Why is Company Closure mandatory for Defunct Companies?

Why is Company Closure mandatory for Defunct Companies?. Many directors of inactive or defunct Private Limited Company in India often overlook the importance of formally closing their company assuming that “no operations mean no obligations”. However, this misconception can result in serious financial and legal consequences. If a Private Limited company after incorporation does not do any such compliances which are mandatory in nature to start the operation, attention is required prompt for avoiding any future liabilities from MCA part. If Directors fail to start the business, mutually closure of the company by filing a simple process in STK-2 with the help of Compliance Calendar LLP serving PAN India in Legal, Secretarial, compliance and tax. 
Moreover, if any company starts its business, failure to file annual returns and ROC filings for 3 consecutive years can lead to MCA adjudication for non-compliance and disqualification of all directors under Section 164 (2) (a) of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) and the Registrar of Companies (ROC) actively enforce compliance, imposing hefty penalties, directors disqualifications, and even legal proceedings against defaulting companies.
Several MCA adjudication orders have already been issued for non-compliance under Sections 92 & 134 of the Companies Act, penalizing companies for failing to file AOC-4 (Financial Statements) and MGT-7/MGT-7A (Annual Return) with the MCA. To avoid penalties and legal troubles, it is a major step for inactive companies to either maintain compliance or opt for voluntary strike-off before MCA (ROC) action is taken.
Why Should You Close a Defunct Company which is inoperative since Incorporation or for more than two years of failing to file INC-20A post Incorporation ? 
If a company in India, including a private limited company, fails to commence its business, the directors may find that their purpose for maintaining the company no longer exists. The lack of funding, difficulties in opening a bank account, and other operational challenges can make it impractical to continue. For many startups, keeping a non-operational company registered without fulfilling compliance obligations can be risky. This often leads to many major complications, such as penalties for non-compliance, director disqualifications, legal MCA or RD notices from authorities, and difficulties in future business ventures.
Why is it important to file STK-2 sue moto ?
To avoid MCA Penalties & Legal Action
As per Section 92(5) of the Companies Act, 2013, failing to file annual returns can attract huge penalties:
• Rs. 10,000 for the company and every officer who is in default.
• Additional Rs. 100 per day for continued non-compliance.
• Maximum penalty: Rs. 2,00,000 for the company and Rs. 50,000 per director.
Furthermore, the Registrar of Companies (ROC) can initiate legal proceedings, leading to further complications for Disqualification of Directors and closure of company by MCA itself and also can impose penalties for non compliances by issuance of RD Adjudication notice to company or all directors in default. 
Prevent Director Disqualification
If directors fail to file financial statements and annual returns for three consecutive years, they can be disqualified for five years from acting as a director in any company under Section 164(2) (a) of the Companies Act, 2013. This means you cannot:
• Start a new company.
• Hold directorship in any active company.
• Raise funds or apply for bank loans under your directorship.
Save on Compliance Costs & Avoid Unnecessary Liabilities
Even if a Private Limited Company is not running, it must still complete the MCA and other Compliances such as 
• Annual Returns (MGT-7/MGT-7A)
• Financial Statements (AOC-4)
• Income Tax Returns
• GST Returns filing if any
• TDS Filing if any
• DPT-3 If any
• Appointment of Auditor, ADT-1 if any
• Annual DIN KYC of Directors 
• DIR-12 for regularization of Additional Director or Resignation case as may be
• Other compliance applicable if any
Failing to do so adds unnecessary financial burden due to hefty fines and penalties. Closing the private limited company legally is cheaper and smarter than accumulating fines and penalties under the company law for default under section 92, 134 etc.
How to Close a Defunct Company Easily?
The easiest and cost-effective way to close an inactive company is via Fast Track Exit (FTE), STK-2 Filing under Section 248 of the Companies Act, 2013. 
Step 1: Check Eligibility for Closure Under 248 (STK-2) of Companies Act 2013
If the ROC finds reasonable grounds that:
• The company has failed to commence business within one year of incorporation.
• The company has not carried out any business for the last two financial years and has not applied for Dormant Company status under Section 455.
• The subscribers have not paid their initial subscription amount which they had undertaken to pay at the time of incorporation and have not filed a declaration under Section 10A within 180 days of incorporation.
• Physical verification under Section 12(9) reveals that the company is not operational at its registered office.
Step 2: Clear All Pending Compliances
Conditions for Voluntary Closure:
• The company must not have carried out any business for two financial years.
• It should have no pending liabilities (bank loans, creditors, etc.).
• It should not be under any regulatory investigation.
• File any pending ROC returns if having Sale in any year to avoid objections.
Step 3: Pass a Board Resolution or Consent from Shareholders 
• Pass a Board Resolution or Obtain Shareholder Consent
• Conduct a Board Meeting to approve the closure under Section 248 and state the grounds for STK-2 filing.
Note: Choose one of the following options:

Pass a Special Resolution and file Form MGT-14 with the ROC.

