No application required under Easy Exit Scheme (EES) to companies which were statutorily struck off by operation of law on 13.12.2002.

[C.A. DEV KUMAR KOTHARI]

Concept of minimum paid-up capital:

Companies (Amendment) Act, 2000 introduced concept of minimum paid-up capital of Rs. One lakh and Rs. Five lakh for private and public companies respectively accordingly if a company had no minimum paid-up capital, as prescribed, it would not be a private or public company.

Two years period was allowed to raise paid up capital:

For existing companies a period of two years, that is up to 13.12.2002 was allowed and it was also provided at the same time and by the same enactment that in case any company did not increase paid-up capital to such prescribed minimum capital, such company shall be deemed to be a defunct company and its name shall be struck off from the register by the Registrar of companies having jurisdication over such company. As the provisions were inserted simultaneously, it is clear that such existing companies had an option either to increase paid-up capital and remain a company or get statutorily struck off. Therefore, existing companies who did not increase paid-up capital were statutorily struck off. Whether the Registrar of Companies has implemented the statutory provision of S. 3(5) by actually striking off the name or not or whether such a company is being shown as 'active' company on the website of MCA will not make any difference.

Omission on part of ROC will not make change:

An omission or mistake on part of the Registrar of Companies not to strike off the name or to continue the name of company as an active company will not affect the legal position that an existing company as on 13.12.2000, which did not raise paid-up capital to minimum prescribed level, and which is no longer a private or public company within amended meaning and whose name was statutorily struck off as on 13.12.2002 is a defunct company whose name has already been struck off. Therefore, such companies need not to make any separate application either under easy exit scheme or otherwise, for striking off of its name. When the name is already struck off under law, by operation of law, where is question of company to make an application and ROC to strike off the name.

Minimum paid-up capital:

Thus we find that The Companies (Amendment) Act, 2000 brought the concept of requirement of minimum paid-up capital by amendment of meanings of two types of companies as stated above. Therefore, in case a company does not fulfill such requirement then it would not be a company within the meaning of the companies Act, 1956.

Compulsory striking off by operation of law:

As a consequence of the amendment of section 3(1) (iii) and 3(1) (iv) as stated above the The Companies (Amendment) Act, 2000 also inserted sub-section(3), (4 and (5) in section 3 of the Companies Act, 1956. Sub-section (3) and (4) allowed companies time to raise paid-up capital to prescribed limits of Rs. One lakh and Rs, five lakh within a period of two years from commencement of the Companies (Amendment) Act, 2000.

Whereas new sub-section (5) provides for striking off of companies which did not comply with the requirement of minimum paid-up capital within the prescribed time.

These subsections read as follows (with highlights):

[(3) Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years from such commencement, enhance its paid-up capital to one lakh rupees.

(4) Every public company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less than five lakh rupees, shall within a period of two years from such commencement, enhance its paid-up capital to five lakh rupees.

(5) Where a private company or a public company fails to enhance its paid-up capital in the manner specified in sub-section (3) or sub-section (4), such company shall be deemed to be a defunct company within the meaning of section 560 and its name shall be struck off from the register by the Registrar.

A bare reading of the above three sub-sections with the meaning of private company and public company suggest the following provisions:

A private company must have paid-up capital of Rs. One lakh, if not it will not be a private company.

A public company must have paid-up capital of Rs. five lakh, if not it will not be a public company.

In case of existing companies, having lower paid-up capital an option was given to raise paid-up capital to prescribed minimum limit of Rs. One lakh or Rs. Five lakh as the case may be within a period of two years from the commencement of the Companies (Amendment) Act, 2000.

In case a company having lower paid-up capital, did not intend to increase the paid-up capital, and do not increase the paid-up capital to the minimum prescribed amount, then it was statutorily declared that such companies shall be deemed to be defunct companies and their names shall be struck off from the register of companies by the Registrar.

As the provision of deemed defunct company and striking of the name were inserted at the same time and by the same amendment Act, it is clear case that companies having lower paid-up capital were given an option either to increase the paid-up capital or to face striking of its name from register of companies by operation of law vide sub-section (5) of section 3, as stated above.

Statutorily struck off companies:

Thus the then existing companies with lower paid-up capital, which did not increase the paid-up capital to Rs. One lakh of five lakh as the case may be, latest by 13.12.2002 were struck off by operation of law and the Registrar was duty bound to strike the name of such companies from the register of companies.

Registrar was duty bound to strike off names of such companies:

On reading of the sub-section (5) of section 3 , it is clear that the Registrar was duty bound to stike off names of companies who did not raise the paid-up capital to the minimum prescribed limit of Rs. One lakh and Rs. Five lakh , as the case may be within the prescribed time (that is latest by 13.12.2002). This is mandatory as the provisions provide such action in a mandatory manner as follows:

"such company shall be deemed to be a defunct company within the meaning of section 560 and its name shall be struck off from the register by the Registrar".

Not company:

Besides names of such companies being statutorily struck off under section 560, such companies are not even company within meaning of private / public company as discussed above. Therefore, provisions of companies Act would not be applicable to such companies.

