FTE- Don’t carry the burden of being part of defaulting company

Fast track exit is a good idea to close your inoperative company or if a company, which is not doing any business or having low profit, loss, labour problem, no market for the product etc., may be required to close. In such conditions, you can avail the Fast Track Scheme, introduced by the Ministry of Corporate Affairs. it is the easy route to close the company without many legal complications and time-consuming. FTE is a good way of shutting,  instead of going for Winding-up, in order to avoid all these lengthy legal formalities.

On 26 December 2016, Ministry of Corporate Affairs (MCA) issued a Notification notifying Section 248, 249, 250, 251 and 252 of Companies Act, 2013 (Chapter XVIII). This chapter deals with “Removal of Names of Companies from Register of Companies” in place of existing fast track exit.

A) Pre-condition for applying under FTE?

1) If the company has failed to commence its business within one year of its incorporation or

2) if not carrying any business for a period of two years and has not sought to call itself a dormant company.

B) Companies that cannot use Fast Track Exit option?

1) Companies Registered Under Section 8.

2) Listed companies.

3) Companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;

4) Vanishing companies.

5) Companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court.

6) Companies where notices have been issued by the Registrar or Inspector (under Section 234 of the Companies Act, 1956 (old Act) or section 206 or section 207 of the Act)and reply thereto is pending.

7) Companies against which any prosecution for an offense is pending in any court.

8) Companies whose application for compounding is pending.

9) Companies which have accepted public deposits which are either outstanding or the company is in default in repayment of the same.

10) Companies having charges which are pending for satisfaction.

C) A Procedure of Striking off?

1) Call Board Meeting to pass Board resolution for the purpose of strike off and to authorise any director to file an application.

2) Call the general meeting and pass a special resolution.

3) File MGT-14 within 30 days of passing a special resolution.

4) An application for removal of the name of the company shall be made in Form STK-2.

D) Procedure to be followed by registrar?

1) Notice: On receipt of application a public notice shall be issued by the registrar in the prescribed manner.

2) Inviting Objections: The Registrar shall put the name of applicant and date of making the application on the MCA portal www.mca.gov.in, allowing thirty days time for raising an objection, if any, by the stakeholders.

3) Notice to tax and other relevant authorities: The Registrar need to inform Income Tax Department about companies availing FTE mode and ask for objections within thirty days.

4) Striking off name: The Registrar shall after expiry of such time mentioned in notice shall strike its name off the Register and shall send notice for publication in the Official Gazette and the applicant company shall stand dissolved from the date of publication of the notice in the Official Gazette.

E) Key points of changes from old FTE Scheme?

1) Earlier Board Resolution was Sufficient for approval for making application for removal of the name, however, now it is mandatory to Pass Special Resolution

2) Earlier the eligibility for applying for FTE was a company not carrying any business operations since last one year, however, now it is changed to a company not carrying any business or operation for a period of two immediately Preceding Financial Years.

F) Conclusion ?

If any company not operating from last years and have not done with their annual filling requirements than FTE is one of the easiest modes of keeping away the burden of carrying non-operating company. So it’s preferred to close the company before it becomes big.

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