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Consequences of AOC Non-Compliance: Company Strike-Offs and Frozen Bank Accounts

Consequences of AOC Non-Compliance: Frozen Bank Accounts

This guide explores the situation where a company’s bank account is frozen because the company has been struck off, often due to not filing financial statements with the Ministry of Corporate Affairs (MCA). It provides a step-by-step process for unfreezing the account based on the provisions of the Companies Act, 2013. Banks frequently check the MCA’s database for the status of corporate clients. If a company is marked as ‘struck off,’ banks will freeze its accounts, halting all transactions and severely affecting business operations. This includes both debits and credits, and it means the company can’t open new accounts or use existing ones. To confirm if a company has been struck off, visit the MCA’s official site and look under the ‘Master Data’ section.

To prevent company name strike-off, ensure timely filing of financial statements. IndiaFilings experts can assist you.

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Financial Statement

A company’s Financial statements refer to formal records that provide a comprehensive overview of its financial performance and position during a specific period. These statements are prepared in accordance with accounting standards and regulations and are typically composed of the following components:

Balance Sheet
Income Statement (Profit and Loss Statement)
Cash Flow Statement
Statement of Changes in Equity

Notes to Financial Statements

Every company registered under the Companies Act 2013 is required to file a copy of its financial statements with the ROC. This filing must be done using Form AOC-4.

The financial statements, along with Form AOC-4, must be filed within thirty days following the commencement of the company’s Annual General Meeting (AGM). The AGM is typically held within six months from the end of the financial year.
Along with Form AOC-4, all necessary documents, such as the balance sheet, profit and loss account, cash flow statement, auditor’s report, and director’s report, must be attached to the financial statements.

If applicable, consolidated financial statements must also be prepared and filed along with the standalone financial statements.

Penalties for Non-Compliance

Non-compliance with the filing requirements of Form AOC-4, as mandated under Section 137 of the Companies Act 2013, can have serious consequences for a company.

One significant consequence is the imposition of penalties on the company, its directors, and officers. These penalties can vary depending on the duration of non-compliance and other factors but can be substantial.

Consequences of Non-Compliance of AOC 4

The consequences of non-compliance with filing Form AOC-4, as mandated under Section 137 of the Companies Act, 2013, can be significant. Here are some potential consequences:

Company Strike-Off

The ROC has the authority to initiate strike off proceedings against companies that fail to comply with statutory obligations, including filing of financial statements. If the ROC determines that the company has persistently failed to comply with filing requirements, it may issue notices and warnings to the company regarding potential strike off.

Bank Account Freezing

As mentioned, When a company fails to submit its financial statements, the Registrar of Companies (ROC) may strike it off, which leads to a freeze on its bank accounts. This step, supported by Section 248 of the Companies Act, aims to safeguard creditors and stakeholders by preventing potential fund misuse.

The Act permits the ROC to deregister a company if it hasn’t begun operations within a year of its setup or hasn’t been active for two straight financial years. Not filing required financial documents is seen as inactivity, raising concerns about the company’s commitment to its legal duties.

This bank account freeze also acts as a barrier against possible financial misdeeds, considering that companies facing strike-offs might not meet their statutory requirements.
To unlock the bank account and revive the company, directors must approach the National Company Law Tribunal (NCLT) as outlined in Section 252 of the Companies Act.

When a company is listed as ‘strick off’ on the MCA website, it is restricted from submitting any forms to the Registrar of Companies (ROC), with the exception of filings related to National Company Law Tribunal (NCLT) orders.

Company Restoration Process: Steps to Reinstate a Struck-off Company

The restoration of a company after it has been struck off by the Ministry of Corporate Affairs (MCA) involves several crucial steps to regain its legal status and resume operations.

Step 1: Audit of Accounts

The first critical action for a company facing a strike-off is to conduct an audit of its accounts. It’s essential for the company to prepare and have its financial statements ready. If the audit is taking place currently, the company must also move forward with a compounding application in accordance with the relevant Act provisions.

Step 2: Filing a Petition with the NCLT

To set the restoration process in motion, a petition must be submitted to the National Company Law Tribunal (NCLT) by one or more of the company’s shareholders. This application must include the requisite fees and be accompanied by a comprehensive set of supporting documents relevant to the case. These documents typically consist of:

A certified copy of the Memorandum of Association (MOA) and the Articles of Association (AOA).

