Dormant Company (Section 455)

By Dev Rao | Updated March 2026

What Is a Dormant Company?

A dormant company is a legally registered company that has been granted inactive status under Section 455 of the Companies Act, 2013. It is a company that has had no significant accounting transaction during the last two financial years or has not been carrying on any business or operation. Rather than striking off or winding up the company, the promoters can apply to the Registrar of Companies (ROC) for dormant status, preserving the company's legal existence while substantially reducing compliance obligations. The company can be reactivated at any time within five years.

Legal Basis

Dormant company status is governed by these provisions:

• Section 455(1) of the Companies Act, 2013 — Defines a dormant company as one that is formed and registered for a future project, to hold an asset or intellectual property, or has no significant accounting transaction. "Significant accounting transaction" excludes allotment of shares, filing of salaried employee returns, and payment of fees to the ROC.
• Section 455(2) — Where a company has not filed financial statements or annual returns for two consecutive financial years, the ROC shall issue a notice and enter the company's name in the register of dormant companies.
• Section 455(3) — A dormant company shall have a minimum number of directors as required (2 for private, 3 for public, 1 for OPC).
• Section 455(4) — The rights of a dormant company can be restricted by the Registrar through an order.
• Section 455(5) — A dormant company can be made active by filing an application with the ROC.
• Companies (Miscellaneous) Rules, 2014 — Rules 3 through 8 prescribe Forms MSC-1 (application for dormant status), MSC-3 (annual return of dormant company), MSC-4 (application for reactivation), and MSC-5 (certificate of active status).

Who Should Consider Dormant Status?

Dormant status is particularly useful in these scenarios:

• Holding intellectual property: A company formed to hold patents, trademarks, or copyrights that are not currently being commercially exploited
• Future project vehicles: A company incorporated for a project that has been delayed or is awaiting regulatory approvals
• Asset holding: A company that owns real estate, investments, or other assets but does not conduct active business operations
• Preserving the company name: Rather than striking off and losing a valuable corporate name, dormant status preserves it for future use
• Seasonal businesses: Companies that operate for short periods and remain inactive for extended durations

Application Process (Form MSC-1)

To obtain dormant status, the company must follow these steps:

1. Board Resolution — The board of directors must pass a resolution approving the application for dormant status and authorizing a director or the company secretary to file the application.
2. Special Resolution or NOC — Pass a special resolution of members (75% majority) approving the dormant status application. Alternatively, obtain a no-objection certificate from all members.
3. Clear All Dues — Ensure there are no pending statutory dues (income tax, GST, professional tax, provident fund), no defaults on loan repayments, and no disputes regarding management or ownership.
4. File Form MSC-1 — Submit to the ROC with the following attachments:
   • Certified copy of the board resolution
   • Certified copy of the special resolution or member NOC
   • Statement of affairs verified by a practicing Chartered Accountant
   • Written consent of lenders (if any secured or unsecured loans exist)
   • Certificate confirming no management or ownership disputes
5. ROC Approval — The ROC reviews the application and, if satisfied, enters the company name in the register of dormant companies.

Filing Fees

Dormant companies pay half the normal filing fees for ROC filings, which is one of the key financial benefits.

Compliance During Dormancy

While compliance is significantly reduced, dormant companies are not exempt from all obligations:

What You Must Still Do

What You Are Exempt From

• AGM: Not explicitly required during dormancy, though Form MSC-3 requires member-level disclosures
• Full Financial Statements (AOC-4): Replaced by the simplified statement of affairs in Form MSC-3
• Full Annual Return (MGT-7): Replaced by Form MSC-3
• Active Company Tagging (ACTIVE/INC-22A): Not required for dormant companies

Duration and Automatic Consequences

A company can remain dormant for a maximum of five consecutive financial years. After five years, one of two things must happen:

• Reactivation: The company files Form MSC-4 and returns to active status
• Strike-off: If the company fails to reactivate, the ROC can initiate proceedings to remove the company from the register under Section 248 (strike-off), potentially leading to dissolution

Reactivation Process (Form MSC-4)

To reactivate a dormant company:

1. Board Resolution — Pass a resolution to reactivate and return to active status
2. File All Pending Returns — File Form MSC-3 for the financial year in which reactivation is being sought, along with any other pending filings
3. Submit Form MSC-4 — File with the ROC along with the return in Form MSC-3 and the prescribed filing fee
4. Certificate of Active Status (Form MSC-5) — The ROC issues a certificate restoring the company to active status after verifying the application
5. Resume Full Compliance — From the date of reactivation, the company must comply with all provisions of the Companies Act applicable to active companies, including full financial statements, annual returns, statutory audit, and board meeting requirements

