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Restoration & Revival of Companies for Effective Governance

This article discusses the government's efforts to restore and revive companies, particularly those involved in suspicious transactions and shell companies, through various regulations and actions. It explores the measures proposed by the government, such as deregistration of non-compliant companies and disqualification of directors, to ensure transparency and accountability in corporate governance.

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Restoration & Revival of Companies for Effective Governance

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  1. Restoration & Revival of Companies CS DEEPAK SHARMA FCS, M.Com, LL.B.

  2. 1956 -2013 • Section 560 Section 248 -252 • Section 274 Section 164 Section 167 Section 283 • Companies (appointment and Qualification of Directors) Rules, 2014 • Companies (Removal of names of Companies from the register of Companies) Rules, 2016 effective from 26th December, 2016

  3. Government gets information on suspicious transactions by Companies from Banks • 13 banks have provided information on post note-ban transactions by 5,800 suspicious companies. It further said that over Rs 4,574 crore has been deposited since demonetisation in 13,140 bank accounts of these companies • Many of these companies had more than 100 accounts. • In addition, Rs 4,552 crore has been withdrawn from these accounts. • The data submitted by the banks reveals that some of these companies have been found to have more than 100 accounts to their names. • One of these dodgy companies has as many as 2,134 accounts. Most others have between 300 and 900 accounts.

  4. Everything about B-8 too is fake, although. There are no employees serves as the registered address of at least 75 companies , no assets and, in fact, no real business. It’s just a drop box address – one of 6,460 across Delhi that mask as the headquarters for 41,448 shell companies, official figures accessed by HT.

  5. What is a Shell Company? • A shell company is a company that exists but does not actually do any business or have any assets. • They exist merely as a front for a person or organisation that wishes to hide its identity. What measures are proposed by the government? • The scrutiny against shell companies was stepped up in the wake of demonetization and as part of the action against black money. • The action is focused against companies that failed to start business within one year of incorporation or were not carrying on any business for two immediately preceding financial years or not applied for dormant status. • Actions are initiated under the Companies Act. • In April, Registrar of Companies (RoC) issued show cause notices to over two lakh companies for striking off their names. • The firms are given 30 days to submit their response. • If the reply is found unsatisfactory, the corporate entity’s name will be removed. • The Enforcement Directorate (ED) will be roped in to probe if companies deregistered recently have been involved in money laundering

  6. ORDER UNDER SECTIONS 11 AND 11 B OF THE SEBI ACT, 1992 A Co-ordination and Monitoring Committee (CMC) was setup by DCA and SEBI in 1999 in respect of listed companies which are not traceable. These untraceable companies are identified as “vanishing companies”. 2. The criteria for identifying vanishing companies has been laid down by CMC as under: (a). company failed to file statutory returns with the Registrar of Companies (ROC) for 2 years; (b). company failed to file returns with stock exchange for 2 years, provided it remains a listed company; (c). company not traceable at its registered office location; and (d). none of the directors of the company are traceable.

  7. Disqualification of DirectorsFor Appointment Section 164 (Corresponding to Sec. 274 of Companies Act, 1956) Sub Section (1) General Disqualifications Clause (a) to (g) Sub Section (2) (a) & (b) Sub Section (3) Private Company may provide by its AOA any additional disqualification

  8. Section 164 (2) No person who is or has been a director of a company which- Shall be eligible to be re-appointed as a director of that company or appoint in other company for a period of five (5) years from the date on which the said company fails to do so. (a) Has not filed financial statements or annual returns for any continuous period of three (3) financial year. (b) Has failed to repay deposits accepted by it, or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more

  9. Related Study… Section 164 (2) (a) Every company shall file with the Registrar a copy of the Annual return, within 60 days from the date of AGM or where no AGM is held in any year within 60 days from the date on which the AGM should have been held (with reasons for not holding the AGM) with such fee as may be prescribed within the time specified under Sec. 403. A copy of financial statement, including CFS, if any, along with all required attachment under this Act, shall be filedwith the registrar within 30 days of the date of AGM, in such manner with such fee as may be prescribed within the time specified under Sec. 403. Sec 92 (4) Section 137 (1)

  10. every director shall inform to the company about his disqualification under sec. 164 (2), if any, in Form DIR-8, before appointment or re-appointment. Whenever a company fails to comply Sec. 164 (2), Company shall immediately file Form DIR-9. When a company fails to file DIR-9, within 30 days from disqualification U/s 164 (2), officers of the company U/s 2 (60) shall be officer in default . Upon receipt of Form DIR-9 , the Registrar shall register the same and place it for public inspection. Any application for removal of disqualification of director shall be made in Form DIR-10. Companies (Appointment and Disqualification of Directors) Rule 14

  11. The matter has been examined and it is hereby clarified that in case of companies, who have filed their balance sheets and annual returns on or after 01/04/2014 but prior to launch of CLSS- 2014, vide circular no 34/2014 dated 12/08/2014 disqualifications under 164 (2)(a) of Companies Act, 2013, shall apply only for prospective defaults, if any, by such companies. CLSS-2014 Circular No. 41/2014 dated 15/10/2014 Immunity

  12. Section 167Vacation of Office of Director • 164(1)(a) –The office of a director shall become vacant in case he incurs any of the disqualifications specified in Section 164 • 167(3) When all the directors of a Company Vacate their offices under any of the disqualifications specified in Section 167(1), The Promoter or in his absence, the CG shall appoint the required number of directors who shall hold office till the directors are appointed by the Company in the General Meeting. Penalty- Imprisonment for a term up to 1 year Or With fine of Rs. 1 Lac to Rs. 5 Lac Compoundable

