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Dormant Status Filing

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Overview

What is a Dormant Status Filing?

A company that is formed for a future project, or that holds an asset or intellectual property but has no significant accounting transactions, or that is otherwise inactive, may apply to the Registrar of Companies (ROC) to obtain the status of a “Dormant Company” under Section 455 of the Companies Act, 2013 read with the Companies (Miscellaneous) Rules, 2014. Dormant status allows such a company to remain on the register with significantly reduced compliance obligations, instead of either continuing to bear full annual compliance costs or being struck off.

NOTE ON DORMANT STATUS FILING

Obtaining and Maintaining Dormant Company Status under Section 455 of the Companies Act, 2013

1. Introduction

A company that is formed for a future project, or that holds an asset or intellectual property but has no significant accounting transactions, or that is otherwise inactive, may apply to the Registrar of Companies (ROC) to obtain the status of a “Dormant Company” under Section 455 of the Companies Act, 2013 read with the Companies (Miscellaneous) Rules, 2014. Dormant status allows such a company to remain on the register with significantly reduced compliance obligations, instead of either continuing to bear full annual compliance costs or being struck off.

A company is treated as an ‘inactive company’ if it has not carried on any business or operation, has not made any significant accounting transaction, and has not filed financial statements and annual returns during the last two financial years. Such an inactive company, or a company incorporated for a future project or to hold an asset/intellectual property, may apply to obtain dormant status by filing Form MSC-1, and thereafter file an annual Return of Dormant Company in Form MSC-3.

2. Salient Features of Dormant Status Filing

  • Obtained through Special Resolution and MSC-1: Dormant status can be obtained by any company (except an inactive company against which any inquiry, inspection, investigation, or prosecution is pending) by passing a Special Resolution and filing Form MSC-1 with the ROC.
  • Available to future-project/asset-holding companies too: A company holding an asset or intellectual property, or one incorporated for a future project without any significant transactions, can also apply for dormant status even without having remained inactive for two years, provided a Special Resolution is passed.
  • Certificate of Dormant Status (MSC-2): On approval of Form MSC-1, the ROC issues a Certificate in Form MSC-2 granting dormant status to the company; the company's status on the MCA master data is thereafter shown as ‘Dormant under Section 455.’
  • Simplified annual compliance – Form MSC-3: A dormant company must file a Return of Dormant Company annually in Form MSC-3, along with an auditor's certificate on the company's financial position, within 30 days from the end of each financial year.
  • Relaxed Board Meeting requirement: A dormant company is not required to hold a full-fledged AGM, but must hold at least one Board Meeting in each half of the calendar year, with a minimum gap of 90 days between the two meetings.
  • Certain minimum obligations continue: A dormant company continues to have a minimum number of directors as applicable to its category, must maintain proper books of account, and must get its accounts audited annually, though the reporting is significantly simplified compared to an active company.
  • Application for status of active company – Form MSC-4: A dormant company must file an application in Form MSC-4, along with the Return of Dormant Company in Form MSC-3, to obtain the status of an active company again, whenever it wishes to resume normal business activities.
  • Risk of strike-off for continued non-compliance: If a dormant company fails to file its financial statements or annual returns for two consecutive financial years, the ROC may initiate the process of striking off the company's name from the register.
  • Not a permanent alternative to closure: A company cannot remain dormant indefinitely without limit; if a dormant company does not carry out any business for two consecutive financial years, its status may be examined by the ROC, and the company may be struck off if found to be defunct.

3. Documents Required

3.1 Documents for Obtaining Dormant Status (Form MSC-1)

S. No. Document / Detail Purpose
1 Certified true copy of the Special Resolution approving dormant status Corporate approval for the application
2 Board Resolution authorising the application Authorisation for filing Form MSC-1
3 Statement of affairs of the company, certified by a Chartered Accountant (or audited financial statements) Reflects the current financial position
4 Auditor's certificate confirming no significant accounting transaction Supports eligibility for dormant status
5 Certificate regarding no inspection/inquiry/investigation ordered or pending against the company Confirms eligibility under Section 455
6 Certificate that the company has no public deposits outstanding/deposit-related default Confirms eligibility under Section 455
7 Consent of lender, if the company has any outstanding loans (secured or unsecured) Confirms lender's no-objection to dormant status

3.2 Documents for Annual Return of Dormant Company (Form MSC-3)

S. No. Document / Detail Purpose
1 Financial statements of the dormant company for the year Basis for the annual return
2 Auditor's report on the financial statements Confirms accuracy of financial position
3 Board Resolution noting the annual return Corporate approval before filing

3.3 Documents for Obtaining Active Status Again (Form MSC-4)

S. No. Document / Detail Purpose
1 Return of Dormant Company in Form MSC-3, up to date Must be filed along with the application for active status
2 Board Resolution approving the application for active status Corporate approval for resuming active status
3 Updated financial statements as on the date of application Reflects current financial position

