When a business ceases to operate or fails to take off after incorporation, or has remained inactive for two consecutive financial years without applying for dormant status, it may be labelled as a defunct company. These companies no longer engage in commercial activities and often hold no assets or liabilities.
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To maintain transparency in the corporate ecosystem and avoid unnecessary regulatory burdens, the Ministry of Corporate Affairs (MCA) in India allows such companies to be officially removed from records through a process called Fast Track Exit (FTE), now facilitated by the Centre for Processing Accelerated Corporate Exit (C-PACE).
The FTE scheme, launched on April 5, 2017, was designed to simplify the closure of companies that are no longer in business. This blog will help you understand what qualifies a company as defunct, how the strike-off process works, and why it matters.
What is a Defunct Company?
A defunct company refers to one that has ceased operations, failed to commence business, or gone bankrupt. Typically, such a company:
- Has no assets or liabilities
- Has not started a business within one year of incorporation
- Has remained inactive for the past two financial years
The term "defunct" isn't limited to companies alone- it can also refer to outdated laws, brands, or technologies that have lost relevance or utility.
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Understanding the Fast Track Exit (FTE)
Section 248 of the Companies Act, 2013 outlines processes for removing companies' names from the Register, including voluntary strike-off, often called Fast Track Exit (FTE), and suo motu removal by the Registrar of Companies (RoC) for inactive firms. These provisions offer a streamlined route to formally close down defunct entities.
How it works
- Registrar of Companies (RoC) may initiate a suo motu strike-off if a company fails to commence business within one year of incorporation or remains inactive for two consecutive financial years without applying for dormant status.
- Voluntary FTE starts with a board resolution and, where required, shareholder approval to close the company.
- Prepare the documents and obtain a professional certificate from a CA, CS, or CMA confirming that there are no outstanding liabilities.
- File Form STK-2 (company application for strike-off) on the MCA portal with digital signatures, and submit supporting forms STK-3 (indemnity) and STK-4 (affidavit).
- The RoC publishes a public notice and allows 30 days for objections.
- If no objections, the RoC completes scrutiny and publishes the final strike-off in the Gazette. Processing may take several weeks to months.
This process provides an efficient exit route for companies that are no longer operational, reducing both time and administrative burden.
What Causes a Company to Become Defunct?
A company becomes defunct when it ceases to function as a business entity. While some closures are involuntary due to financial issues, others are strategic. Key causes include:
1. Bankruptcy
- Financial insolvency due to excessive debt or poor performance.
- Inability to meet operating costs and obligations.
2. Internal Fraud or Misconduct
Mismanagement, fraudulent activities, or governance issues can erode trust and lead to shutdowns.
3. Loss of Market Trust
Companies that fail to adapt to changing customer needs or lose credibility often face closure.
4. Mergers and Acquisitions
- Sometimes, companies shut down due to strategic consolidation.
- The business may continue under a new entity, but the original company becomes defunct.
These causes highlight both internal and external pressures that can lead a company to cease operations.
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Examples of Defunct Companies in India
Understanding defunct companies becomes easier with real-world examples. Go First Airlines filed for bankruptcy in May 2023 and suspended flights amid severe financial distress. Kingfisher Airlines ceased operations in 2012 after mounting debts.
1. Atlas Cycles
- Reason: Operational losses, outdated technology, and declining demand
- Status: The last manufacturing unit in Sahibabad shut in June 2020 due to financial constraints, but operations and dispatches resumed from Sahibabad in September 2023.
2. Hike Messenger
- Reason: Intense competition from WhatsApp, unclear monetisation
- Status: Discontinued in 2021
3. Shuttl
- Reason: Post-pandemic slowdown, funding challenges
- Status: Acquired by Chalo in October 2021.
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Frequently Asked Questions
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Frequently Asked Questions
What are defunct companies?
A defunct company is a company that has ceased all commercial operations and has no significant assets or liabilities. It may have:
- Failed to commence business within one year of incorporation, or
- Remained inactive for two consecutive financial years without applying for dormant status.
Defunct companies are considered non-functional and may be struck off from the Register of Companies (ROC) by the Ministry of Corporate Affairs (MCA) through the Fast Track Exit (FTE) process.
What is the section of the defunct company under the Companies Act, 2013?
Section 248 of the Companies Act, 2013 – This section empowers the Registrar of Companies (RoC) to remove the name of a company from the register if it:
- Has not commenced business within one year of incorporation, or
- Has not carried on any business or operation for the two immediately preceding financial years.
Can I use the name of a defunct company?
Yes, you can use the name of a defunct company, but only after the name becomes available in the MCA database.
- Once a company is struck off, its name is typically reserved or protected for a limited time (usually 20 years) to prevent misuse.
- To use the name, you must check its availability on the MCA portal and ensure it is not under restriction or too similar to any active or recently struck-off company.
Can a defunct company be revived?
Yes, a defunct company can be revived under certain conditions.
- The company or any interested party (like a shareholder, director, or creditor) can file an application for revival with the National Company Law Tribunal (NCLT) under Section 252 of the Companies Act, 2013.
- The application must provide valid reasons and supporting documents (e.g., proof of continued business interest or error in strike-off).
- If the NCLT is satisfied, it may order the restoration of the company’s name to the Register of Companies, making it operational again.
- An application for revival must typically be filed within three years from the date of the ROC’s strike-off order.
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Swagatika Mohapatra is a storyteller & content strategist. She currently leads content and community at Razorpay Rize, a founder-first initiative that supports early-stage & growth-stage startups in India across tech, D2C, and global export categories.
Over the last 4+ years, she’s built a stronghold in content strategy, UX writing, and startup storytelling. At Rize, she’s the mind behind everything from founder playbooks and company registration explainers to deep-dive blogs on brand-building, metrics, and product-market fit.