Easy Exit Scheme is not applicable to statutorily struck off companies:

Companies with lower paid-up capital are not company or in any case their names having been struck off cannot be called upon again to apply for striking of the name.

Companies whose names have been struck off or whose names were liable to be struck off by operation of law as provided in sub-section (5) are not required to do nay thing.

MCA website showing some companies as active:

It has been observed and heard that some companies which were existing companies as on 13.12.2000, when the Companies (Amendment) Act came into force , had lesser paid -up capital, did not increase paid-up capital and thus rendered themselves liable to get statutorily struck off on 13.12.2002, are still shown as active company. This shows that the registrar had not given effect to striking off of the name by operation of law or the mandatory striking off of the name. Even if such companies are shown as active, they are statutorily considered as struck off and need not to make application under Easy Exit Scheme.

Analysis of some provisions of ESS in context of statutorily struck off companies:

Provisions relevant in the context of the subject matter are discussed below:

In the Scheme vide General Circular No. 2/2010, dated 26-5-2010 it is inter alia stated that defunct company means defunct company or company which has not raised capital to minimum prescribed limit. Such companies can avail ESS. As per circular defunct company shown as active company on portal of MCA can avail the scheme.

Easy Exit Scheme, 2010:

(ii) Definitions - In this Scheme, unless the context otherwise requires, -

(c) "defunct company" means a company registered under the Companies Act, 1956 which is not carrying over any business activity or operation on or after the 1st April, 2008 and includes a company which has not raised its paid up capital as provided in sub sections (3) and (4) of section 3 of the Companies Act, 1956;

(iii) Applicability: - (a) Any "defunct company" which has active status on Ministry of Corporate Affairs portal may apply under EES, 2010 in accordance with the provisions of this Scheme for getting its name strike off from the Register of Companies;

(v) Procedure for making an application:-

(a) Any defunct company desirous of getting its name strike off the Register under Section 560 of the Companies Act, 1956 shall make an application in the Form EES, 2010, annexed;

From the above salient features it is clear that the companies who did not carry business and became defunct on or after 1st April, 2008 are intended to be covered and not very old companies whose name was liable to be struck off in terms of S. 3(5). Therefore, companies whose name was struck off by operation of law are not liable to apply for striking off of the name. This is because the name has already been struck off by operation of law.

Whether the Registrar of Companies has implemented the statutory provision of S. 3(5) by actually striking off the name or not or whether such a company is being shown as 'active' company on the website of MCA will not make any difference. An omission or mistake on part of the Registrar of Companies not to strike off the name or to wrongly continue the name of company as an active company on portal of MCA will not affect the legal position that an existing company as on 13.12.200, which did not raise paid-up capital to minimum prescribed level, and which is no longer a private or public company within amended meaning and whose name was statutorily struck off as on 13.12.2002 was already recognized as a defunct company and whose name has already been struck off. Therefore, such companies need not to make any separate application either under easy exit scheme or otherwise, for striking off of its name.

When the name is already struck off under law, by operation of law, where is question of company to make an application for striking off of the name and ROC to strike off the name.

New defunct Companies:

Companies who were incorporated after the Companies (Amendment) Act, 2000 came into force that is on or after 13.12.2000 can be considered as new companies in this context. Such companies are not covered by the sub-sections (3), (4) and (5). Such new companies had no option as existing companies had to either raise paid-up capital or to get struck off on 13.12.2002. Therefore such new companies can avail company Settlement Scheme and / or EES.

Statutorily struck off companies shown as active:

The companies who were struck off by operation of law as on 13.12.2002 but are still shown as active on MCA portal can inform the concerned ROC and request to make corrections in the websites of MCA and change the status of such companies as struck off. The letter can be sent on the following lines:

From: ABC and XYX Private Ltd/ Limited (A Statutorily struck off company)

To,

The Registrar of Companies…..,

Dear Sir,

Sub: Statutorily struck off company namely ABC and XYX Private Ltd/ Limited having registration number …….

The above company was an existing company as on 13.12.2000 when the Companies Act, 1956 stood amended, inter alia by insertion of sub-sections (3), (4) and (5) in section 3 of the Companies Act, 1956 vide the Companies (Amendment) Act, 2000 and it was provided that in case a company does not raise its paid-up capital to the prescribed minimum level of Rs. One lakh in case of a private company and Rs. Five lakh in case of a public company, then such company shall be deemed as defunct company and the Registrar shall struck off the name of such company from the register of companies.

The company did not raise its paid-up capital to minimum prescribed level latest by 13.12.2002.. The Company has also written earlier to the Registrar of Companies, vide letter dated ….. (copy enclosed) that since company has not raised its paid-up capital to minimum level, its name stands struck off by operation of law. Therefore it was considered that its name stood struck off from the register of companies However, we find that mistakenly the company is still shown as an active company on the portal of MCA. This require rectification, because a company whose name stood struck off by operation of law cannot be considered as active company.

Kindly change the status of company as struck off the register of companies and show correct legal position on the portal of MCA.

Thanking you,

Yours faithfully,

For ABC and XYX Private Ltd (A Statutorily struck off company)

(Erstwhile director)