Easy Exit Scheme, 2011

Article for Blog Post Writing Competition 2011 | by Rajat Dosi


April 8th, 201111:31 pm


With a view to provide simplified liquidation opportunity to the non-operating and defunct companies for getting their names struck off from the records of the Ministry of Corporate Affairs, the Ministry of Corporate Affairs has again introduced the Easy Exit Scheme 2011 (EES 2011), on huge demands from the corporate sector, after the success of EES 2010 and Simplified Exit Scheme, 2005. The EES 2011 was effective from 1st January, 2011 and will come to an end on 31st January, 2011, but now the Scheme has been extended for another three months i.e. upto 30th April, 2011 vide General Circular No. 1/2011 dated February 3rd, 2011.

Under Section 560 of the Companies Act, 1956 (Act) the Registrar of Companies (ROC) is vested with the power to strike off the name of the defunct companies after following the proper procedure provided in the section itself. Endowed with this power the Ministry of Corporate Affairs has been issuing several schemes, at regular intervals of 2-3 years, for providing an option for the defunct to get there name struck off from the Register of Companies in a simplified manner and not going in the complex procedure of liquidation.

The Report of Expert Group on Streamlining Prosecution Mechanism under the Companies Act, 1956 submitted in October, 2005 recommended that,

Taking into account the estimated number of defunct companies (over 1,50,000) and the response to SES-2003 and SES-2005, the Group recommends that the Department needs to seriously pursue the powers to strike off the names of defunct companies from the records of ROCs under section 560 of the Act to deprive such companies of the privileges of limited liability and owning of assets in their names, if they at all exist. The striking of the names of such companies should be widely publicized so that persons who may have interest in the continuance of some of these companies on the records of ROCs, may apply for restoration of the names of such companies under sub-section (6) of section 560 of the Act and after paying such fines and fees as may be due from them.

Companies which can avail the benefit of the EES 2011

Not every company registered under the Companies Act, 1956 can avail the benefit of this scheme only the following companies can avail the benefit of such this scheme:

1.  Companies which are not carrying on any business activity or operation on or after April 1, 2008; or

2.  Any company which has not complied with Section 3 of the Act can also avail this scheme. As per section 3 a private company should have a minimum paid up capital of one lakh rupees and a public company should have a minimum paid up capital of five lakh rupees. Thus the companies which have not raised their minimum paid up capital upto one lakh rupees (in case of private company) and five lakh rupees (in case of public company) can make use of EES 2011.

But there is one more stipulation which needs to be fulfilled by every company before they can avail this scheme viz. that it should have an active status on the MCA portal (www.mca.gov.in).

Procedure for availing the benefit of the EES 2011

Any defunct company willing to get its name struck off from the register of companies should apply in Form EES 2011 which is available at MCA portal, either through MCA portal itself electronically or physically to be filed with the ROC, along with a fee of Rs 3000/-. Along with this Form EES 2011 the following documents are also to be filed:

1. Statement of Accounts duly signed by one Managing Director/Secretary/Director and certified by Auditor of the company or any Charted Accountant, (Draft is available as annexure to Form EES 2011 at MCA portal).

2. Copy of Board Resolution authorizing directors to file application (Form EES 2011).

3. Indemnity Bond duly notarizes and signed by all directors, (Draft is available as annexure to Form EES 2011 at MCA portal).

4. Affidavit duly notarizes and signed by all directors individually, (Draft is available as annexure to Form EES 2011 at MCA portal).

6. Director Identification Number (DIN) has to be filled in the Form EES 2011 and in case DIN is not available, the attested copy of PAN/ Passport is to be submitted.

7. In case a Government Company proposes to avail this scheme, No Objection Certificate (NOC) from concerned Government department or Authority.

After the Filling of the Application

ROC will initiate following process after filing application under EES 2011:-

1. The ROC shall examine the authenticity of the application and if found in order, shall give a notice to the Company under section 560(3) of the Act by e-mail on its e-mail address provided in the Form, giving 30 days time, stating that unless cause is shown to the contrary, its name be struck off from the Register and the company will be thereby dissolved.

2. The ROC shall put the name of applicant(s) and date of making the application(s) under EES 2011, on daily basis, on the MCA portal, giving thirty days time for raising objection, if any, by the stakeholders to the concerned Registrar.

3. In case of companies like Non-Banking Financial Company or Collective Investment Management Company which are regulated by other Regulator namely RBI or SEBI, the ROC, at the end of every week, after the Scheme commences, shall send intimation of such Companies availing EES, 2011, during that period to the concerned Regulator(s), and they shall be given a period of 30 days to respond to ROC.

4. Further intimation shall also be sent, in respect of all companies availing EES, 2011, to the office of the Income Tax Department giving thirty days time for their objection, if any.

5. The ROC immediately after passing of time given in above sub-paras and on being satisfied that the case is otherwise in order, shall strike off the name of the company from the Register and shall send notice under Section 560(5) of the Act for publication in the Official Gazette and the applicant company under this Scheme shall stand dissolved from the date of publication of the notice in the Official Gazette.

Benefits of the Scheme

The EES 2011 shall be beneficial in the following manner

1. One of the major benefits of this scheme is that it will allow the companies, availing this scheme, to pass over the long time consuming process of liquidation, which every company is required to undergo under the provisions of the Act for bring an end to the Company or to dissolve it.

2. Further it shall also reduce the cost which a company has to incur while going for liquidation, since liquidation involves long complex procedures and compliances which further increases the cost of liquidation of the company.

Consequences of not de-registering

It is said that after the closure of the Scheme, MCA would take penal action against the directors of the defaulting companies who have not taken steps for de-registration of the company.

Conclusion

The utility of this scheme has already been proved over the years, with a no of application being filed every time such a scheme is introduced. This Scheme should generally be restored to in case of companies which have already become inoperative over a long period of time and does not have any creditors, secured or unsecured, and any assets left for disposal.

Furthermore, it is said that the success of EES 2010 gave impetus for the introduction of EES 2011, but in EES 2010 no fees was to be paid by the company but this time the element of fees has been attached to it and a company making an application in Form EES 2011 has to pay a fee of Rs 3000/- along with Form EES 2011, which may have serious effect upon the success of this scheme this time.

 

Article by-

Rajat Dosi,

B.A. LL.B (Hons.), IV year (Business & Intellectual Property Law)

Rajiv Gandhi National University of Law, Punjab

[Submitted as an entry for the MightyLaws.in Blog Post Writing Competition, 2011]

 

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