Compliance way or Confine way! The Government made it clear. Directors who were on a long-term picnic after removal of names of their “shell companies” are now offered sleepless nights. I appreciate.
Ministry of Corporate Affairs issued two important lists in this regard –
- List Of Directors Associated With Struck Off Companies U/S 248
- List Of Disqualified Directors U/S 164 (2)(A)
This exercise currently seems work-in-progress from most jurisdiction, but it may complete soon. The available list issued by Registrar of Companies, Chennai reveals all details of companies and their directors. It is advisable for the general public, not to deals with companies named as the strike off.
Summary of Events
In April 2017, various Registrars of Companies issued public notices and available on the website of Ministry of Corporate Affairs also. That time this blog discussed powers of the Registrar of Companies in relation to suo – motu removal of the name of the company from its register. Thereafter, this blog discussed here, these show cause notices and possible action plans to save these companies from suo – motu removal of names if their directors or other stakeholders have interest.
Thereafter, Registrar of Companies started strike – off name of these companies from their registers. Prime Minister Narendra Modi made a big announcement of confirming such strike of names of about 2,09,032 companies.
Presently a notice placed on homepage of MCA website read as under –
Any person disqualified under section 164(2) of the Companies Act, 2013 [the Act] is advised not to act as a director during the period of the disqualification and not to file any document or application with MCA as the same shall be summarily rejected. However, this shall be without prejudice to the liability of the said person for the violation of section 164(2) read with section 167 of the Act including the action under section 448 r/w 447 of the wherever warranted.
A press release issued by Minister of Corporate Affairs place here on the website of Press Information Bureau has similar communication. This press release has two important points –
- Department of Financial Services (DoFS) issued instructions to all the Banks on 5th September 2017, the Directors (ex-) or their authorized signatories had been restricted from operating the Bank accounts of such companies and they cannot syphon off money from the accounts of these “struck off” companies.
- It has been decided that in case the Director or authorized signatory of any “struck off” company tries to unauthorized syphon-off money from its bank account, he/she may attract punishment of imprisonment of not less than six months extendable to 10 years. If it is found that the fraud involves public interest, the punishment shall not be less than 3 years (imprisonment) and fine may also be imposed which would be three times the amount involved.
It seems government may try to invoke Section 447 of the Companies Act, 2013 which deals with fraud under corporate law.
The name of these companies was removed under Section 248. According to Section 248 (1), Registrar may take action under this section where Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its incorporation; or
(c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.
Though public notice issued earlier regarding such removal of names did not mention the reason of their belief under Section 248(1), different communications made by the government suggests that where companies fail to file their annual accounts for three or more financial years, registrars considered these companies under section 248.
According to Section 164(2), no person who is or has been a director of a company which—
(a) has not filed financial statements or annual returns for any continuous period of three financial years; or
(b) has failed to repay the 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,
shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
Further, Section 167(1)(a) direct that the office of a director shall become vacant in case he incurs any of the disqualifications specified in section 164.
A harmonious and purposive reading of sections 164(2) (a more specific provision) and 167 (a general provision) suggest that vacation of office of such director shall not take place in companies under default under Section 164(2). This will to open a window of compliance for these companies.
Future Course of Action
The pertinent question, now, is about the future course of action from these directors and their companies.
It is suggested that their disqualification under Section 164(2) shall be for 5 years only. However, their silence may be harmful and be recorded in the files of Registrars of Companies (RoCs) and of Serious Fraud Investigation Office (SFIO). Further, many of these “strike – off” companies have bank balances, properties, loans, other liabilities, disputes among promoters and directors, and need restoration.
In genuine cases, Section 252 (appeal to the tribunal within three years) and sub – sections (6), (7) and (8) of Section 248 may help on the case to case basis. Further, according to the proviso to sub – rule (1) of rule 3 of the companies (Removal of names of companies from the Register of Companies Rules 2016, certain categories of companies shall not be removed from the register of companies. In these cases, it is advisable to approach National Company Law Tribunal having jurisdiction.
As most of the companies under “Strike – off” are selected for not – filing of financial statements or annual returns for any continuous period of three financial years, this default need to be made good.
When the name of the company has already strike – off, how such default may make good. According to Section 250, such companies cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realizing the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.