Section 455 permits a company that is formed for a future project or to hold an asset or intellectual property, and has no significant accounting transaction, to apply to the ROC for dormant status. The application is in Form MSC-1. A dormant company must file an annual return in Form MSC-3 and must comply with the reduced compliance regime.
The Reactivation Route
A dormant company that intends to resume business must apply to the ROC in Form MSC-4, accompanied by the annual return in MSC-3 for the relevant financial year. The application follows a board resolution approving the conversion. The ROC may approve the application and issue a certificate in Form MSC-5, restoring active status. The directors must file the application within seven days of the event that affects the dormant status—for example, the decision to commence business.
The Five-Year Limit
A dormant company can remain dormant for a maximum of five consecutive years. If it remains dormant beyond that period, the ROC may initiate strike-off proceedings under Section 248. The five-year limit is a hard stop: a company that intends to remain inactive beyond five years must either reactivate or accept the strike-off risk.
The Consequence of Functioning Without Reactivation
If a dormant company carries on business without applying for active status, the ROC may initiate an inquiry under Section 206, provide an opportunity of hearing, remove the company from the register of dormant companies and treat it as active. The company cannot rely on its dormant status as a defence to the business activity; the status is a compliance category, not a licence to operate outside the Act.
The Practical Discipline
The company should maintain the MSC-1, MSC-3 and MSC-4 filings, the board resolutions and the ROC correspondence. The decision to go dormant and the decision to reactivate should be documented before the event, not after. A company that goes dormant to avoid compliance and then resumes business without reactivation faces an inquiry and a reclassification.
Call to Action: We advise companies on dormant status, MSC-4 reactivation and the five-year strike-off risk. For a dormant-company review, contact office@anujdesaiassociates.com, Ph No. 9619456656, Website https://anujdesaiassociates.com, LinkedIn linkedin.com/in/ca-anuj-desai-122547230.