The company’s Certificate of Incorporation.
A current list detailing the company’s directors.
A certified true copy (CTC) of the company’s master data from the Registrar.
A copy of the Registrar’s order for the company’s strike-off.
The most recent Income Tax Return filed by the company.
Signed copies of the company’s balance sheets for the past three years.
A CTC of the company’s bank statement.
A comprehensive list of the company’s shareholders.
An affidavit committing to complete any pending ROC forms within 30 days following the NCLT order.
A memorandum of appearance to accompany the petition.
An affidavit verifying the details and claims made in the petition.
A demand draft or e-filing receipt evidencing the payment of the NCLT application fee.

This meticulous compilation of documents is crucial for substantiating the company’s case for restoration and demonstrating compliance with statutory requirements.

Step 3: Justification for Restoration

In the petition submitted to the NCLT for the restoration of the company’s name, a compelling justification must be provided. This justification typically involves presenting evidence of recent business activities, such as:

Records of purchases or sales made by the company.
Documentation of income tax and GST returns filed.
Active contracts or agreements currently in force.
Proof of available cheques issued by the company.
Details of current employees listed on the company’s payroll.

In instances where there has been no recent business activity, the company is required to provide a thorough explanation to the NCLT. This explanation should also outline the company’s future business plans and strategies, including any existing contracts or orders.

Step 4: Final Steps

Following the NCLT order, the company must take several final steps to complete the restoration process:

Filing Certified Copy with Registrar: Within 30 days, the company must file a certified copy of the NCLT order with the Registrar using Form INC-28.
Reinstatement by Registrar: Upon receiving the certified copy, the Registrar reinstates the company’s name in the register.
Updating Company Status: The company’s status on the MCA website changes from ‘Strike Off’ to ‘Active’.
Filing Financial Statements: With the company’s status reinstated, it can file forms related to its financial statements and pay any additional fees that may be applicable.
Unfreezing Bank Account: To unfreeze the bank account, the company must submit the NCLT order and the updated Master Data from the MCA website, indicating the company’s status as ‘Active’, to the bank. The bank will then lift the freeze on the bank account.

Penalty & Fees for Restoration

Restoring a company’s name after it has been struck off by the Registrar of Companies (ROC) incurs penalties that vary based on the circumstances of each case. Directors are typically required to use their personal funds to cover these penalties, as banks will only lift the freeze on the company’s accounts once its status becomes ACTIVE following the filing of the NCLT order with the Ministry of Corporate Affairs (MCA) or ROC.

Additional fees prescribed under the Companies Act are imposed at a rate of ₹100 per day for delayed filing of Form AOC 4 and Form MGT 7 / MGT 7 A. It’s crucial to take prompt action to restore the company to avoid the accumulation of these penalties.

The longer the delay, the higher the fees escalate, quickly becoming a substantial financial burden for the company and its directors.
Therefore, swift action is imperative to minimize the financial impact and expedite the restoration process.

Time Duration for Restoration of a Company

The timeline for restoring a company’s name after being struck off can vary, typically spanning around 6 months. This duration accounts for the time required to secure a hearing at the National Company Law Tribunal (NCLT). Typically, the restoration process involves 3 to 4 NCLT hearings.

During these hearings, the NCLT assesses various factors, including the company’s operational status at the time of strike-off and its future prospects. If convinced of the company’s viability and compliance, the NCLT may issue an order for the restoration of the company’s name.

Donation as a Punitive Measure

In some instances, when the National Company Law Tribunal (NCLT) orders the restoration of a company, it may include a directive for the company to make donations to specific funds. These donations are often directed towards government-established relief funds like the Prime Minister’s Relief Fund. The purpose of these donations is typically twofold: to serve as a punitive measure for non-compliance and to contribute towards social welfare initiatives. The NCLT determines the exact fund and amount to be donated, specifying it in the order.

Conclusion

Also, a recent incident in West Bengal highlights the importance of AOC 4 Filings, as evidenced by the Ministry of Corporate Affairs (MCA) imposing a penalty of ₹3 lakhs due to non-compliance. So, Timely filing of financials is crucial to avoid company strike-offs and bank account freezes. Restoring a struck-off company can be a complex and costly process. Seeking professional assistance can streamline this process. Consistent compliance with regulatory responsibilities helps companies avoid hefty penalties and fees imposed by statutory authorities.

If your company has yet to complete the Complaince, acting immediately to the Company Strike off & Frozen account is crucial. IndiaFilings experts are here to guide you through the filing process, ensuring company compliance with the Ministry of Corporate Affairs’ regulations.