This note conveys information on Dormant Company and Fast Track Exit under Companies Act and related Rules.

Dormant Company
Definition

• Any company which is not doing business for two financial years and is not intending to do any business in the near future for up to 5 years can make an application to place its status as a dormant company. This will ensure that the legal status of the company is intact and the name is available to the company for any future business programs.

Procedure as per Companies Act, 2013 and Companies (Miscellaneous) Rules, 2014

• It cannot remain as a dormant company in perpetuity and should make a decision to revert to an active status within 5 years or the Registrar will be empowered to strike off the name of the company from its records.
• The company shall continue to have minimum number of directors (i.e. 3 in case of a public company and 2 in case of a private company). Rotation of auditors shall not apply to a dormant company.
  Rule 7 of Companies (Miscellaneous) Rules, 2014 which says that a dormant company shall continue to file its return of allotment or change in directorships if such events occur.
• Section 173(5) stipulates that a dormant company should hold two Board meetings in a financial year i.e one each in each half of the financial year and the gap between two Board meetings should not be less than 90 days.
• A dormant company shall file an annual “Return of Dormant Company” in form MSC-3 which indicates the financial position of the company and which shall be duly audited by a chartered accountant in practice. This should be filed within 30 days from the end of each financial year i.e. on or before 30th April every year.
• The dormant company can revert to an active status company by making another application under section 455(5) of the Act in form MSC-4 along with the requisite fees. This application should be accompanied by the return in form MSC-3.

Fast Track Exit
Definition

• Fast Track Exit (FTE) scheme has been notified under the Companies Act, 2013. It is a very simple and cost saving method of winding up of the Company without going for liquidation process and without High Court intervention

Procedure as per Companies Act, 2013 and Companies (Removal of Names of Companies from Register of Companies) Rules, 2016

• Under Sections 248, 249, 250, 251 and 252, the power has been given to the Registrar of Companies to strike off the name of the Company from the Register of Companies suo moto basis.
• A Company can also file the application to the ROC in the prescribed form for removing the name of the Company after extinguishing all its liabilities and after complying with some conditions.
• The following companies cannot avail Fast Track Exit provisions:
1. Listed companies
2. Companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws
3. Vanishing companies i.e. registered under the act or previous company law or any other law for the time being I force 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 during commencement of business.
4. Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court
5. Companies, where notices under Section 234 of the Companies Act, 1956 (1 of 1956) or Section 206 or Section 207 of the Act have been issued by the Registrar or Inspector and reply, thereto, is pending or report under section 208 has not yet been submitted or follow-up of instructions on report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny ,if any, is pending with the court
6. Companies against which any prosecution for an offence is pending in any court
7. Companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default
8. Companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same
9. Companies having charges which are pending for satisfaction and
10. Companies registered under Section 25 of the Companies Act 1956, or Section 8 of Companies Act, 2013.
• It is important for the Company to disclose pending litigations against the Company. If the pending prosecutions are only for non-filing of Annual Returns under and Balance Sheet, such application may be accepted provided the applicants have already filed the compounding application. However, steps for final strike of the name of the company will be taken only after disposal of compounding application.
• A Board Resolution was sufficient approval for making application for removal of the name, however, now it is mandatory to pass a Special Resolution or take consent of 75% members in terms of paid up share capital.
• Earlier the eligibility for applying for Fast Track Exit was a company not carrying any business operations since previous one year. Now it is changed to a company not carrying any business or operation for a period of two immediately preceding financial years.