Obtain consent from at least 75% of shareholders to proceed with the strike-off process.

Step 4: File Form STK-2 with MCA (C-PACE)
Submit an application in Form STK-2 with the following documents: 
• Indemnity Bond (STK-3) signed by all directors along with two witnesses on stamp paper.
• Statement of Assets & Liabilities (STK-8).
• Board resolution approving the closure.
• Affidavit from directors (STK-4) on stamp paper.
• Latest bank statement showing zero balance or bank closure letter.
• Company KYC (COI and PAN)
• NIL ITR Copy 
• KYC of all Directors certified by a professional (CA,CS, etc.)
• GST surrender certificate, if applicable
Step 5: Approval from ROC (C-PACE)
After filing STK-2, if no discrepancies or remarks are found in the form, C-PACE updates the company's status on the MCA portal from ACTIVE to UNDER PROCESS OF STRIKE OFF. The C-PACE-MCA then verifies the submitted documents and publishes a notice in the Official Gazette in Form STK-6. If no objections arise within 30-60 days, the application is approved by the MCA, and the company's status is officially changed from UNDER PROCESS OF STRIKE OFF to STRIKE OFF.
How CCL Can Help You to Close Your Pvt Ltd Company in India ?
Closing a Private Limited Company is a legal process under the section 248 of the Companies Act 2013, but we at CCL make it easy, affordable, and hassle-free for you! With our complete end-to-end assistance in company closure by filing STK-2, we handle everything from the quick filing of STK-2 to legal documentation, by checking full compliance to prevent any future liabilities including setting off the liabilities, Company ITR Filing , MCA ROC Filing, Annual DIN KYC if any and specially surrender of GST, Bank closure etc. 
Our easy process for private limited company closure helps to get the hassle-free experience. First, we conduct an eligibility or grounds check to verify if your company qualifies for strike-off under Section 248. Next, we prepare and organize all necessary documents STK-3, STK-4, STK-8 etc, including the Board Resolution, Shareholder Approval, Indemnity Bond, Affidavit, Statement of Assets & Liabilities, and Bank Closure Statement/ITR. Once the documentation is ready, we handle the filing of STK-2 with the ROC, through proper submission and tracking its progress. Finally, we secure CPACE MCA approval and strike-off confirmation, through change of status of company at MCA “under process of Strike off” then Strike off. 
FAQs
Q1. What is a Defunct Company?
Ans. A defunct company is a business entity that is no longer operational, has no financial transactions, and does not comply with legal requirements such as annual filings and tax returns. Such companies may be inactive due to financial difficulties, business restructuring, or strategic decisions.
Q2. Why is Company Closure Mandatory for Defunct Companies?
Ans. Closing a defunct company is mandatory to avoid legal liabilities, penalties, and compliance issues. If a company remains registered but inactive, it is still required to file annual returns, pay government fees, and maintain statutory records. Failing to do so can result in fines and even blacklisting of directors.
Q3. What Are the Legal Consequences of Not Closing a Defunct Company?
Ans. If a defunct company is not officially closed, it may face:\n
• Penalties for non-compliance (late filing of annual returns and financial statements).
• Prosecution of directors under the Companies Act for failing to meet statutory obligations.
• Strike-off by the Registrar of Companies (ROC) under Section 248 of the Companies Act, 2013.
• Inability to start a new business, as directors of a non-compliant company may be disqualified.
Q4. How Can a Defunct Company Be Officially Closed?
Ans. A defunct company can be closed through:\n
• Fast Track Exit (FTE) Mode: A simplified process for closing companies that have no assets, liabilities, or business transactions.
• Voluntary Striking Off: Application under Section 248 of the Companies Act, 2013 by filing Form STK-2 with ROC.
• Liquidation or Winding-Up: If the company has outstanding liabilities, a formal liquidation process is required through the National Company Law Tribunal (NCLT).
Q5. What Are the Benefits of Closing a Defunct Company?
Ans. • Prevention of legal risks and penalties for non-compliance.
• Avoids unnecessary costs such as ROC annual fees, audits, and tax filings.
• Removes director disqualification risks, allowing them to start new ventures.
• Ensures a clean legal record, preventing future complications with authorities.
Q6. What Happens If a Company is Struck Off by the ROC?
Ans. If the Registrar of Companies (ROC) strikes off a defunct company due to non-compliance, the company ceases to exist legally. However, directors and shareholders remain responsible for outstanding liabilities, and revival of the company requires approval from the NCLT through a legal process.
Q7. Can a Defunct Company Be Revived After Closure?
Ans. Yes, a defunct company can be revived by filing an application with the National Company Law Tribunal (NCLT) within 20 years of its closure. However, revival is complex, requiring proof of genuine business operations, clearing past liabilities, and justifying why the company should be reinstated.