How This Affects Foreign Investors

Dormant company status has specific implications for foreign-owned or foreign-invested companies in India:

• FEMA Reporting Obligations Continue: Even during dormancy, a company with foreign investment must continue to comply with FEMA reporting requirements. The Annual Return on Foreign Liabilities and Assets (FLA Return) must be filed with the RBI by July 15 each year, reporting outstanding FDI, overseas borrowings, and equity held by non-residents.
• Transfer Pricing: If the dormant company has any related-party transactions (even loans or receivables from the foreign parent), transfer pricing documentation and reporting under Section 92E may still be required.
• Repatriation During Dormancy: A dormant company cannot distribute dividends (no profits to distribute). However, the foreign investor's equity remains intact and can be transferred or repatriated upon reactivation or winding up, subject to FEMA pricing norms.
• Permanent Establishment Risk: A dormant Indian subsidiary may still constitute a PE of the foreign parent for tax treaty purposes if it maintains an office, assets, or agents in India. Treaty analysis should be done before assuming dormancy eliminates PE exposure.
• Dormancy as an Alternative to Winding Up: For a wholly-owned subsidiary or joint venture that the foreign investor wants to keep alive without operating costs, dormancy is significantly cheaper and faster than formal winding up (which can take 1-3 years and costs INR 1-5 lakh in professional fees).

Common Mistakes

• Assuming dormant status means zero compliance. Dormant companies must still file Form MSC-3 annually, hold two board meetings per year, maintain books of account, and file income tax returns. Failing to file MSC-3 can trigger ROC strike-off proceedings.
• Not clearing all statutory dues before applying. Form MSC-1 requires certification that the company has no unpaid taxes, employee dues, or loan defaults. The ROC will reject the application if any dues are pending.
• Forgetting FEMA obligations for foreign-invested companies. The FLA Return, FC-GPR filings, and other FEMA reporting requirements do not stop during dormancy. Non-compliance can trigger compounding proceedings with penalties up to three times the amount involved.
• Exceeding the five-year dormancy period without acting. After five consecutive financial years, the ROC can initiate strike-off proceedings. Once struck off, restoring the company requires an application to the National Company Law Tribunal (NCLT), which is far more expensive and time-consuming than reactivation.
• Using dormancy to avoid compliance rather than genuinely pausing operations. If the ROC finds that the company is conducting undisclosed transactions during dormancy, it can revoke the dormant status and impose penalties for non-filing of regular returns.

Practical Example

Kenji, a Japanese investor, established a wholly-owned subsidiary in India in 2021 to manufacture auto components. Due to supply chain disruptions, the project was delayed indefinitely. By March 2024, the subsidiary had not commenced operations and had no significant accounting transactions for two consecutive years.

Rather than spending INR 3-5 lakh on winding up (which would also require RBI approval for capital repatriation and take 12-24 months), Kenji's advisors recommend dormant status:

• The company passes a special resolution and files Form MSC-1 with the ROC (filing fee: INR 150)
• All statutory dues are cleared (nil liability as operations never commenced)
• ROC grants dormant status within 30 days

During dormancy, annual compliance costs drop to approximately INR 30,000-50,000 per year (Form MSC-3 filing, two board meetings, income tax nil return, FLA Return). Compare this to INR 1.5-3 lakh per year for a fully active company (full financial statements, annual return, statutory audit, four board meetings, AGM).

In 2027, when supply chains stabilize, Kenji reactivates the company by filing Form MSC-4, receives the MSC-5 certificate, and commences manufacturing. His certificate of incorporation, PAN, TAN, GST registration, and FEMA approvals all remain intact.

Key Takeaways

• Dormant company status under Section 455 allows inactive companies to preserve their legal existence with reduced compliance for up to five consecutive years
• Application requires Form MSC-1 with a special resolution, auditor-verified statement of affairs, and confirmation of no pending dues or disputes
• Dormant companies must still file Form MSC-3 annually, hold two board meetings, maintain books, and file income tax returns
• Reactivation is straightforward via Form MSC-4, with the ROC issuing an MSC-5 active status certificate
• For foreign-invested companies, FEMA obligations (FLA Return, transfer pricing) continue during dormancy
• Dormancy is significantly cheaper and faster than winding up, making it ideal for projects that are paused, not abandoned
• After five years, the company must reactivate or face ROC strike-off proceedings

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