The discussion on the existence of non-operative companies or say fake companies, are making huge rounds all over in the corporate industry with special emphasis from the wings of the government on curing the same. The Finance Minister had clearly indicated through his bold statement that actions will be initiated against the companies which have been strictly made for the purpose of circulating black money and are not carrying any business activity. It now seems that the Registrar of Companies (RoCs), all over the country have given the non-operative companies an ultimatum to either make the compliances and start doing the business activity for which they were formed or else be ready to pack up for ever.
As per the long list of companies which have been issued Show Cause Notices (SCNs) u/s 248 (1) of the Companies Act, 2013 (the “Act”); it is evident that every RoC has published a list of Non-Operative Companies (‘NOCs’), under their jurisdiction, which have failed to comply with the provisions of the Act. These NOCs have to either submit their reasons for such failure or to get struck down from the Register of Companies being maintained by the RoCs.
Provisions of law
- (1) Where the Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its incorporation;
(c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455,*
he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.
(6) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company:
Provided that notwithstanding the undertakings referred to in this sub-section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
(7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5), shall continue and may be enforced as if the company had not been dissolved.
Bold step taken by the RoCs
Pursuant to the power given under this section, the RoCs have taken a bold step to send out notices to such companies at a large scale. Overall the number is crossing 2,53,752 (Two Lakh Fifty Three Thousand Seven Hundred and Fifty Two) as per the list available in which the list of ROCs such as Kanpur, Uttarakhand, Kashmir, etc. are not available yet on the website. From the data provided, it appears that Mumbai has the highest number of NOCs with 71,530 (Seventy One Five Hundred and Thirty) being trailed by Delhi with 53,312 (Fifty Three Three Hundred and Twelve) and followed by Hyderabad with 40,200 (Forty Thousand and Two Hundred) NOCs. Bangalore, Chennai, Kolkata and Chandigarh also contribute to a massive number of NOCs with 15-20k in each of them. It is surprising that till now all the big RoCs are having the highest number of NOCs registered with them.
All of this collectively shows that out of the total 9-10 lacs (approx.) of companies registered in India, 30% approx. are NOCs. The action initiated will drastically bring down the number of companies registered in India but will however raise concerns over the sudden step of the RoCs. While the step, brought in so late, is still a commendable one, the moot question is why were these companies allowed to be kept in Register of Companies for such a long time? Isn’t there a system in place to detect companies which fail to comply with provisions of the Act at an early stage without having the RoC to wait till so late?
This step has sent out an alarming message to those promoter/subscribers who incorporated companies for mere circulation of funds by creating layers of companies and making it difficult to track and trace the actual promoters/beneficial owners. With these SCNs coming, companies are rushing to professionals to seek advisory on the response to be submitted but the state is such that a clear way-out is not available still. If the companies accept their default and agree for being struck down then the directors shall be held liable for the non-compliances made so far and on the other side if someone wants to revive the company then the burden of making the defaults good shall be nothing less than incurring giant expenses without being able to assess the feasibility of the prospects of the company.
A critical question mark on the fate of creditors and stakeholders
With the SCNs flowing in, most of the NOCs will be going for a strike off, either willingly or unwillingly at the hands of the RoCs, but the question posed before us leaves us with an important aspect to consider in this flooded situation which commands everybody’s attention which is the fate of the creditors, stakeholders and other people holding any interest in such NOCs.
The SCNs issued do not only command the attention of the companies to whom it has been issued but also of the creditors and other workmen of such NOCs. SCNs being significant for the interest of such creditors and workmen is also broadcasted through newspapers and website of MCA for the concerned stakeholders to take a pro-active step in this direction as there might be a huge sum of money due to them by such NOCs or there might be some contractual obligations with the such companies, which if, once the RoC strikes down the company, shall turn into a long battle of recovery or settlement. Therefore it is advisable for all the stakeholders to check these lists uploaded by the MCA on its website for initiating necessary actions.
However, if somehow the concerned crowd misses out on the opportunity to recover their dues and such NOCs are struck down without repaying the dues to creditors, employees, labour, etc. then the only way thereafter to claim money from such NOCs will be by way of revival of the company u/s 252 (3) of the Act which reads as follows:
252 (3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies.
This means that such aggrieved people shall have a time limit of 20 years in their hands to initiate action for recovery of their outstanding dues against the companies before the Tribunal. The said period is undoubtedly a quite long time for the concerned people to make moves to revive the company but its needless to say, our country is already burdened with pending litigation matters which range into lakhs, and hoping to revive company in such scenario will be nothing less than a mountain climbing job. However, the RoCs under sub-section (6) and (7) of Section 248 are entrusted with a responsibility of satisfying themselves that the companies being struck down are making proper arrangements for realization of all amount due to the them and for the payment or discharge of their liabilities and obligations for which if deemed necessary and just, the RoCs shall obtain undertakings from the Managing Directors or from the other person in-charge of the management. This may provide assurances upto a reasonable extent to the creditors, stakeholders, government authorities, etc. but will always carry the dark clouds of uncertainty. Hence, it is advisable for all the concerned stakeholders to be vigilant and aware of the current operations of such NOCs and take prudent steps at the earliest.
With the wide spread epidemic of non-operative and bogus companies infiltrated in the Indian corporate environment, the ROCs have come up with a well devised diagnosis to cure the same from its root. At this moment, we await to see what shall be the next step of the ROCs against the response being submitted by the companies which more or less shall be over by the end of this month as all of the companies are given just 15 days’ time to respond to the SCNs. To sum up, ROCs have turned the tables in the game, better late than never.
 Omitted by Companies (Amendment) Act,2015 and is effective from 29th May, 2015
Original omitted content prior to amendment in sub-section (1), clause (b),
“the subscribers to the memorandum have not paid the subscription which they had undertaken to pay within a period of one hundred and eighty days from the date of incorporation of a company and a declaration under sub-section (1) of section 11 to this effect has not been filed within one hundred and eighty days of its incorporation; or”
by Dheeraj Kr. Sharma (email@example.com)