The strike-off route: when to use it for dormant subsidiaries (and when NCLT is faster)

Dormant subsidiaries accumulate. A company sets up a subsidiary for a business line that does not work out. A foreign-investment vehicle is incorporated for a deal that does not close. A holding-company restructuring creates a layer that, two reorganisations later, has no operating purpose. Each of these subsidiaries continues to generate compliance obligations — annual filings, board meetings, statutory audit fees — for as long as the entity remains on the register.

Two routes close the subsidiary: voluntary strike-off under Section 248 of the Companies Act, 2013 via Form STK-2, and winding-up by the National Company Law Tribunal under Section 270 onwards. Strike-off is faster and cheaper. Winding-up is more rigorous and accommodates situations strike-off cannot.

The choice between them is determined by what the subsidiary has on its books. Most dormant subsidiaries qualify for strike-off. The minority that do not need to go through NCLT, and that determination is worth making upfront because attempting strike-off and being rejected costs three to six months of wasted time.

Eligibility for strike-off under STK-2

Section 248(2) read with Rule 4 of the Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 set the eligibility.

The company has not commenced its business within one year of incorporation, or is not carrying on any business for two immediately preceding financial years and has not made an application for dormant status.

The company has filed an application for strike-off in Form STK-2, after extinguishing all its liabilities and obtaining a no-objection from regulators where applicable.

The company has obtained the consent of seventy-five per cent of its members in terms of paid-up share capital.

What the rules also require, in practice: the company has filed up-to-date annual returns and financial statements before applying for strike-off (or files them with late fee at the time of application), the company has no pending litigation, and the company is not classified as a 'Section 8' company (charitable purposes) or a company with public deposits.

Section 248(7) prohibits strike-off for certain categories of company: vanishing companies, companies under inspection or investigation, companies against which prosecution is pending, companies with outstanding public deposits, and companies which have charges pending registration or satisfaction.

When strike-off fits

We use STK-2 for the following pattern: the subsidiary has no business activity, no employees, no outstanding loans or charges, no pending litigation, no related-party balances, and consent is achievable from the shareholders.

The typical example is a wholly-owned subsidiary that was set up for an Indian inbound investment from the parent. The subsidiary held no operating assets, made no investments, and after two years of inactivity the parent has decided to close it down. The shareholder consent is the parent's board resolution. The subsidiary's balance sheet shows share capital on the equity side and either a bank balance on the asset side (which is refunded to the parent before the application) or no assets at all.

STK-2 closes this subsidiary in about three to four months from application. The fee is modest. The process is administrative.

When STK-2 does not fit

Four categories of subsidiary cannot be closed by strike-off.

Secured creditors are present

If a charge exists on the subsidiary's assets — a working-capital facility, a term loan, a hypothecation — the strike-off cannot proceed until the charge is satisfied. CHG-4 must be filed before STK-2.

Where the underlying loan has been repaid but the CHG-4 was never filed, the remediation is to obtain the No Objection Certificate from the lender, file the CHG-4 with late fee, and then proceed to STK-2. Where the loan is genuinely outstanding, strike-off is not available — the subsidiary needs to repay or restructure the loan first.

Employee dues are outstanding

Statutory dues — gratuity, EPF, ESIC — that are owed to former or current employees must be discharged before strike-off. PF withdrawal applications must be processed, gratuity must be paid, and the relevant returns must be filed.

Where employee dues are material and cannot be resolved within the strike-off timeline, winding-up under NCLT may be the more workable route because it provides a formal mechanism for creditor settlement.

Regulatory matters are pending

If the subsidiary is under any pending tax assessment, GST notice, FEMA proceeding, or sector-regulator investigation, strike-off is barred under Section 248(7).

The pragmatic question is whether the regulatory matter can be closed before strike-off is sought. A pending tax assessment can be expedited; a long-running FEMA compounding can be filed and disposed of. The strike-off is then sought after the matter closes.

Litigation is pending

Any pending litigation by or against the subsidiary blocks strike-off. The subsidiary needs to either resolve the litigation, settle it, or have it withdrawn before STK-2 can proceed.

