Dormant Company

Dormant Company

DORMANT COMPANIES

Applicable Sections/Rules

  • Chapter XXIX (Miscellaneous) of Companies Act, 2013
  • Section 455 of Companies Act, 2013
  • Companies (Miscellaneous) Rules 2014 effective from 1st April, 2014

Meaning of Dormant Company
Dormant means inactive. Thus, dormant company means inactive company in the records of ROC. A company can become dormant immediately after its registration or after a few years of its incorporation.

According to Explanation to Section 455, the “inactive company” means 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

Significant Accounting Transaction means any transaction other than

  • payment of fees by a company to the Registrar;
  • payment made by it to fulfill the requirements of this Act or any other law;
  • allotment of shares to fulfil the requirements of this Act; and
  • payments for maintenance of its office and records.

How a company can get Dormant Status?

  • Suo Moto Application by Company to ROC
  • Mandatory Dormant Status by ROC in case of non-filing of financial statements or annual returns by company.                                                  

 

Suo Moto Application by Company to ROC

According to Section 455(1),
Where a company is formed and registered under this act

  • for a future project or to hold an asset or intellectual property and
  • has no significant accounting transaction,

such a company or an inactive company may make an application to the ROC in Form no. MSC. 1 for obtaining ‘Dormant’ Status.

Rule 3 of Companies (Miscellaneous) Rules 2014
Application for obtaining status of dormant company

For the purposes of section 455(1), a company may make an application in Form MSC-1 to the Registrar for obtaining the status of a Dormant Company in accordance with the provisions of section 455

  • after passing a special resolution to this effect in the general meeting of the company or
  • after issuing a notice to all the shareholders of the company for this purpose and obtaining consent of at least 3/4th shareholders (in value)

Provided that a company shall be eligible to apply under this rule only, if-

  • no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;
  • no prosecution has been initiated and pending against the company under any law;
  • the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;
  • the company is not having any outstanding loan, whether secured or unsecured:
    Provided that if there is any outstanding unsecured loan, the company may apply under this rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1;
  • there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;
  • the company does not have any outstanding statutory taxes, dues, duties etc. payable to the Central Government or any State Government or local authorities etc.;
  • the company has not defaulted in the payment of workmen’s dues;
  • the securities of the company are not listed on any stock exchange within or outside India.

Certificate of Status of Dormant Company
According to Section 455(2) read with Rule 4 of Companies (Miscellaneous) Rules 2014

  • the Registrar on consideration of the application (filed by company in Form No. MSC 1) shall allow the status of a dormant company to the applicant and issue a certificate in Form No. MSC 2 to that effect.

Register of Dormant Companies
According to Section 455(3) read with Rule 5 of Companies (Miscellaneous) Rules 2014

  • the Registrar shall maintain a register of dormant companies on the portal maintained by the Ministry of Corporate Affairs on its web-site www.mca.gov.in or any other website notified by the Central Government,

Mandatory Dormant Status by ROC in case of non-filing of financial statements or annual returns by company
According to Section 455(4), in case of a company which has not filed financial statements or annual returns for 2 financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies.

Minimum no. of directors in Dormant Company
According to Section 455(5) read with Rule 6 of Companies (Miscellaneous) Rules, 2014, a dormant company shall have the minimum number of directors as under–

Public company – 3 Directors
Private company – 2 Directors
OPC –  1 Director                  

Return of a Dormant Company
According to Section 455(5) read with Rule 7 of Companies (Miscellaneous) Rules, 2014, 

  • a dormant company shall file a “Return of Dormant Company” annually, inter-alia, indicating financial position duly audited by a chartered accountant in practice in Form MSC-3 within a period of 30 days from the end of each financial year.

Further, the company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the  company.                           

Application for Seeking Status of an Active Company
According to Section 455(5) read with Rule 8 of Companies (Miscellaneous) Rules, 2014,

  1. An application for obtaining the status of an active company shall be made in Form MSC-4 and shall be accompanied by a return in Form MSC-3 in respect of the financial year in which the application for obtaining the status of an active company is being filed.
    Provided that 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 5 years.
  2. The Registrar shall, after considering the application filed under sub-rule (1), issue a certificate in Form MSC-5 allowing the status of an active company to the applicant.
  3. 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 7 days from such event, file an application, under sub-rule (1) of this rule, for obtaining the status of an active company.
  4. 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 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.

Power of ROC to strike off the name of a dormant company [Section 455(6)]
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 of this section.

COMPLIANCE REQUIREMENTS BY DORMANT COMPANY

  • In order to retain the status of the dormant company , such a company is required to file “Return of Dormant Company” in form MSC -3 annually, inter-alia, indicating financial position, duly audited by a chartered accountant in practice along with such annual fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of 30 days from the end of each financial year
  • A Dormant Company need not enclose cash flow statements in its annual accounts.
  • A Dormant Company is required to convene at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings is not less than 90 days. [Section 173(5)]
  • The provisions of the Act in relation to the rotation of auditors are not applicable to dormant companies.
  • Company shall continue to file the return or returns of allotment and change in directors in the manner and within the time specified in the Act, whenever the company allots any security to any person or there is any change in the directors of the company

Relevant Forms
MSC 1 – To apply to ROC for obtaining the Dormant Status
MSC 2 – Certificate of Dormant Status by ROC
MSC 3 – Return of Dormant Company
MSC 4 – To apply to ROC for obtaining the status of Active Company
MSC 5 – Certificate by ROC allowing the status of Active Company 

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