Many directors of inactive or defunct Private Limited Company in India often overlook the importance of formally closing their company assuming that “no operations mean no obligations”. However, this misconception can result in serious financial and legal consequences. If a Private Limited company after incorporation does not do any such compliances which are mandatory in nature to start the operation, attention is required prompt for avoiding any future liabilities from MCA part. If Directors fail to start the business, mutually closure of the company by filing a simple process in STK-2 with the help of Compliance Calendar LLP serving PAN India in Legal, Secretarial, compliance and tax.

Moreover, if any company starts its business, failure to file annual returns and ROC filings for 3 consecutive years can lead to MCA adjudication for non-compliance and disqualification of all directors under Section 164 (2) (a) of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) and the Registrar of Companies (ROC) actively enforce compliance, imposing hefty penalties, directors disqualifications, and even legal proceedings against defaulting companies.

Several MCA adjudication orders have already been issued for non-compliance under Sections 92 & 134 of the Companies Act, penalizing companies for failing to file AOC-4 (Financial Statements) and MGT-7/MGT-7A (Annual Return) with the MCA. To avoid penalties and legal troubles, it is a major step for inactive companies to either maintain compliance or opt for voluntary strike-off before MCA (ROC) action is taken.

Why Should You Close a Defunct Company which is inoperative since Incorporation or for more than two years of failing to file INC-20A post Incorporation ?

If a company in India, including a private limited company, fails to commence its business, the directors may find that their purpose for maintaining the company no longer exists. The lack of funding, difficulties in opening a bank account, and other operational challenges can make it impractical to continue. For many startups, keeping a non-operational company registered without fulfilling compliance obligations can be risky. This often leads to many major complications, such as penalties for non-compliance, director disqualifications, legal MCA or RD notices from authorities, and difficulties in future business ventures.

Why is it important to file STK-2 sue moto ?

To avoid MCA Penalties & Legal Action

As per Section 92(5) of the Companies Act, 2013, failing to file annual returns can attract huge penalties:

• Rs. 10,000 for the company and every officer who is in default.

• Additional Rs. 100 per day for continued non-compliance.

• Maximum penalty: Rs. 2,00,000 for the company and Rs. 50,000 per director.

Furthermore, the Registrar of Companies (ROC) can initiate legal proceedings, leading to further complications for Disqualification of Directors and closure of company by MCA itself and also can impose penalties for non compliances by issuance of RD Adjudication notice to company or all directors in default.

Prevent Director Disqualification

If directors fail to file financial statements and annual returns for three consecutive years, they can be disqualified for five years from acting as a director in any company under Section 164(2) (a) of the Companies Act, 2013. This means you cannot:

• Start a new company.

• Hold directorship in any active company.

• Raise funds or apply for bank loans under your directorship.

Save on Compliance Costs & Avoid Unnecessary Liabilities

Even if a Private Limited Company is not running, it must still complete the MCA and other Compliances such as

• Annual Returns (MGT-7/MGT-7A)

• Financial Statements (AOC-4)

• Income Tax Returns

• GST Returns filing if any

• TDS Filing if any

• DPT-3 If any

• Appointment of Auditor, ADT-1 if any

• Annual DIN KYC of Directors

• DIR-12 for regularization of Additional Director or Resignation case as may be

• Other compliance applicable if any

Failing to do so adds unnecessary financial burden due to hefty fines and penalties. Closing the private limited company legally is cheaper and smarter than accumulating fines and penalties under the company law for default under section 92, 134 etc.

How to Close a Defunct Company Easily?

The easiest and cost-effective way to close an inactive company is via Fast Track Exit (FTE), STK-2 Filing under Section 248 of the Companies Act, 2013.

Step 1: Check Eligibility for Closure Under 248 (STK-2) of Companies Act 2013

If the ROC finds reasonable grounds that:

• The company has failed to commence business within one year of incorporation.

• The company has not carried out any business for the last two financial years and has not applied for Dormant Company status under Section 455.

• The subscribers have not paid their initial subscription amount which they had undertaken to pay at the time of incorporation and have not filed a declaration under Section 10A within 180 days of incorporation.

• Physical verification under Section 12(9) reveals that the company is not operational at its registered office.

Step 2: Clear All Pending Compliances

Conditions for Voluntary Closure:

• The company must not have carried out any business for two financial years.

• It should have no pending liabilities (bank loans, creditors, etc.).

• It should not be under any regulatory investigation.

• File any pending ROC returns if having Sale in any year to avoid objections.

Step 3: Pass a Board Resolution or Consent from Shareholders

• Pass a Board Resolution or Obtain Shareholder Consent

• Conduct a Board Meeting to approve the closure under Section 248 and state the grounds for STK-2 filing.

