EASY EXIT SCHEME, 2010

[Mr. M. GOVINDARAJAN]

INTRODUCTION:

The Ministry of Corporate Affairs, New Delhi issued a general circular No.2/2010, dated 26.5.2010 for easy exit scheme. Certain companies, registered under the Companies Act, 1956, are inoperative due to various reasons since incorporation or commencement of business, some became inoperative in later periods are not filing their due documents with the Registrar of Companies. These companies may be defunct and are desirous of getting names strike off from the Register of companies. Now a scheme called as Easy Exist Scheme, 2010 is introduced for giving opportunity to such defunct companies for getting their names strike off from the Register of Companies under Section 560 of the Companies Act, 1956.

DEFUNCT COMPANY:

The scheme shall come into force on 30th May, 2010 and remain in force up to 31st August, 2010. The scheme defines the term 'defunct company' as a company registered under the Companies Act, 1956 which is not carrying over any business activity on or after 1st April, 2008 and includes a company which has not raised its paid up share capital as provided in Sec.3(4)(3) of the Companies Act, 1956.

APPLICABILITY:

The scheme is applicable to the following companies:

* Any 'defunct company' which has active status on Ministry of Corporate Affairs Portal;

* Any defunct company which is a Government company shall submit 'No Objection Certificate' issued by the concerned Administrative Ministry or Department or State Government;

NON APPLICABILITY:

 The scheme does not cover the following companies:

* Listed companies;

* Companies registered under Section 25 of the Companies Act, 1956;

* Vanishing companies ('vanishing company' is defined under this scheme as a company, registered under the Companies Act, 1956 and listed with stock exchange, which has failed to file its return with the Registrar of Companies and stock exchange for a consecutive period of two years and is not maintaining its registered office at the address notified with the Registrar of Companies or stock exchange and none of its directors are traceable);

* 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 investigations are pending in the court;

* Companies where order under Section 234 of the Companies Act, 1956 has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending in the court;

* Companies against which prosecution for non compoundable offence is pending in court;

* Companies accepted public deposits which are either outstanding or the company is in default in repayment of the same;

* Companies having secured loan;

* Company having management dispute;

* Company in respect of which filing documents have been stayed by court or Company Law Board or Central Government or any other competent authority;

* 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;

PROCEDURE:

Any defunct company desirous of getting its name strike off from the Register of Companies under Section 560 of the Companies Act shall follow the following procedure:

* The company shall make an application in the form EES 2010;

* The said form should be filed electronically on the Ministry of Corporate Affairs portal namely www.mca.gov.in and there shall be no fee for filing the same;

* If the said form is not digitally signed by any of the Director or Manager or Secretary, a physical copy of the form duly filled in, shall be signed manually by a director authorized by the Board of Directors of the Company and shall be attached with the application form at the time of its filing electronically;

* The said form shall be signed by a Chartered Accountant in whole time practice or Company Secretary in whole time practice or Cost Accountant in whole time practice;

* The company shall disclose pending litigations, if any, involving the company while applying under this scheme;

* The said form shall be annexed by an affidavit as at Annexure A to the form, sworn by each of existing director(s) of the company before a First Class Judicial Magistrate or Executive Magistrate or Oath Commissioner or Notary, to the effect that the company has not carried on any business since incorporation or that the company did some business for a period up to a date and discontinued its operations and has not carried on any business after the 1st April, 2008, as the case may be;

* The said form shall further be accompanied by an indemnity bond, duly notarized as at Annexure B to the form to be given by every director individually or collectively, to the effect that any losses, claim and liabilities of the company, will be met in full by every director individually or collectively, even after the name of the company is struck off the register of companies;

* A Statement of Account as at Annexure C of the said form, prepared as on date prior to more than one month preceding the date of filing of application, duly certified by a statutory auditor or a Chartered Accountant in whole time practice, as the case may be;

* The Registrar of Companies on receipt of the said application shall examine the same and if it is found in order shall issue a notice to the Company under Sec. 560 (3) of the Companies Act, 1956 by e-mail on its e-mail address given in the application, giving thirty days time, that unless cause is shown to the contrary, its name be struck off from the Register and the Company will be dissolved;

* The Registrar of Companies shall put the name of the applicant(s) and date of making the application(s) under this scheme, on daily basis, on the MCA portal www.mca.gov.in giving thirty days time for raising objection, if any, by the stakeholders to the concerned Registrar;

* In case the company(s) like Non Banking Financial Company(s), Collective Investment Management Company(s) which are regulated by other Regulator(s) namely Reserve Bank of India, SEBI, Registrar of Companies, at the end of every week, after the scheme commences, shall intimation to such companies availing this scheme, during that period to the concerned regulator(s) and also an intimation in respect of all companies availing this scheme, during that period to the office of the Income Tax Department giving thirty days time for their objections, if any;

* The Registrar of Companies immediately after passing of time as aforesaid and on being satisfied that the case is otherwise in order, shall strike its name off the Register and shall send notice under Section 560(5) of the Companies Act, 1956 for publication in the Official Gazette and the applicant company under this scheme shall stand dissolved from the date of publication of the notice in the Official Gazette.

CONCLUSION:

The scheme is introduced for easy strike off the Register by the defunct companies. Further this scheme paves the way for the practicing professionals in this area.

Discussions to this article

[DEV KUMAR KOTHARI]

The then existing companies (as on 13.12.2000) which were statutorily struck off by operation of law ,in terms of sub-sections 3,4 and 5 of section 3 of the Companeis Act, due to companies not having raised paid-up capital by 13.12.2002, are defunct companeis and statutorily struck off by operation of law as on 13.12.2002. (There was an option to such companeis eithher to raise paid-up capital to minimum prescribed level or get struck off by operation of law). Many of such companies have been struckl off and are not shown as active. However, it seems that names of many of such companies are still shown as active on website of MCA. If for mistake, omission or inaction of Registrar, some companies are shown as active, though statutorily struck-off, such companies need not make applicatioan tt ROC. This is because such companeis ceased to be a private or public limited company as on 13.12.2002 when paid up capital was not raised. Once struck off by operation or law, how such companies can again be struck off. In such cases ROC must rectify his records and should not put companeis to harrassment by way of launcing cases.

[V Harnoor]

The EES 2010 scheme is the result of the irresponsibility of the ROCs roughout India. Had the ROCs checked and stressed on the companies not submitting the mandatory documents on time and along with the necessary fees this situation need not arise. This is another opportunity for the CAs and CSs to make some money. Why is it that the ROCs in India not keeping a tab on the companies registered and incorporated and if the same is done these many corporate disasters would not have happened and the investors would have got their money back or have been safe. The scheme is a good one but for the companies which have already made some business and have some dealings hanging for financial settlements, then what wuld be the plight of the companies or individuals which/who have dealt with the closing companies. This information of closure being applied by various companies should be advertised in the newspapers one in english and the other in the regional languages to enable the defendants to raise their voice against such closure.

[Akbar Peerbhoy]

Under this scheme, could anyone clarify what would happen to the assets (incl Sharecapital) after deregistering?

[Akbar Peerbhoy]

What would happen to the assets incl Share Capital after deregistering? What would be the Tax Liability on distribution of assets? Are they to be distributed prior to de-registrtion or after recieving order for de-registration? These are most important questions which remain unanswered.