What are vanishing companies?

Recently in a Parliamentary question, Ministry of corporate affairs was asked about the Vanishing companies.According to the definition available on the MCA website, a company is categorised as a vanishing firm in the following scenarios:

According to the definition available on the MCA website, a company is categorised as a vanishing firm in the following scenarios:

  • a company fails to file returns with the Registrar of Companies (RoC) for two years.
  • a listed company fails to file returns with the stock exchange for two years.
  • the company doesn’t maintain its registered office at the address mentioned in the RoC.
  • the company’s directors cannot be traced.

Minister of state for finance and corporate affairs Arjun Ram Meghwal said that the 2013 Companies Act provides sufficient safeguards against vanishing companies. For instance, the Act provides for only individuals with a director identification number (DIN) to become directors and entails physical verification of the registered office address of the company.

However, several experts disagree and say that present laws are inadequate. The issues are

  1. The listing requirements are very few.
  2. There is no immediate automatic alert to find out defaulting companies.
  3. Need for stronger enforcement and checks on RoC filings.
  4. There is no definition in the Companies Act, 2013.

There’s a need to address this aspect and broaden the concept of vanishing companies. Along with linking this concept to failure in filing returns etc, it also ought to be linked with the filing of repeated serious criminal complaints against promoters of companies alleging series of fraudulent acts where prima facie case is found to exist by Court coupled with Admission of multiple winding up companies by competent high court against such companies.

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