Grounds of STK-2

[CA Shubham Nanda]

Can anyone explain the difference between 1st & 3rd ground of strike off u/s 248 of companies act, 2013? With example 

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

[Ashutosh Shukla]

Hi Shubham Ji,

Assuming that you are talking about the provisions of Section 248(1)(a) and (c) of the Companies Act 2013, please note that Section 248(1)(a) talks specifically about the newly incorporated companies that have failed to commence their business within one year of its incorporation. On the other hand, Section 248(1)(c) of the Companies Act 2013 applies to the existing companies that are in existence for quite some time but are not carrying on any business or operation for a period of two immediately preceding financial year and have not applied for obtaining the status of a dormant company under section 455. For example, if I incorporate a company today and fail to commence business, I would be dealt with per 248(1)(a). Further, if I had incorporated a company, let's say 10 years back, which continued to operate until recently but has been out of the business for the past 3 years (approx), I would be dealt with per 248(1)(c). 

Thanks and Regards,

CS Ashutosh Shukla

[CA Shubham Nanda]

Sir actually I am talking about clause a & d as b is removed, so I wrote 1st & 3rd like this.

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

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[Ashutosh Shukla]

Hi Shubham Ji,

Yes, I was aware that Section 248(1)(b) has been omitted. That is why I relied on the provisions of Sections 248(1)(a) and 248(1)(c) while answering the question. Nevertheless, if your question was about Sections 248(1)(a) and 248(1)(d), I think that the difference is amply clear by the specific wording of the provisions itself. While the first ground shall be resorted to in the case of non-commencement of the business within one year of the company's incorporation, the second ground, i.e., 248(1)(d) becomes relevant if Section 10A is not complied with. 

Section 10A of the Companies Act 2013 prohibits the commencement of business by a company unless every subscriber to the memorandum has paid the value of the shares agreed to be taken by him as of the date of declaration, which is filed within 180 days of the incorporation. Now, let's say that there is a company called ABC Ltd incorporated on April 01, 2023. Its subscribers agreed to take a certain number of shares and made the needed contribution in this regard. Upon receipt of the funds, the company files INC-20A to this effect within 180 days counted from April 01, 2023. The company is now eligible to commence its business and the applicability of Section 248(1)(d) is ruled out. 

However, if the subscription amount is not paid and INC-20A is not filed within 180 days, the Registrar shall have the option to remove the name of the company from the register of companies well before the expiry of 1 year from the date of its incorporation. The window within which the power under Section 248(1)(d) of the Companies Act 2013 could be exercised by the Registrar is T+181 days to T+365 days (both inclusive), where T is the date of incorporation. On the other hand, if the company, despite making a declaration under Section 10A, fails to commence its business within one year of its incorporation, then the power of the Registrar to remove the name of the company from the register shall be drawn from the provisions of Section 248(1)(a). In other words, Section 248(1)(a) can be relied upon by the Registrar starting from T+366 days onwards. 

Hope the above explanation clears your doubt. Other members may provide their opinion as well. 

Thanks and Regards,

CS Ashutosh Shukla

[CA Shubham Nanda]

I understand sir, but Form INC-20A i.e. Commencement of Business, means business has already commenced. So, how can a company get covered under clause (a) i.e. Business not commenced within one year of incorporation? After filing INC-20A, even this clause becomes invalid. That's my understanding, but maybe I am wrong.

Thanks & Regards

Shubham Nanda & Co.

CA Shubham Nanda

(B.Com., ACA)

Mobile No. 9711018234

Email: shubhamn...@gmail.com

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[CS A Rengarajan]

business  commenced  means the  company  has  opened bank  account and deposited subscriber to  memorandum and started the operations

Regards

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A. Rengarajan

Practising Company Secretary

Rengarajan& Associates

Mobile 9381011200 /8072763129

[CA Shubham Nanda]

Okay. Means filing of INC-20A doesn't mean commencement of business. The Beginning of business operations is called commencement of business, not even just opening of account and depositing the capital.

Thanks & Regards

Shubham Nanda & Co.

CA Shubham Nanda

(B.Com., ACA)

Mobile No. 9711018234

Email: shubhamn...@gmail.com

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[CS A Rengarajan]

Filing of INC 20A 

3[,2[1[10A.Commencement of business etc. (1) A company incorporated after the commencement of the Companies (Amendment) Ordinance, 2[2019] and having a share capital shall not commence any business or exercise any borrowing powers unless— (a) a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation of the company in such form and verified in such manner as may be prescribed, with the Registrar that every subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of making of such declaration; and (3) Where no declaration has been filed with the Registrar under clause (a) of sub-section (1) within a period of one hundred and eighty days of the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, without prejudice to the provisions of sub-section (2), initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.]]]