  13. Brief Provisions under section 560 under Companies Act,1956 Enquiry letter by registrar to defunct company (1) Within one month No reply Within 14 days Second letter referring to first will be sent(2)

  14. CONTD… Within one month No reply Publish notice in Official Gazette with a view to strike off company’s name (2) Reply received or not Registrar may publish notice that unless any cause is shown ,company’s name will be struck off within 3 months (3)

  15. GROUNDS OF REMOVAL-248(1)“REASONABLE CAUSE” NOT CARRYING ON BUSINESS Or OPERATION FOR A PERIOD OF TWO IMMEDIATELY PRECEDING FINANCIAL YEARS AND NOT MADE APPLICATION FOR U/S 455 AQUIRING STATUS OF DORMANT COMPANY FAILED TO COMMENCE BUSINESS WITHIN 1 YEAR OF INCORPORATION O R Registrar shall send notice of his intention to remove company’s name and requesting the company to send their representations, if any, within a period of thirty days from the date of notice.

  16. BUSINESS OPERATIONSThe outcome of business operations is the harvesting of value from assets owned by a business. Assets can be either physical or intangible. An example of value derived from a physical asset, like a building, is rent. An example of value derived from an intangible asset, like an idea, is a royalty

  17. 248(2) A company may after extinguishing off all the liabilities By a “Special Resolution” Or By 75% members (in terms of paid-up share Capital) File application to the registrar for removal of names on the basis of grounds in 248(1) (5) After the expiry of time given in the notice , registrar may strike off the name of company and the company shall stand dissolved (4) A notice under (1) or (2) shall be published in the Official Gazette for General Public

  18. SEC-249 RESTRICTIONS ON MAKING APPLICATIONS UNDER SECTION 248 IN CERTAIN SITUATIONS Has made disposal of property immediately before cease of trade Has changed registered office Has changed name Has engaged in other activity Has made application to tribunal for compromise The company is being wound up

  19. SECTION-250 EFFECT OF COMPANY NOTIFIED AS DISSOLVED

  20. FRAUDULENT APPLICATION FORREMOVAL OF NAME(SECTION 251) (1) FRAUDULENT APPLICATION FOUND (2) The registrar may also recommend prosecution of the persons responsible for the filing of an application (a) The person in charge will be jointly and severally be liable (b) The person in charge will be punishable for fraud u/s 447

  21. SECTION-252 APPEAL TO TRIBUNAL ANY AGGRIEVED PERSON MAY APPEAL WITHIN 3 YEARS FROM DATE OF ORDER OF REGISTRAR COPY OF ORDER SHALL BE FILED WITH THE REGISTRAR WITHIN 30 DAYS FROM RECEIPT OF ORDER AGGRIEVED COMPANY/ MEMBER/CREDITOR MAY APPEAL TO TRIBUNAL BEFORE THE EXPIRY OF 20 YEARS FROM THE PUBLICATION OF NOTICE U/S 248(5) IN OFFICIAL GAZETTE

  22. Application before NCLTIf A Company…Or Any member Or CreditorOr Workman thereof feels aggrieved by the Company’s name stuck off…may approach Tribunal showing that the Company was carrying on business or in operation or otherwise it is just that the name of the company to be restored to the Register of Companies.

  23. After the Tribunal passes an order for restoration:1. Certified Copy of order to be filed with Registrar, within 30 days of the date of the order.2. It shall be filed by the company in form INC-28 along with fee3. Registrar shall do, in his official name and seal, publish the order in the Official Gazette; from notice of such delivery,4. The Company to comply with pending filing of financial statements and annual returns with Registrar complying with Companies Act, 2013 and rules thereof;

  24. DORMANT COMPANIES • COMPANIES ELIGIBLE FOR BEING A DORMANT COMPANY • Companies incorporated for future projects • To hold only assets • To hold IPR s • Inactive company • Has no significant accounting transaction DORMANT COMPANIES CAN ENJOY THIS STATUS FOR A MAXIMUM PERIOD OF 5 CONSECUTIVE YEARS • Special resolution in AGM / confirmation from at least 3/4th shareholders (by value) required to apply for being dormant company • Certain additional conditions prescribed for company to be eligible to make application to be dormant company

  25. FORMS : • eFORM MSC-1 : For seeking status of dormant company • eFORM MSC-2: Certificate of status of dormant company • eFORM MSC-3: For return of dormant company • eFORM MSC-4: For seeking status of active company • eFORM MSC-5 :For status of active company

  26. Expectation • NEW DELHI: Disqualified directorshave started knocking on the doors of the Ministry of Corporate Affairs (MCA) seeking reprieve from the debarment ordered by the government last month, with several of them explaining to the government that they have been wrongly disqualified and that they were not associated with the struck-off companies. The government could consider coming up with some solution for the aggrieved directors since no recourse is currently available under the Companies Act 2013. While companies can approach the National Company Law Tribunal (NCLT), directors have no such option. “The directors have got disqualified by the operation of law. We had sent notices to the companies before we struck off their names. We are seeing what can be done now…discussions will start soon,” a senior official told ET.

  27. Team SJACompany Secretaries+91 9810904960sjacorporate@gmail.com

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