What Is Strike Off of a Company? Section 248 Rules

Strike off of a company is the administrative route by which a company stops existing without going through winding up. The Registrar removes the name from the register, publishes a notice in the Official Gazette, and on that publication the company stands dissolved. Sections 248 to 252 of the Companies Act, 2013 govern it, and several of the sub-sections exist specifically to stop the route being used as an escape hatch.

The grounds for strike off of a company

Section 248(1) lists the situations in which the Registrar may act on his own motion, where he has reasonable cause to believe that:

• The company has failed to commence its business within one year of its incorporation.
• The company is not carrying on any business or operation for two immediately preceding financial years and has not applied within that period for dormant company status under section 455.
• The subscribers to the memorandum have not paid the subscription they undertook to pay at incorporation, and no declaration to that effect has been filed within one hundred and eighty days of incorporation under section 10A(1).
• The company is not carrying on any business or operations, as revealed after the physical verification carried out under section 12(9).

The last two grounds were inserted by Act 22 of 2019 with effect from 2 November 2018. An earlier clause (b) was omitted by Act 21 of 2015 with effect from 29 May 2015.

The voluntary route, and what blocks it

Section 248(2) allows a company that has extinguished all its liabilities to apply for removal on any of the same grounds, by special resolution or by the consent of seventy-five per cent of members in terms of paid-up share capital. On receipt, the Registrar causes a public notice to be issued in the prescribed manner. Where the company is regulated under a special Act, the approval of the regulatory body constituted under that Act must also be obtained and enclosed.

Section 248(3) puts section 8 companies outside this route entirely.

Section 249(1) then bars the voluntary application if, at any time in the previous three months, the company:

1. Has changed its name or shifted its registered office from one State to another
2. Has made a disposal for value of property or rights held immediately before it stopped trading, for the purpose of disposal for gain in the normal course of business
3. Has engaged in any activity other than what is necessary or expedient for making the application, deciding whether to do so, concluding its affairs, or complying with a statutory requirement
4. Has applied to the Tribunal for sanction of a compromise or arrangement that has not been finally concluded
5. Is being wound up under Chapter XX of the Act or under the Insolvency and Bankruptcy Code, 2016

Filing in violation of section 249(1) is punishable with a fine which may extend to one lakh rupees, and section 249(3) requires the application to be withdrawn by the company or rejected by the Registrar as soon as those conditions are brought to the Registrar's notice.

What the Registrar must satisfy himself about first

Section 248(6) is the creditor protection. Before passing a strike-off order the Registrar must satisfy himself that sufficient provision has been made for realising all amounts due to the company and for paying or discharging its liabilities and obligations within a reasonable time, obtaining undertakings from the managing director, director or other persons in charge of management where necessary.

The proviso is the part that matters most: notwithstanding those undertakings, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name.

Section 248(4) requires a notice under sub-section (1) or (2) to be published in the prescribed manner and also in the Official Gazette for the information of the general public.

What survives dissolution

Four things outlast the company.

Liability of the people. Section 248(7) provides that the liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member, continues and may be enforced as if the company had not been dissolved.

The Tribunal's winding-up power. Section 248(8) states that nothing in the section affects the power of the Tribunal to wind up a company whose name has been struck off.

A residual legal existence for collection. Section 250 provides that a dissolved company ceases to operate as a company from the date mentioned in the section 248(5) notice, and its certificate of incorporation is deemed cancelled from that date, except for the purpose of realising amounts due to the company and paying or discharging its liabilities and obligations.

A route back. Section 252 lets the name be restored. Three separate windows exist, and they are not the same length:

• Three years, for a person aggrieved. Any person aggrieved by the Registrar's order notifying the company as dissolved may appeal to the Tribunal within three years of that order, and the Tribunal may order restoration if it is of the opinion that the removal was not justified in the absence of any of the grounds on which the order was passed. Before passing any order the Tribunal must give the Registrar, the company and all persons concerned a reasonable opportunity to make representations and be heard.
• Three years, for the Registrar itself. Where the Registrar is satisfied that the name was struck off inadvertently, or on the basis of incorrect information furnished by the company or its directors, the Registrar may apply to the Tribunal for restoration within three years of the dissolution order.
• Twenty years, for the company, a member, a creditor or a workman. Under section 252(3) any of them may apply before the expiry of twenty years from publication of the section 248(5) notice in the Official Gazette, and the Tribunal may order restoration if satisfied that the company was carrying on business or in operation at the time its name was struck off, or that restoration is otherwise just. The Tribunal may give such directions as it deems just for placing the company and all other persons as nearly as may be in the position they would have been in had the name never been struck off.

Section 252(2) closes the loop: the company files a copy of the order with the Registrar within thirty days, and the Registrar then restores the name and issues a fresh certificate of incorporation.

Section 251(1) addresses abuse directly: where an application under section 248(2) is found to have been made with the object of evading the company's liabilities, or with intent to deceive creditors or defraud any other person, the persons in charge of management remain answerable notwithstanding that the company has been notified as dissolved.

Where this sits in the disclosure picture

Strike off is a Registrar of Companies process under the Ministry of Corporate Affairs. For a listed company it is not the ordinary end of the road, since delisting and winding up are the routes that apply there, but the machinery matters for unlisted subsidiaries and for shell entities that appear in group structures.

• The National Company Law Tribunal retains the power to wind up a struck-off company under section 248(8).
• SEBI delisting and reverse book building is the route by which a listed company leaves the exchange, which is a different thing entirely.
• What is a significant beneficial owner covers the disclosure that makes group structures legible.
• The shareholding pattern is where a listed company's ownership is disclosed quarter by quarter.

Flock reports the filings themselves, each stamped with its date and linked back to the exchange or regulator that published it. What any of it means for you is your call to make.