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Dormant Company

Dormant Company

Dormant Company is one of the new concepts introduced in the Companies Act, 2013.

The provisions of obtaining the status of a Dormant Company is prescribed under section 455 of the Companies Act to be read along with Companies (Miscellaneous ) Rules, 2014.

Meaning of a Dormant Company –

The dictionary meaning of dormant is the state of rest or inactivity. Dormant, in relation to a company, means the state of being inoperative.

When a company is formed and registered under the Companies Act, 2013 for a future project or to hold an asset or an intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Register for obtaining the status of an dormant company.

“Inactive company” means a company –

(a) which has not been carrying on any business or operation, or

(b) has not made any significant accounting transaction during the last two financial years, or

(c) has not filed financial statements and annual returns during the last two financial years.

“Significant accounting transaction” means any transaction other than –

(i) payment of fees by a company to the Registrar;

(ii) payments made by it to fulfill the requirements of Companies Act, 2013 or any other law;

(iii) allotment of shares to fulfill the requirements of Companies Act, 2013;

(iv) payments for maintenance of its office and records;

To obtain the status of a dormant company, a company may make an application in Form MSC – 1 along with such fees as may be prescribed. The application shall be made only 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).

A company shall be eligible to apply for the status of a dormant company only, if-

(i) no inspection, inquiry or investigation has been ordered or taken up or carried out against the company;

(ii) no prosecution has been initiated and pending against the company under any law;

(iii) the company is neither having any public deposits which are outstanding nor the company is in default in payment thereof or interest thereon;

(iv) the company is not having any outstanding loan, whether secured or unsecured:

In case there is any outstanding unsecured loan, the company may apply after obtaining concurrence of the lender and enclosing the same with Form MSC-1 ;

(v) there is no dispute in the management or ownership of the company and a certificate in this regard is enclosed with Form MSC-1;

(vi) 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.;

(vii) the company has not defaulted in the payment of workmen’s dues;

(viii) the securities of the company are not listed on any stock exchange within or outside India.

The Registrar shall, after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2 allowing the status of a Dormant Company to the applicant.

Other Important Aspects –

(a) Register of dormant companies –

The Registrar shall maintain a register of dormant companies under the portal maintained by the Ministry of Corporate Affairs on its website or any other website notified by the Central Government in this regard.

(b) Minimum number of directors for dormant company –

A dormant company shall have a minimum number of

1. three directors in case of a public company,

2. two directors in case of a private company and

3. one director in case of a One Person Company:

(c) Return of Dormant Companies –

A dormant company shall file a “Return of Dormant Company” annually, indicating financial position duly audited by a chartered accountant in practice in Form MSC-3 along with such annual fee as provided within a period of thirty 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 Companies Act, whenever the company allots any security to any person or there is any change in the directors of the company.

(d) Automatic route for obtaining the status of dormant company –

In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter its name in the register maintained for dormant companies.

(e) 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  Section 455 of the Companies Act, 2013.

Application for seeking status of an active company –

(1) An application, under sub-section (5) of section 455, for obtaining the status of an active company shall be made in Form MSC-4 along with fees as provided 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.

Further 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.

(2) The Registrar shall, after considering the application filed –

(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 seven days from such event, file an application 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 Companies 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.

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