The STK-2 procedure

Pre-application

Annual filings up to the date of application are filed. Outstanding fees are paid. Bank accounts are closed (or are closed concurrent with the application). Charges are satisfied. Litigation is resolved or withdrawn. Shareholder consent is obtained — 75% by paid-up capital, by special resolution where the AOA so requires.

The application

STK-2 is filed online with the following attachments: the latest audited financial statements, the indemnity bond in Form STK-3 from each director (an undertaking to settle any liability that surfaces after strike-off), the affidavit in Form STK-4 from each director (declaring the truth of the information in STK-2), the board resolution and shareholder resolution authorising the strike-off, and the No Objection Certificate from the regulator where the subsidiary has been engaged in a regulated activity.

The fee for STK-2 is ₹10,000.

Public notice

The ROC publishes a public notice in Form STK-6 inviting objections from any person who has reason to object. The notice runs for 30 days. Concurrent with the public notice, the ROC also writes to the income-tax department, the GST authority, and any other relevant regulator inviting their objections.

If no objection is received, the ROC strikes the company off the register and publishes the strike-off notification in Form STK-7. The company is dissolved from the date of the notification.

If an objection is received, the ROC examines it. Where the objection is substantive (a creditor surfaces, a regulator flags a matter), the strike-off application is set aside and the company remains on the register.

Winding-up under NCLT: when it is faster

Winding-up under Section 270 was renamed and re-framed by the Insolvency and Bankruptcy Code, 2016. Voluntary winding-up of a solvent company is now governed by Section 59 of the IBC, with the National Company Law Tribunal as the adjudicating authority.

The process is more involved than strike-off. The company passes a special resolution for winding-up, appoints an insolvency professional as the liquidator, files notice with the IBBI, gives public notice for creditor claims, the liquidator processes claims, distributes assets, and obtains an order of dissolution from the NCLT.

When NCLT winding-up is the faster route:

Secured creditors are present. The IBC framework provides a structured mechanism for creditor settlement, including secured creditors with claims on specific assets. STK-2 cannot accommodate this.

Employee dues are material. The liquidator processes employee claims under Section 53 of the IBC waterfall. The process is more rigorous than the strike-off indemnity but ultimately produces a cleaner closure for material employee balances.

Asset distribution to multiple shareholders requires a formal mechanism. Where the subsidiary has shareholders other than the parent — common in joint ventures and consortium structures — winding-up provides a documented distribution process that survives shareholder disputes.

The subsidiary's records are incomplete. Winding-up requires a liquidator's report on the company's affairs, which surfaces missing documentation and resolves it as part of the process. Strike-off assumes the records are clean.

The two-week diligence we run upfront

On every dormant-subsidiary closure engagement, we run a two-week pre-application diligence.

Week 1. Pull the company master data from MCA. Review charges, director history, directors' DIN status, AOC-4 and MGT-7 filing history, MGT-14 history. Reconcile against the parent's records of the subsidiary's activity. Identify any gap.

Week 2. Confirm bank balances, outstanding receivables and payables, employee dues, GST and income-tax registration status, FEMA filings for any cross-border activity, and any litigation. Get the subsidiary's auditor to confirm the books reflect the position. Get the subsidiary's tax adviser to confirm no pending assessments.

At the end of week two, the route is clear. Most subsidiaries — typically two-thirds of the ones we review — are clean strike-off candidates. The rest require NCLT or specific remediation before strike-off becomes available.

What 'closed' means

Strike-off produces a dissolution date. The company's name is removed from the register. The directors' DIN remains active. The shareholders' interest in the company terminates from the dissolution date. Any asset not formally distributed before strike-off vests in the Central Government under Section 248(6).

Winding-up under NCLT produces an order of dissolution. The effect is the same — the company is dissolved — but the process leaves a more documented trail.

For the parent's records, either route produces a clean closure that diligence reads as well-managed. The slower closure that drags through serial filings and unanswered notices is the one that produces questions in the next transaction.