What Is Strike Off of a Company? Meaning and Process

Strike off of a company means the Registrar of Companies (ROC) removes the company's name from the Register of Companies maintained under the Companies Act, 2013. Once struck off, the company ceases to exist as a legal entity. This is governed primarily by Section 248 of the Companies Act, 2013, which empowers the ROC to remove a company's name if it has reasonable cause to believe the company is not carrying on business or is not in operation.

The strike off process is distinct from winding up or liquidation. In a strike off, there is no formal realisation of assets or payment of creditors through a liquidator. The company simply ceases to exist, and its assets (if any) vest with the Central Government as bona vacantia (ownerless property) under Section 249 of the Act. The process is intended for companies that are dormant, have no assets or liabilities, or have failed to commence business within a year of incorporation.

The ROC can initiate strike off proceedings under Section 248(1) of the Companies Act, 2013 on several grounds. The most common ground is that the company has failed to commence its business within one year of incorporation. Another ground is that the company has not been carrying on any business or operation for a period of two immediately preceding financial years and has not made any application for dormant status under Section 455.

The ROC may also strike off a company that has not filed its financial statements or annual returns for a continuous period of two financial years. Additionally, if the company has not paid the prescribed fee or penalty for filing such documents, the ROC may proceed with strike off. The company itself can also apply for voluntary strike off under Section 248(2) if it has no assets or liabilities and has complied with all filing requirements.

A company can apply for voluntary strike off by filing Form STK-2 with the ROC, along with the prescribed fee. Before filing, the company must pass a board resolution authorising the strike off and then obtain a special resolution from its members approving the closure. The company must also file an indemnity bond and an affidavit in Form STK-3, confirming that it has no assets or liabilities and that all dues to creditors, employees, and statutory authorities have been settled.

The company must also publish a public notice in a newspaper in the district where its registered office is located, inviting objections from the public. Additionally, the company must file all pending annual returns and financial statements up to the date of closure. The ROC will then examine the application and, if satisfied, issue a notice in the Official Gazette striking off the company's name. The entire process typically takes 3 to 6 months, provided no objections are received.

When a company is struck off, its assets (including bank balances, property, and investments) vest with the Central Government as bona vacantia under Section 249 of the Companies Act, 2013. This means the government becomes the owner of these assets. The company's directors and shareholders lose all rights over these assets. However, the liability of directors and officers for any acts done before the strike off continues, and they can still be prosecuted for offences committed prior to the strike off.

Creditors of the struck-off company are not automatically discharged. They can apply to the National Company Law Tribunal (NCLT) under Section 252 for restoration of the company's name to the Register. If restoration is granted, the company is deemed to have continued in existence as if it had never been struck off. This allows creditors to pursue their claims against the company. Directors may also be personally liable for debts incurred if they knew the company was about to be struck off.

For directors, the primary consequence is that they are disqualified from being appointed as directors of any other company for a period of five years from the date of strike off, under Section 164(2)(a) of the Companies Act, 2013. This disqualification applies automatically and can severely impact a director's ability to serve on other boards. Directors may also face prosecution for non-compliance with filing requirements or for making false statements in the strike off application.

For shareholders, the strike off results in the loss of their investment in the company. They cannot recover their capital unless the company is restored. Shareholders also lose any rights to dividends or voting. However, if the company had distributable reserves, shareholders may have a claim against the directors for mismanagement if the strike off was not properly handled. It is important to note that strike off does not absolve shareholders from liability for calls on partly paid shares or from any personal guarantees they may have given for the company's debts.

If you are considering strike off for your company, first ensure all statutory filings are up to date and all liabilities are settled. Consult a qualified company secretary or chartered accountant to verify eligibility and prepare the necessary documents. For professional guidance tailored to your situation, contact a corporate law practitioner.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.