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A. Rengarajan

Practising Company Secretary

Rengarajan& Associates

Peer Review certificate No 3494/2023

Mobile 9381011200 /8072763129

[CA Shubham Nanda]

Form INC-20A is just a declaration of Subscription Money received. It's not an actual commencement of business which is needed for clause (a).

Thanks & Regards

Shubham Nanda & Co.

CA Shubham Nanda

(B.Com., ACA)

Mobile No. 9711018234

Email: shubhamn...@gmail.com

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[CS A Rengarajan]

After the declaration  you are supposed to commence business 

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[CS A Rengarajan]

Once subscriber money paid to the company account ready for commencement of bu

[CA Shubham Nanda]

Okay.... So, in clause (a), if INC-20A filed, but not commenced any business since 1 year of incorporation.

Clause (d), Subscription Money not received & INC-20A not filed.

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

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[CA Shubham Nanda]

One more thing, if a company's bank account opened & money received, but they didn't filed INC-20A. Then, in which clause they can go for strike off as more than 180 days lapsed?

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

[Ashutosh Shukla]

The entire confusion is because of the incorrect naming of that form as "Declaration of Commencement of Business." Section 10A or Rule 23 of the Companies (Incorporation) Rules, 2014 do not use such wordings. Rather they say something to the effect that "declaration under section 10A". This declaration is that the subscribers have made the required payment and subsequent to this declaration the company becomes entitled to "commence the business." The term commencement of business has not been expressly defined under the Companies Act 2013, but based on Section 10A(3) of the Companies Act 2013, it is nothing but the first instance of a company carrying on any business or operations in pursuance of its objects. 

Having regard to the above provisions, the mere filing of INC-20A does not mean that a company has commenced its business. Rather, its filing statutorily enables the company to start carrying on any business or operations. Please pay close attention to the wording of Section 10A(3) in this regard. Now, if we relook at the provisions of Sections  248(1)(a) and 248(1)(d), it is worth mentioning that the term "commence" is only mentioned under Section 248(1)(a) and not under section  248(1)(d). Section  248(1)(d) uses the term "declaration". 

A clear distinction between the two is established in the following manner. If I meant that by filing INC-20A a company has commenced its business, I would not have said that a company is supposed to carry on any business or operations in addition to the declaration under Section 10A(3). Therefore, filing INC 20A and commencing the business are two different things. The former is a declaration of the receipt of subscription money and the latter is the actual start of carrying on business and operations, which only happens when the former condition is fulfilled. 

Now, since I know that the declaration under Section 10A is merely an authorization for the company to commence its business, I have focused only on that declaration under Section 248(1)(d) and made it a ground for strike-off. Also, since I know that the commencement of business is entirely a different thing and a prerogative of the company's management, I have made it a separate ground of strike-off because I want the companies to start their business ASAP, as the same shall be in the larger economic interest of the country. Accordingly, I have inserted  248(1)(a) in the Companies Act 2013. One more thing, if the company has started its business, I also intend to keep it doing so for as long as possible. For that reason, I have inserted  248(1)(c). Accordingly, in my opinion, failure to file the declaration shall entitle the Registrar to remove the name of the company from the 181st day and not commencing the business shall entitle the Registrar to remove the name from 366 days onwards. 

Hope the above is clear :) But yes, your doubt is very genuine! The existing provisions are very confusing and the line of demarcation between commencing the business, carrying on the business, and the declaration under section 10A is very fine. 

[CA Shubham Nanda]

Oh.... That's great explanation sir.

Thank you for the clarification.

It means if a company opens a bank account and subscribers deposited the subscription amount, but didn't filed the declaration u/s 10A and want to go for strike off now, then the company can go for strike off under clause (d) as declaration not filed within 180 days.

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

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[Ashutosh Shukla]

Yes, but the company would still be required to extinguish its liabilities. The penal provisions under section 10A(2) would be applicable to the company and it would be necessary to deal with that part first. Section 248(1)(6) is also relevant in this regard. Other members may also share their opinion. 

Thanks and Regards,

CS Ashutosh Shukla

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[CA Shubham Nanda]

Sir actually in one case company opened an account and subscribers deposited the subscription money. No other transaction happened since Incorporation. So, now they wanna go for strike off as they don't want to start the business. They closed the account and no other liability is there. Just 180 days completed.

So, I told them to go with clause (d) as INC-20A not filed.

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

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[Ashutosh Shukla]

Then it appears that the Registrar shall not have any issues. 👍

Thanks and Regards

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[CA Shubham Nanda]

Yes.... Thanks for your guidance sir.

I appreciate your efforts.

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com

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[CA Shubham Nanda]

I have one more case.

One year completed since Incorporation, neither bank account opened, nor INC-20A filed till date.

So, in this case, under which clause company should go for strike off? (a) or (d)

Thanks & Regards

Shubham Nanda & Co.
CA Shubham Nanda (B.Com., ACA)

Contact No. 9711018234
Email Id: shubhamn...@gmail.com