The Hindu Business Line : Few takers for exit scheme for defunct cos

WITH the Simplified Exit Scheme 2003 introduced by the Ministry of Company Affairs luring very few takers, the Ministry has now asked the Institute of Company Secretaries of India (ICSI) to suggest further simplification of procedures to be adopted by companies and Registrar of Companies (RoCs) for striking off the names of defunct companies.

"Since the SES 2003 could not attract encouraging response, the Ministry has decided to formulate a more user-friendly procedure for exiting defunct companies. The Institute has sought comments from its members on the SES," said ICSI sources.

The exit scheme was meant to help the promoters of dead and dormant companies to erase their names from the RoC list and escape from the mandatory filings of returns each year.

Commenting on the reasons for the scheme failing to take off, ICSI professionals said, "The procedure was difficult which the corporates did not find it easy to comply with. This echoed the demands of the industry that the exit and entry routes should be made simpler for the corporate sector.

In concurrence with the views expressed by the company secretary professionals that complexities involved in the existing company law provisions was one of the reasons for the failure of the scheme, industry sources said: "There is a possibility that some companies could have taken shelter under the Board for Industrial and Financial Reconstruction." With the introduction of the exit scheme, the Ministry was hoping to lessen the burden on the RoCs, which have to cater to almost seven lakh companies.

As on March 31, 2004, only about 15,000 such defunct companies have made use of the scheme. As per Ministry sources, more than 60 per cent of the total number of companies registered have defaulted in compliances with the company law, including non-filing of mandatory documents with RoCs.

The scheme, introduced in March last year, was in operation for a full year till March 31, 2004. The scheme enabled the RoCs to strike off the names of defunct companies exercising suo motu the powers vested in them and on application made by directors confirming that the company has no assets and liabilities and has no intention to carry on the business and undertaking that they would be personally liable for claims arising in future.

Further, the SES route applied not only to companies making application under Section 560 of the Companies Act - power of Registrar to strike defunct company off register, but to those companies also which have not raised their paid-up capital as prescribed under the Act.

According to the data available as on December 12, 2002, there were around six lakh companies registered and nearly 1.7 lakh had defaulted in adhering to the guidelines issued by the Ministry pertaining to capital enhancement alone.

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