Fast Track Exit Scheme

A cost-saving and straightforward method introduced by Ministry of Corporate Affairs without any high court intervention or lengthy liquidation to wind up your business (As per Section 248 of Companies Act, 2013), with effect from 26 December 2016.

What is fast track exit scheme??

Companies who run out of their business or want to close their company who has been out of business for more than a year can close the company under Fast Track Exit Scheme. It helps in faster disposal by involving lengthy liquidation or any high court intervention. The power lies in the hands of Registrar of Companies to strike of the company’s name from ROC under suo-motto basis.

Eligibility criteria under fast track exit scheme

  • A company which is not in business or operation for two years and has not filed for any application within such period for obtaining the status of a dormant company under section 455
  • A Consent of 75% of the members in terms of paid-up share capital
  • A company which has failed to start its business within one year of its incorporation
  • Extinguishment of all assets and liabilities
  • The company is not operating its bank account.

What companies are not eligible for FTES?

  1. Listed companies: Companies that have been de-listed by ROC due to non-compliance of Listing Agreement or any other statutory Laws
  2. Companies under section 8 of the Companies Act, 2013
  3. Vanishing companies
  4. Companies where inspection or investigation is yet to be taken up or where completed prosecutions are arising out of such inspections or investigation are pending in the court
  5. Companies where ROC has issued notice u/s 234 of the Companies Act, 2013 or Section 206 or 207 or it is under section 25 Companies act, 1956 (old law) and the reply are pending or not yet submitted.
  6. Companies against which prosecution for a serious offence is pending in court
  7. Companies which have accepted public deposits that are either outstanding or the company is in default as the payment is due for the same
  8. Companies having secured loans or management disputes
  9. Companies in which court or Company Law Board stays filing of documents (CLB) or Central Government or any other competent authority
  10. Companies have dues towards Income Tax/Sales Tax/Central Excise/Banks or Financial institutions or any other Central or State Government Departments or authorities or any local bodies.
  11. Also If in the previous three months the company has its name changed or shifted its registered office from one State to another. If it has made a disposal for value of property or rights held by it or has engaged in any other activity. Except for the one which is necessary for making an or complying with any statutory requirement or has made Tribunal application for sanctioning a compromise or any other arrangement and the matter has not been concluded or is under the Insolvency and Bankruptcy code, 2016

What are the consequences of not going under FTE?

There is a possibility that for the companies which are not in operation and or completing their annual compliances under Companies Act 2013, can receive notice from Registrar of Companies, under which the ROC of the company falls, for not filing their compliance yearly. In such situations, Directors of the company have to appear in the court and explain the reason for not filing the documents regularly along with the Registrar of companies. After which, the company is abiding to complete all their annual filings and other compliances thus presenting proves of such filings to the court. On not obeying the directions of the court, directors might suffer huge penalties, imprisonment, etc.

What is a vanishing company?

A Company whose returns have not been filed with Registrar of Companies and Stock Exchange for a consecutive period of two years, and their registered office is not at the address intimated to the Registrar of Companies or Stock Exchange, and none of its Directors is traceable is known as a vanishing company.

What are the fees required to close a company under FTES?

The fees required to close the company under FTES is INR 5000/-

What are the documents required?

  • Affidavit
  • Indemnity bond
  • Statement of account
  • Copy of board resolution
  • Pending Litigation Statement
  • Along with form MSC-1, STK1-STK7

Conditions laid down under fast track exit scheme

  • No NOC is required from Income Tax, Sales Tax or other Govt authorities. But the directors need to confirm that no dues are pending against Company with any such authorities, then MCA will send a letter which confirms a NOC from the Income Tax department to strike the name of the company.
  • The applicant Company can take its time for replying to the objections raised by RBI, Income Tax Department or any other department as no such fixed period is specified by ROC for the replies given by the Applicant Company. Thus satisfying RBI, Income Tax or the relevant department with the given reply by the applicant Company which will allow ROC to strike off the name of such Company

Detailed process of closing a company under FTES

 

Step -1: BOARD MEETING

A board meeting is called to pass Board resolution for strike-off and to authorize any director to apply to the board meeting a general meeting is held, and a special resolution is passed.

NOTE: file FORM MGT-14 within 30 days of passing a special resolution.

Step - 2: APPLICATION FOR NAME REMOVAL

An application is submitted for the removal of the name of the company under sub-section (2) of section 248, which is attached in Form STK-2 along with the fee of INR 5000 along with the necessary attachments :

  1. Indemnity bond duly notarised from every director individually in form STK-3
  2. Statement of accounts which contains assets and liabilities of the company
  3. An affidavit in Form STK 4, by each of the existing directors stating that the company did not carry any business since the incorporation of the company or that the company was in business for some time, but then it was discontinued.
  4. A copy of the special resolution certified by each of the directors of the company or consent of seventy-five percent of the members of the company in terms of paid-up share capital as on the date of application;
  5. Statement regarding pending litigations

 

Step - 3: DSC BY THE AUTHORISED DIRECTOR

The authorised director will sign E-Form STK-2 to. In case, the digital signature of any of the director or Manager or Secretary is not available for affixing to Form FTE, a physical copy of the Form duly filled in. which shall be signed manually by a director authorized by the Board of Directors of the Company and shall be attached with the application form at the time of its filing electronically

Step - 4: FORM CERTIFIED BY CA

E-Form STK-2 to be certified either by Company Secretary or Chartered Accountant or Cost Accountant, as the case may be.

Step - 5: CLOSE PENDING LITIGATION

Any pending litigations involving the Company needs to be disclosed. If the pending prosecutions consist only for non-filing of Annual Returns and Balance Sheet, such application may only be accepted if the applicant has already filed the compounding application. However, steps for the final strike of the name of the company will be taken only after the disposal of compounding application by the competent authority.

Step - 6: NOTICE

The Registrar of Companies after receiving the application shall examine the same, and if satisfied, they shall give notice to the company under section 560(3) of the Companies Act, 1956 by email to its e-mail address. Intimated in the Form, giving thirty days, which states that unless or until the cause is shown to the contrary, its name be struck off from the Register and the company shall be dissolved

Step - 7: INVITING OBJECTIONS

The Registrar of companies has to put the name of applicants and date of making the applications under fast track exit mode, daily, on the MCA portal, giving thirty days for objecting, by the stakeholders to the concerned Registrar. It is mandatory to bring into notice to the RBI, SEBI, etc. in case there is a Non-Banking Financial Company and Collective Investment Management Company.

Step - 8: STRIKING OFF COMPANY’S NAME

The registrar after being satisfied that the case is in order, can strike the company’s name off the Register and therefore send notice under sub-section (5) of section 560 of the Companies Act, 1956 for publication through Official Gazette and the company is terminated from doing any business from the date of publication of the notice.

Step - 9: DISCHARGE OF LIABILITY

The Registrar, if necessary, can obtain necessary undertakings from the managing director or any other person in charge of the management of the company to prove that sufficient provisions have been made for the realisation of all amount due to the company and the payment or discharge of its liabilities and obligations by the company.

Step - 10: RESTORATION ORDER

An application for restoration, Under section 560(6) is made by the aggrieved company member or its creditor. A company which is shut down under FTE can be restored on the Register by a Court order within 20 years of it striking off.

Post-strike off liabilities of the director

There are following liabilities to the director post-striking off the name by ROC

  • To settle all lawful claims which may arise in future.
  • To make compensations to any person for any losses that may arise under striking off the name of the Company.
  • To settle all the liabilities and lawful claims which have not come to notice even after striking off the name of the company.

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