The concept of Dormant Company was neither defined under the Companies Act, 1956 nor is defined under the Companies Act, 2013.
Under the Companies Act, 1956, there was a concept called the Defunct Company (Section 560), and the Registrar of Companies may with reasonable cause believes that any company is not carrying on business or is in operation, or has not been filing returns regularly, send notice to the company, and after giving reasonable opportunity may strike off the name of the Company from the Register of Companies.
Under the MCA-21 project, the status of Dormant can be seen for companies, which are not available for e-filing of returns, as seen below in the picture.
Thus, there were many companies which were actually formed for the purpose of a future project, which may take many years to start, and till then they had to file the periodical returns, or else, they would become Defunct company, and ROC may proceed ahead such companies.
The above shortfall has been addressed in the Companies Act, 2013, with the introduction of a new provision (Section 455), as per which:
è (i) A Company is formed and registered under this Act:
(a)for a future project; or
(b) to hold an asset; or
(c) intellectual property;
and has no significant accounting transaction; or
è (ii) An inactive company i.e., a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;
may make an application to the Registrar for obtaining the status of a dormant company.
Explanation:
“Significant accounting transaction” means any transaction other than:‑
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.
Application for seeking Status of Dormant Company:
(a) Eligibility:
The Eligible companies which can make an Application for seeking Dormant Status is as below: è the securities of the company are not listed on any stock exchange within or outside India;
è no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
è no prosecution has been initiated and pending against the company under any law;
è the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
è the company is not having any outstanding loan, whether secured or unsecured; è there is no dispute in the management or ownership of the company; è the company has not defaulted in the payment of workmen’s dues;
(b) Application:
After fulfilling that the company does not fall under any of the requirement above, approval of the members needs to be obtained way of Special Resolution at General Meeting or after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of atleast 3/4th shareholders, in value.
Application in Form MSC-1, is to be made and, the following documents are to be attached to the application:
è Copy of the Board Resolution authorising to make the application;
è Copy of special resolution passed by the members;
è Auditor's certificate;
è Statement of affairs duly certified Chartered Accountant or Auditor(s) of the company; è Consent of the lender if any loan is subsisting;
è Certificate by the Board of Directors and Shareholders, that there is no dispute in the management or ownership in the Company;
è Undertaking by the Board of Directors that the application is not with an intention to deceive the creditors or to defraud any other person.
and fees to be paid on the form
Upon satisfying himself about the completeness of the application, the Registrar of Companies may allow for Dormant Status and to this effect will issue a Certificate in Form MSC-2.
Register of Dormant Companies:
The Registrar of Companies to maintain a register of Dormant Companies and shall be displayed in the MCA site or such other website as notified by the Central Government.
ROC’s Power to direct companies to be entered as Dormant and to strike off the company:
Where a company has not filed financial statements or annual returns for 2consecutive financial years, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.
Minimum requirement by Dormant Companies: è Directors:
Dormant Companies shall have minimum 3 Directors in case of Public Companies and 2 Directors in case of Private Companies.
è Yearly Return:
A Yearly return is to be filed with the Registrar of Companies in Form MSC-3, within a period of 30 days from the end of the financial year, alongwith the following details:
Duly audited Financial Statement;
Number of Directors in the Company;
Particulars as to Board Meetings;
Details as to change in the management in the Company, if any;
Details of transactions, if any, other than signif icant transactions;
Particulars as to allotment of shares, if any;
Particulars of Annual Fees paid (to be paid along with the form);
Details as to whether any significant transactions have been carried during the year; Shareholding pattern of the Company
Privileges available to Dormant Companies: 1. Board meetings:
Dormant company can have at least one meeting of the Board of Directors, conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.
- Attaching of Cash Flow Statement:
Cash Flow Statement need not be included in the Financial Statements, filed in respect of a Dormant Company.
- Rotation of Auditors:
Rotation of Auditors is not applicable to Dormant Companies. ROC’s Power to strike off the company:
è The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements as applicable to a Dormant Company, under the Act.
è Where a dormant company does or omits to do any act mentioned in the Grounds of application in Form MSC-1 submitted to Registrar for obtaining the status of dormant company, affecting its status of dormant company, the directors shall within seven days from such event, file an application, for obtaining the status of an active company.
è Where the Registrar has reasonable cause to believe that any company registered as ‘dormant company’ under his jurisdiction has been functioning in any manner, directly or indirectly, he may initiate the proceedings for enquiry under section 206 (power to call for information, inspect books and conduct enquiries) of the Act and if, after giving a reasonable opportunity of being heard to the company in this regard, it is found that the company has actually been functioning, the Registrar may remove the name of such company from register of dormant companies and treat it as an active company.
è The Registrar shall initiate the process of striking off the name of the company if the company remains as a dormant company for a period of consecutive five years.
Application for change of status from Dormant to Active:
Application to be made by the Company in Form MSC-4, along with the Board resolution, authorising to make the application, and upon satisfaction, ROC may change the Status from Dormant to Active, and issue Certificate in Form MSC-5.
This article is contributed by Partners of SBS and Company LLP – Chartered Accountant Company You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.