4. Complete Process of Dormant Status Filing

4.1 Process for Obtaining Dormant Status

  1. Board Meeting: The Board of Directors considers the proposal to apply for dormant status and recommends it for shareholder approval, and convenes a General Meeting.
  2. Special Resolution: Shareholders pass a Special Resolution approving the application for dormant status (or, alternatively, consent of at least three-fourths of shareholders in value may be obtained where a General Meeting is not held, as permitted under the Rules).
  3. Verification of Eligibility: The company confirms that it has no inspection, inquiry, investigation, or prosecution pending; no public deposits outstanding or defaults thereon; no outstanding statutory dues, secured/unsecured loans without lender consent; and no other disqualifying condition prescribed under the Rules.
  4. Preparation of Form MSC-1: The company prepares Form MSC-1 on the MCA portal, attaching the Special Resolution, statement of affairs, auditor's certificate, and other required declarations.
  5. Filing of Form MSC-1: Form MSC-1 is digitally signed by a director and filed on the MCA portal along with the prescribed fee.
  6. Examination by the ROC: The ROC examines the application and, if satisfied, issues a Certificate in Form MSC-2 granting dormant status to the company.
  7. Status Update: On issuance of the certificate, the company's status on the MCA master data is updated to ‘Dormant under Section 455.’

4.2 Ongoing Compliance as a Dormant Company

  1. Board Meetings: The company holds at least one Board Meeting in each half of the calendar year, with a minimum gap of 90 days between the meetings.
  2. Maintenance of Books and Audit: The company maintains minimal books of account and gets its financial statements audited annually, even though it has no significant business transactions.
  3. Filing of Form MSC-3: The company files the Return of Dormant Company in Form MSC-3, along with an auditor's certificate on its financial position, within 30 days from the end of each financial year.
  4. Continuous Monitoring: The company continues to monitor that it does not exceed two consecutive financial years of non-filing, and reviews annually whether it wishes to continue as dormant or revert to active status.

4.3 Process for Reverting to Active Status

  1. Board Meeting: The Board of Directors decides to resume normal business activities and approves the application for obtaining active company status.
  2. Filing of Pending MSC-3: The company ensures the Return of Dormant Company (Form MSC-3) is up to date before applying for active status.
  3. Filing of Form MSC-4: The company files Form MSC-4 with the ROC, along with the requisite fee, applying for the status of an active company.
  4. ROC Approval: On being satisfied, the ROC updates the company's status on the MCA master data from ‘Dormant’ to ‘Active,’ and the company resumes filing its regular annual compliance forms (AOC-4, MGT-7/7A, etc.) from the following financial year.

5. Frequently Asked Questions (FAQs)

Q. What is a Dormant Company under the Companies Act, 2013? +
Ans. A Dormant Company is a company that has been granted status under Section 455 either because it has been inactive (no business, no significant accounting transaction, and no filing of financial statements/annual returns for the last two financial years), or because it was formed for a future project or to hold an asset/intellectual property without significant transactions.
Q. Can any company apply for dormant status? +
Ans. Most companies can apply, except a company against which any inspection, inquiry, or investigation has been ordered or is pending, or which has any inspection or prosecution pending in a court, or has outstanding public deposits or defaults thereon, or has outstanding statutory dues, unless the requisite consents/clearances are obtained.
Q. What is the benefit of obtaining dormant status instead of continuing normal compliance? +
Ans. A dormant company benefits from significantly reduced compliance – filing only the Return of Dormant Company (Form MSC-3) annually along with an auditor's certificate, instead of the full annual filings (AOC-4, MGT-7/7A) and other compliances applicable to an active company, while still legally continuing to exist.
Q. Is holding an Annual General Meeting mandatory for a dormant company? +
Ans. No. A dormant company is not required to hold a full AGM in the manner applicable to an active company, but must still hold at least one Board Meeting in each half of the calendar year, with a minimum gap of 90 days between the two meetings.
Q. What is the due date for filing the Return of Dormant Company (Form MSC-3)? +
Ans. Form MSC-3 must be filed within 30 days from the end of each financial year, along with a certificate from a Chartered Accountant regarding the financial position of the dormant company.
Q. Can a company remain dormant indefinitely? +
Ans. No. A company cannot remain dormant without limit. If a dormant company does not resume business or file its returns for a prolonged period, particularly for two consecutive financial years without compliance, the ROC may examine its status and initiate strike-off proceedings.
Q. How can a dormant company become active again? +
Ans. A dormant company must ensure its Return of Dormant Company (Form MSC-3) is up to date and then file an application in Form MSC-4 with the ROC, seeking the status of an active company; on approval, the company's MCA status is updated to ‘Active.’
Q. Does a dormant company need to get its accounts audited? +
Ans. Yes. Even though its compliance burden is reduced, a dormant company must maintain minimal books of account and have its financial statements audited, since the Return of Dormant Company (Form MSC-3) must be accompanied by an auditor's certificate on its financial position.
Q. Is dormant status the same as company strike-off? +
Ans. No. Dormant status allows a company to continue its legal existence on the register with reduced compliance, and it can be reactivated to normal business at any time by filing Form MSC-4. Strike-off, on the other hand, permanently removes the company's name from the register of companies.
Q. Is a Special Resolution mandatory for applying for dormant status? +
Ans. Yes. A company must pass a Special Resolution in a General Meeting (or obtain consent of at least three-fourths of members in value, where permitted) before filing Form MSC-1 to apply for dormant status.


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