The Ministry of Corporate Affairs (MCA) proposes stringent measures against defunct companies that do not opt for the Easy Exit Scheme-2010, or EES-2010.
The move comes in the wake of poor response to the scheme, which came into effect on May 30 and remains in force till August 30, under which out of a total of over 500,000 unlisted defunct companies, only around 240 have applied to the ministry.
The government came up with EES-2010 to facilitate an easy exit route for the defaulting companies and grant them amnesty from violations of the Companies Act and criminal prosecution in the process.
Officials said that the ministry proposed to make public the names and addresses of the directors on its websites once the scheme expired and a defunct company failed to avail of it.
Further, these directors will be disqualified from becoming directors of other companies under section 274(1) (g) of the Companies Act, 1956. Besides, under Sections 267 and 274, these directors will be debarred from being promoters of any other businesses or being deemed directors of businesses by virtue of having control on the board of directors.
While the Section 267 of the Companies Act deals with disqualification of a person from being appointed as managing director of a company, the Section 274 disqualifies a person to act as director. The Section 274 (1)(g), in particular, deals in disqualification of a director for non-filing of returns with the registrar of companies.
Criminal prosecution will be initiated after filing a case against the company and its directors in the criminal procedure court for declaring these directors as defaulters. “This will facilitate recovery of funds and other obligations by attaching their property,” said officials.
EES-2010 comes after a gap of five years, the last one being in 2005. The rider in this scheme is that it is applicable to only those companies that are either not in operation since incorporation or not in business after April 1, 2008.
Official sources said the salient feature of the scheme is that it is absolutely free and could be filed online. The last scheme, which came in 2005, required a company to first pay an application fee of Rs 2,500, and then update its records and be ready to quit.
Before this, companies were required to first update their balance sheets for all the years in which they remained functional, even if they were not doing business. There were penal fees, which were ten times the original fees for every filing. Besides, the matter was referred to the court for criminal prosecution.
Among the formalities outlined in the notification to opt for EES, the primary requirement is that a company needs to be defunct and, if it is a government company, it needs a “no objection certificate” issued by the administrative ministry concerned.
The EES-2010 form and statement of account for the last one month of the company need to be certified by a practicing chartered accountant, company secretary or cost accountant, and the company needs to disclose pending litigation.
Every director of the company, individually or collectively, would have to submit an indemnity bond stating that losses, claims or liabilities would be met in full if they arise after exiting the business.
