Strike Off of Section 8 Companies

Introduction

A Section 8 Company is a non-profit organization registered under the Companies Act, 2013, in India. These companies aim to promote charitable objectives such as education, art, commerce, science, social welfare, religion, and environmental protection. Unlike other companies, they do not distribute profits to their members but reinvest them for social causes. However, under certain circumstances, a Section 8 Company may need to be struck off from the register of companies.

Reasons for Striking Off a Section 8 Company

There are several reasons why a Section 8 Company may be struck off from the records of the Ministry of Corporate Affairs (MCA):

1. Voluntary Closure: If the members decide that the company is no longer viable or has fulfilled its objective, they can apply for closure.

2. Failure to Comply with Statutory Requirements: If the company fails to file financial statements or annual returns for two consecutive years, it may be struck off.

3. Non-Operation: If the company is inactive for an extended period, the Registrar of Companies (ROC) may take action to remove its name.

4. Regulatory Violations: If the company is found violating the terms under which its license was granted, the government can cancel its registration.

5. Misuse of Funds: If the company diverts funds for purposes other than those intended, the government can take legal action, leading to its closure.

6. Court Orders: In some cases, the closure of a Section 8 Company may be mandated by a court due to legal disputes or allegations of fraud.

Process of Striking Off a Section 8 Company

The process of striking off a Section 8 Company is governed by Section 248 of the Companies Act, 2013, and the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016.

1. Voluntary Striking Off

A Section 8 Company can apply for voluntary closure through the following steps:

• Board Resolution: The board of directors must pass a resolution approving the strike-off.

• Members’ Approval: A special resolution is passed in a general meeting, and a copy is filed with the ROC.

• Application to ROC: The company must file Form STK-2 along with necessary documents, including:

  • Indemnity bond (STK-3)

  • Statement of accounts

  • Affidavit by directors

  • Special resolution copy

• Verification and Approval: If satisfied, the ROC issues a public notice and, after 30 days, strikes off the company’s name.

2. Striking Off by ROC (Compulsory Strike Off)

If a company fails to meet compliance requirements, the ROC may initiate the strike-off process:

• A notice is issued to the company and its directors, asking for an explanation.

• If no response is received, the ROC issues a final notice.

• The company’s name is removed, and its status is marked as “struck off.”

Consequences of Striking Off a Section 8 Company

• The company ceases to exist legally.

• Directors may be disqualified from holding positions in other companies.

• Assets of the company are transferred to a government fund.

• Any pending legal proceedings remain unaffected.