Understanding Dormant Company Status Under the Companies Act

Understanding Dormant Company Status under the Companies Act

Companies seeking to hold assets or intellectual property or those not currently active can apply to the Registrar to acquire the status of a dormant company, as permitted by the relevant provisions of the Companies Act.

Definition of an Inactive Company

An inactive company qualifies under the following conditions:

• The company has not engaged in any business operations for the past two consecutive financial years.
• There have been no significant accounting transactions for the last two or more financial years.

“Significant accounting transaction” excludes the following:

• Payment of fees to the Registrar.
• Payments for compliance with the Companies Act or other laws.
• Allotment of shares in compliance with the Companies Act.
• Payments for office maintenance and record-keeping.

Additionally, the company must not have filed financial statements or annual returns during the last two or more financial years.

Eligibility Criteria for Applying for Dormant Status

A company can apply for dormant status only if it meets the following criteria:

1. No inspections, inquiries, or investigations have been initiated against the company.
2. There is no pending prosecution against the company under any law.
3. The company has no outstanding public deposits or defaults in payments or interest.
4. The company has no outstanding secured or unsecured loans:
   • If there are unsecured loans, the company may apply after obtaining consent from the lender, which must accompany Form MSC-1.
5. There is no dispute regarding management or ownership, and a certificate confirming this must be attached to Form MSC-1.
6. The company has no outstanding statutory taxes or dues to the Central Government, State Governments, or local authorities.
7. The company has not defaulted on workmen’s dues.
8. The company's securities are not listed on any stock exchange, either in India or abroad.

An application must be submitted in Form MSC-1 following the passage of a special resolution at a General Meeting, and Form MGT-14 must be filed. Upon review, the Registrar will issue a certificate in Form MSC-2, granting dormant status.

Registrar’s Authority

If the Registrar believes that a company registered as dormant is active in any way, proceedings for an inquiry may be initiated under Section 206 of the Act. If it is determined, after providing an opportunity for a hearing, that the company is functioning, the Registrar may remove its name from the register of dormant companies and classify it as an active company.

Post-Dormant Status Requirements

Form MSC-3 (Annual Return):
Once dormant status is obtained, the company must file an annual return detailing its financial position, duly audited by a chartered accountant, using E-Form MSC-3 within thirty days after the close of each financial year. The company must also continue to file returns related to allotments and changes in directors as specified in the Act whenever applicable.

Form MSC-4 (Application for Active Status):
A dormant company may use Form MSC-4 to seek reactivation. If the Registrar deems the application satisfactory, they will issue a certificate in MSC-5, restoring the company's active status.

Important Note: If a company remains dormant for five consecutive years, the Registrar is required to initiate steps to strike the company's name from the register.