On March 9, several news agencies reported that 10,113 companies shut their shop amid the Covid-19 pandemic. The reports were based on an answer provided by the Minister of State for Finance and Corporate Affairs Anurag Thakur in Lok Sabha on March 8, 2021. The reports suggested that these companies were struck off from April 2020 to February 2021. The companies closed down voluntarily and not due to any penal action, agencies reported.
During that period, India had imposed a nationwide lockdown due to the Covid-19 pandemic. Once the lockdown started to ease in May, several states decided to impose restrictions on their own. The reports in Mint, News 18, Economic Times, Business Standard, and several others tried to connect pandemic and shutting down of companies. However, the reality is far from what had been projected.
The question asked in Lok Sabha
On March 8, Member of Parliament Benny Behanan asked [PDF] the Ministry of Corporate Affairs (MCA) to provide details of the companies that went out of business during the year 2020-21 with state-wise data.
Anurag Thakur informed in his answer the ministry does not maintain any record of the companies that had gone out of business. However, a total of 10,113 companies were struck off under section 248 (2) of the Companies Act, 2013. Thakur added that MCA had not run any drive to strike off companies suo moto during 2020-21.
Thakur also provided state-wise details of companies struck off during the financial year 2020-21. A total of 2394 companies were struck off in Delhi, while in 1936 were struck off in UP. West Bengal, Andaman and Nicobar Islands were the only two among states and UTs that had a number of companies closed in single digits.
What does Section 248 (2) of the Companies Act, 2013 say?
According to Section 248 (2) of the Companies Act, 2013, there is a provision to strike off companies that are not carrying on any business or operation for a period of two immediately preceding financial years and have not made any application within such period for obtaining the status of a dormant company under section 455 of the Act. The government follows due process and strike down such companies.
Was the Covid-19 pandemic a significant reason for companies going out of business?
The first notable thing is that the Ministry of Corporate Affairs DOES NOT keep any record of the companies that have gone out of business. The data provided by the state minister for Corporate Affairs was based on the data the Ministry had for the companies that were struck off during the said period. As per the law, the companies that were struck off during the suggested period were not doing any financial activities for at least two years. That means the companies were non-functional in previous financial years as well. Covid-19 might be a catalyst in some cases, but the way media reports connected the closure of all 10,000+ companies to Covid-19 lockdown is misleading. Nowhere in the question or the answer Covid-19 pandemic was mentioned. Hence, the reports can be deemed as FAKE.