Note: Choose one of the following options:

Pass a Special Resolution and file Form MGT-14 with the ROC.
Obtain consent from at least 75% of shareholders to proceed with the strike-off process.

Step 4: File Form STK-2 with MCA (C-PACE)

Submit an application in Form STK-2 with the following documents:

• Indemnity Bond (STK-3) signed by all directors along with two witnesses on stamp paper.

• Statement of Assets & Liabilities (STK-8).

• Board resolution approving the closure.

• Affidavit from directors (STK-4) on stamp paper.

• Latest bank statement showing zero balance or bank closure letter.

• Company KYC (COI and PAN)

• NIL ITR Copy

• KYC of all Directors certified by a professional (CA,CS, etc.)

• GST surrender certificate, if applicable

Step 5: Approval from ROC (C-PACE)

After filing STK-2, if no discrepancies or remarks are found in the form, C-PACE updates the company's status on the MCA portal from ACTIVE to UNDER PROCESS OF STRIKE OFF. The C-PACE-MCA then verifies the submitted documents and publishes a notice in the Official Gazette in Form STK-6. If no objections arise within 30-60 days, the application is approved by the MCA, and the company's status is officially changed from UNDER PROCESS OF STRIKE OFF to STRIKE OFF.

How CCL Can Help You to Close Your Pvt Ltd Company in India ?

Closing a Private Limited Company is a legal process under the section 248 of the Companies Act 2013, but we at CCL make it easy, affordable, and hassle-free for you! With our complete end-to-end assistance in company closure by filing STK-2, we handle everything from the quick filing of STK-2 to legal documentation, by checking full compliance to prevent any future liabilities including setting off the liabilities, Company ITR Filing , MCA ROC Filing, Annual DIN KYC if any and specially surrender of GST, Bank closure etc.

Our easy process for private limited company closure helps to get the hassle-free experience. First, we conduct an eligibility or grounds check to verify if your company qualifies for strike-off under Section 248. Next, we prepare and organize all necessary documents STK-3, STK-4, STK-8 etc, including the Board Resolution, Shareholder Approval, Indemnity Bond, Affidavit, Statement of Assets & Liabilities, and Bank Closure Statement/ITR. Once the documentation is ready, we handle the filing of STK-2 with the ROC, through proper submission and tracking its progress. Finally, we secure CPACE MCA approval and strike-off confirmation, through change of status of company at MCA “under process of Strike off” then Strike off.

FAQs

Q1. What is a Defunct Company?

Ans. A defunct company is a business entity that is no longer operational, has no financial transactions, and does not comply with legal requirements such as annual filings and tax returns. Such companies may be inactive due to financial difficulties, business restructuring, or strategic decisions.

Q2. Why is Company Closure Mandatory for Defunct Companies?

Ans. Closing a defunct company is mandatory to avoid legal liabilities, penalties, and compliance issues. If a company remains registered but inactive, it is still required to file annual returns, pay government fees, and maintain statutory records. Failing to do so can result in fines and even blacklisting of directors.

Q3. What Are the Legal Consequences of Not Closing a Defunct Company?

Ans. If a defunct company is not officially closed, it may face:\n

• Penalties for non-compliance (late filing of annual returns and financial statements).

• Prosecution of directors under the Companies Act for failing to meet statutory obligations.

• Strike-off by the Registrar of Companies (ROC) under Section 248 of the Companies Act, 2013.

• Inability to start a new business, as directors of a non-compliant company may be disqualified.

Q4. How Can a Defunct Company Be Officially Closed?

Ans. A defunct company can be closed through:\n

• Fast Track Exit (FTE) Mode: A simplified process for closing companies that have no assets, liabilities, or business transactions.

• Voluntary Striking Off: Application under Section 248 of the Companies Act, 2013 by filing Form STK-2 with ROC.

• Liquidation or Winding-Up: If the company has outstanding liabilities, a formal liquidation process is required through the National Company Law Tribunal (NCLT).

Q5. What Are the Benefits of Closing a Defunct Company?

Ans. • Prevention of legal risks and penalties for non-compliance.

• Avoids unnecessary costs such as ROC annual fees, audits, and tax filings.

• Removes director disqualification risks, allowing them to start new ventures.

• Ensures a clean legal record, preventing future complications with authorities.

Q6. What Happens If a Company is Struck Off by the ROC?

Ans. If the Registrar of Companies (ROC) strikes off a defunct company due to non-compliance, the company ceases to exist legally. However, directors and shareholders remain responsible for outstanding liabilities, and revival of the company requires approval from the NCLT through a legal process.

Q7. Can a Defunct Company Be Revived After Closure?

Ans. Yes, a defunct company can be revived by filing an application with the National Company Law Tribunal (NCLT) within 20 years of its closure. However, revival is complex, requiring proof of genuine business operations, clearing past liabilities, and justifying why the company should be reinstated.