Disclosure in financial statements: Relationship with struck off companies

[2021] 131 taxmann.com 297 (Article)

The financial statements of a company are not merely meant to show the profit or loss and/or assets and liabilities of the company. The notes to such financial statements also disclose various nuances that the shareholders of the company shall be aware of. Such disclosures may vary from material transactions with related parties to the purpose of inter-corporate loans, guarantees, or security. The financial statements are meant to be prepared in accordance with Schedule III (‘Schedule’) to the Companies Act, 2013 (‘Act’). On March 24, 2021, the Ministry of Corporate Affairs (MCA) introduced more elaborative disclosure requirements regarding financial statements of companies which are effective from April 1, 2021, i.e. for financial statements prepared for FY 2021-22. One such requirement is a disclosure of transactions with companies struck off by the 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
  • Nature of transactions with the company
  • Balance outstanding and relationship with the struck-off company.

The transaction can be in the nature of investment in securities, receivables, payables, the shareholding of the struck-off company in the company, and any other outstanding balances.

Before digging deep into the disclosure requirements, it is imperative to understand the provisions for striking off a company by RoC both under the Act as well as the Companies Act, 1956.

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