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Simplified Exit Scheme draws poor response

Richa Mishra

New Delhi , July 24

WITH less then 10 days to go before the Simplified Exit Scheme (SES) 2005 ceases to be in operation, few defunct companies have come forward to use the opportunity to getting their name struck off the register of the Registrar of Companies.

As on April 1, 2005 the total number of defunct companies was 1,51,759 of which the Ministry of Company Affairs has received applications for only 1,682 and approved 913 while 769 applications were being processed as on June 30.

This is despite the Company Affairs Ministry clearly indicating that after the scheme ends it will take necessary penal action under the Companies Act against defunct companies that have not made use of the scheme.

The highest number of defunct companies was from the Western region at 68,623, followed by South at 45,039 as on April 1. In the Northern region there were 11,011 such companies and the East had 27,086.

The scheme, which came into operation from February 1 and is to remain in force till July 31, is a time-bound exit option to enable defunct companies to get their names deleted from the register.

Earlier attempts of the Ministry had also met with little success. Under the new scheme except Section 25 companies, all defunct companies registered under the Companies Act can apply.

When asked about the reasons for the lukewarm response to the scheme, accountancy and company secretary professionals said that there are a few practical problems faced by the companies that want to make use of the scheme.

The scheme requires companies to have nil assets; this, according to the professionals, is not possible. The common rhetoric among the industry and professionals is that they were expecting the scheme to be extended, which does not seem likely to happen.

Further, the guidelines stipulate that non-banking financial companies not registered with the RBI and collective investment management companies not registered with the Securities and Exchange Board of India can avail themselves of this scheme only if they have not carried out any operation or commercial activity since incorporation.

However, if they are registered with their respective authorities, they can avail themselves of this scheme if they obtain a no-objection from their regulators. This is proving to be a hurdle for some of the companies in the sector, which want to use the scheme, professionals stated.

Besides, a company shall not be allowed to avail itself of this scheme in case any prosecution for a non-compoundable offence is pending against it. However, companies that are involved in compoundable offences under the Companies Act will be allowed to avail themselves of the scheme only if they file a compounding application first and then apply under this scheme. The legal procedure is also proving to be a deterrent for the companies to come forward, sources said.

There should be concept of automatic case withdrawal, professionals argued. Apart from these issues certain company promoters felt that the fee of Rs 3,000 being charged for using the scheme was too high.

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