The Ministry of Corporate Affairs (“MCA“) vide its notification dated March 17, 2023 established the Centre for Processing Accelerated Corporate Exit (“C-PACE“) to facilitate and speed up the process of voluntary closure of business of companies by removal of their names from the register of companies1. This option for voluntary winding up is available to certain companies that are not operational as more particularly specified in Section 248 of the Companies Act, 2013 (“Act“). Currently, under this Section, the Registrar of Companies (“ROC“) is responsible for taking suo-moto action as well as processing applications from the following companies for voluntary closure:
(i) a company that has failed to commence its business within 1 year of its incorporation;
(ii) a company that is not carrying on any business or operation for a period of 2 immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company;
(iii) a company whose subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation and a declaration to this effect has not been filed within 180 days of its incorporation; or
(iv) a company who is not carrying on any business or operations, as revealed after the physical verification carried out by the ROC.
The above companies may file an application with the ROC after extinguishing all its liabilities to remove its name from the register of companies, by a special resolution or with the consent of 75% of its members based on the paid-up share capital. However, an application for voluntary closure cannot be made by a company, if, at any time in the previous 3 months, the company:
(i) has changed its name or shifted its registered office from one State to another;
(ii) has made a disposal for value of property or rights held by it, immediately before cesser of trade or otherwise carrying on of business, for the purpose of disposal for gain in the normal course of trading or otherwise carrying on of business;
(iii) has engaged in any other activity except the one which is necessary or expedient for the purpose of making an application under that Section, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
(iv) has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
(v) is being wound up under Chapter XX of the Act or under the Insolvency and Bankruptcy Code, 2016.
It is relevant to note that the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 (“Rules“) specify that the option for voluntary closure of business is not available to certain companies such as listed companies, companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws, companies against which any prosecution for an offence is pending in any court, companies having charges which are pending for satisfaction and etc2.
In light of the establishment of the C-PACE, the Rules were recently amended vide the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2023 on April 17, 2023. The amended rules will take effect from May 01, 2023 and the key changes introduced are as follows:
- Applications for removal under Section 248 (2) must be submitted to the Registrar at the C-PACE and not the ROC3.
- The Registrar at C-PACE shall be the ROC for the purposes of exercising functional jurisdiction of processing and disposal of applications and all matters related to Section 248. The Registrar at C-PACE shall have territorial jurisdiction all over India4.
- The Forms pertaining to the application by a company to the ROC for removing its name from register of companies (Form No. STK- 2), public notice (Form No. STK-6) and notice of striking off and dissolution (STK- 7) have been substituted with new Forms. It is relevant to note that previously in the application for removal of name, companies were required to inform the ROC regarding any pending litigations against them by selecting either ‘yes’ or ‘no’ in the Form. However, the revised Form now mandates companies to provide specific details of such litigations. Companies are required to disclose the Act under which the litigation is pending, the name of the authority before which the litigation is pending, the case number, and the subject matter of the litigation. The relevant ground for closure of business also needs to be specified by the companies in their application.
The delegation of the regional ROC’s functions to the C-PACE for processing applications of removal of names of companies is likely to expedite the voluntary business closure process for companies and create a more efficient regulatory framework for corporate exits in India.
1 Chapter XVIII (Removal of Names of Companies from the Register of Companies) of the Companies Act, 2013.
2 Rule 3 of the Rules.
3 Rule 2(i) of the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2023.
4 Rule 2(iii) of the Companies (Removal of Names of Companies from the Register of Companies) Amendment Rules, 2023.