All Companies are expected to prepare & submit the financial statements in accordance with Schedule III (‘Schedule’) to the Companies Act, 2013 (‘Act’). On March 24, 2021, The Ministry of Corporate Affairs (MCA) has introduced more elaborative disclosure requirements regarding financial statements of companies for financial statements prepared for FY 2021-22. One such requirement is disclosure of transactions with companies struck off by Registrar of Companies (‘RoC’) under section 248 of the Act, or under section 560 of the Companies Act, 1956.
The following particulars are to be disclosed in such case:
- Name of the struck off company: the company shall disclose the name of the company which has been struck off by the respective Registrar of Companies and such information is available vide public notice (Form No. STK-7) u/s 248 of the Act, at any time during the reporting period or in an earlier reporting period if any balance in respect of the transactions with the struck off company is outstanding fat the period end, on the website of Ministry of Corporate Affairs;
- Nature of transactions with company: the company shall use the prescribed format in grouping the nature of its transactions with each struck off company. It shall utilise and specify as part of ‘other outstanding balances’ any other transactions that do not fit into the prescribed categories;
- Balance outstanding and relationship with the struck-off the company: the company shall disclose the amount outstanding as the gross carrying amount (without netting the provision for doubtful debts or impairment loss allowance) included in its respective balance sheet; If any transaction with a struck off company has happened during a financial year and settled / reversed / squared off, etc., during the same financial year such that the balance outstanding is NIL as at the end of the reporting period, the company is required to disclose those transactions as well in the similar format as prescribed
Category of Nature of Transactions with Struck-off Companies that needs to be disclosed:
- Investment in securities
- Receivables
- Payables
- Shareholding of the struck-off company in the company and
- Any other outstanding balances.
The details of Struck Off Companies that needs to be Disclosed:
Where the company has any transactions with companies struck off under section 248 of the Companies Act, 2013 or section 560 of the Companies Act, 1956, the company shall disclose the following details:
| Name of Struck off Company | Nature of Transactions with Struck off Company | Balance Outstanding | Relationship with the struck off company, if any to be disclosed |
| Investment in Securities | |||
| Receivables | |||
| Payables | |||
| Shares held by Struck Off Company | |||
| Other Outstanding Balance (to be specified) |
This disclosure requires the company to provide details of the balances outstanding in respect of transactions undertaken with a company struck off under section 248 of the Companies Act, 2013 or section 560 of the Companies Act, 1956.
ICAI Guidance
Pursuant to the January 2022 edition of the ICAI Guidance Note on Division II – Ind AS Schedule III to the Companies Act, 2013 and Guidance Note on Division II – Non-Ind AS Schedule III to the Companies Act, 2013, the following guidance is provided with respect to disclosure of information regarding outstanding balances with struck off companies:
| Identification of struck-off company | The names of the companies are required to be searched / authenticated from public notice (STK-7) during the reporting period or any previous year(s), if balances with such companies are outstanding as on the last day of the reporting period.Further, there should not have been any order for restoration of the name of such companies before the approval of the financial statement. It may be noted that this again is an task to track if the name of the companies have been restored vide order of any NCLT any other adjudicating authority as the orders remain scattered and at times not timely uploaded on the website. |
| Amount of balance outstanding | (1) The gross carrying amount is required to be disclosed without netting any provision for doubtful debts or impairment loss allowance.(2) Infact the Guidance Note states that even such transaction which might have happened during a financial year and settled/reversed/squared off, etc., during the same financial year such that the balance outstanding is NIL as at the end of the reporting period, even such transactions are required to be disclosed. This adds up to the anyway unending disclosure in this context. There may be a situation where a company is not a struck off company at the time of transaction but eventually becomes one and is a struck off company as on the last day of the reporting period. With the point (2) above, one is left to an endless thought whether the reporting company is required to review all the transactions it had during the previous year(s)? because only then it may be able to track if there is any entry which might come under point (2) above. |
| Relationship with the struck-off company, if any, to be disclosed | In this field, the company is required to disclose its relationship, if any, with the corresponding struck-off companies as per section 2(76) of the Act, as on the balance sheet date. |
| Details not to be included | Companies whose names were struck off during the financial year but the order had been passed by any adjudicating authority (for e.g., NCLT) name before approval of the financial statements. |