The government is working on a new set of rules to allow closing a company on special grounds like national security, sovereignty and integrity of the nation, DNA reported. The Ministry of Corporate Affairs (MCA) will finalise these new laws over the next month to add to the 60-year-old rules for winding up a company.
Moneycontrol could not independently verify the news.
The proposed new rules give the government the power to initiate winding up proceedings against a company if it has done anything against the interest of integrity and security of the State or harmed friendly relations with other countries through its operations.
"The other grounds on which a company can be wound up include just and equitable, non-filing of financial statements or annual returns for five consecutive years and the company's affairs being conducted in a fraudulent manner," an official told the paper.
The person added that most of the grounds under the old rules would be retained. "However, the ministry is of the view that since the companies now have the option of seeking closure under the Insolvency and Bankruptcy Code (IBC), 2016, the new rules should do away with the provision that allows the government to close a company if a special resolution for winding up is passed by the firm."
After the rules are finalised, Sections 270 to 303 and 324 to 365 of the Companies Act, 2013 will be notified.
The new rules empower both the central and the state governments to petition for closing a company under the Companies Act, 2013. If the company wants to terminate operations on its own, it can file for winding up or resolution under the IBC.
Before the IBC, the Companies Act, 2013 was burdened with both incorporation and dissolution of companies. The oldest version of the Companies Act in 1956 had three modes of shutting down a company. It was either voluntary, court-ordered or done under the supervision of the Court.
After the IBC was established, companies would be shut under it or under the Companies Act, 2013, depending on the nature of the case.