Any other solution ?