Around 5.38 lakh ( 32 per cent ) of 17 lakh companies registered with the government have shut shop this year.
This is more than double the number of companies, who folded up last year. Around 2.38 lakh (15 per cent) shut shop in 2017, revealed the Ministry of Corporate Affairs (MCA). One in almost seven companies shut down, it added.
Many companies had gone defunct under Section 248 of the Companies Act 2013. The Act allows the Registrar of Companies (RoC) to strike off the name of a company if, it failed to start business within a year of its incorporation; the company does not have sufficient capital; and the company has not done any business for the two preceding financial years and has not applied to be classified as a dormant one.
Out of 538,000 companies that had shut shop till the end of January this year, close to 495,000 were in this category. Among the major reasons include, increased regulatory compliance, failure of companies to avail bank credit and a crackdown on shell companies, which led to shut down said account professionals.
According to a resolution professional and company secretary, Mamta Binani quoted by BS report as saying that these firms have not complied with regulations for the last three or four years. With the new companies law, the compliance norms have been made stringent. Many of the firms might be in the non-performing asset category.
Besides these firms do not want to disclose a lot of information. In last few months, many operational firms have also been referred to the National Company Law Tribunal (NCLT). In many cases, if the companies fail to submit data to the RoC, this also leads to a defunct status.
This year, there were around 1.15 million firms active in India, in comparison to 1.14 million last year. Most of the active firms were in business services (around 346,498), followed by manufacturing (232,059), trading (151,843), and construction (104,359).
Startups space are also witnessing slow growth. The number of new start-ups launched in 2017 slumped to merely 800 in 9 months in compare to 6000 in 2016. According to experts in the industry, many shut down, tough time faced by large start-ups and slow in e-commerce growth have taken a toll on entrepreneurial ecosystem in the country.