CASE STUDY - Whether Company can be Restore if no business conducted since many years

CASE STUDY - Whether Company can be Restore if no business conducted since many years

Short Summary:
In this Flash editorial, the author begins by referring the provisions of section 252 of Companies Act, 2013 relating to Revival of Companies Struck off from the record of the Registrar. The main thrust of the article, however, is upon the ‘WHETHER COMPANY CAN BE RESTORE IF NO BUSINESS CONDUCTED SINCE MANY YEARS”
This is article no. 271 of the series of editorials written by the author on corporate laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.

In this editorial the author shall discuss the case law decided by National Company Law Tribunal, New Delhi Bench relating to restoration of Name of Company.
 Introduction:
The companies which struck off by the ROC includes (i) Companies having Assets, (ii) Companies having liability (iii) Companies working but not met with ROC compliance (filing of AOC-4/ MGT-7) (iv) Non working Companies.
As the Companies which was not functioning are pleased with the decision of struck off their Companies by ROC itself, on the other hand Companies which was running or having assets or both are under difficulty to get it revive from the NCLT. Companies which have liabilities in these cases creditors get exaggerated by the decisions of ROC can file application with NCLT for revival and to claim amount from the Companies.
As due to such mass struck off by ROC many applications have filed by the Companies with NCLT for revival of Companies. Application should be on the basis of grounds mentioned in Section 252.

DECISIONS OF NCLT

A.    Case Law Detail:
Case Name
Rastogi Enterprises (P.) Ltd. Vs. Registrar of Companies
Bench Name
The National Company Law Tribunal (NCLT), Delhi Bench
Date of Order
7th August,  2017
Section
252

Fact of the Case:
It is appropriate to mention that Registrar of Companies, NCT of Delhi and Haryana has struck off the name of the petitioner company from its register after passing an order dated 31.05.2007 which was published in the official gazette dated 23.06.2007
I.      Petitioner……….. The petitioner company was incorporated on 1-1-1991. It did not file any statutory returns from the financial years 2001 to 2014.

II.      Petitioner……….. Objections by Petitioner:
§  The primary grievance made by the petitioner is that no notice in terms of provisions of section 560(1) and (2) has been issued and the principles of natural justice stand violated.
§  It is claimed that the petitioner company was carrying on its business/operations at the time of passing the order on 31.05.2007 which was later published in the official gazette on 23.06.2007
§  The petitioner further claimed that it has been preparing its annual accounts regularly and getting the same audited by statutory auditors. The annual accounts are also approved by the members of the company in a duly convened the Annual General Meeting of all the Members in accordance with the time prescribed under the provisions of the Companies Act, 1956.
§  A certified copy of the Annual Accounts duly audited by the Statutory Auditors of the petitioner company for the financial year ended 31.03.2003 to 31.03.2013 have been placed on record. 

III.      Respondent………..

§  The stand taken by the Registrar in its reply is that notice under section 560(5) of the 1956 Act was issued giving a warning to the petitioner-company that its name would be struck off the resister of the Registrar of Companies. 
 §  Referring to the master data of the petitioner company it has been averred that Rastogi Enterprises Private Limited was incorporated on 01.01.1991 under the Companies Act, 1956 with its registered office at TA-21, Lane No.1, Tuglakabad Extension, New Delhi. It is wrongly claimed by the petitioner company that it has registered office at 2270, Main Road, Kailash Nagar, Delhi - 110031. In its reply, the Registrar has asserted that the petitioner may be asked to furnish strict proof with regard to change of its registered office. 
§  The assertion of the petitioner company raised in paras 8 and 14 of the petition has been specifically refuted by asserting that the petitioner company has made self-destructing averments in para 12 where it is categorically admitted that no operation was carried out after 2001.
 §  It has also been suggested that the statutory auditor was a necessary part because allegations of serious misconduct have been levelled against them. 
§  In the end, the Registrar of Companies stated that it has no objection for restoring the name of petitioner company under Section 560 (6) of the Companies Act, 1956 subject to filing of all statutory documents like annual return and balance sheet from 2001 to 2013 and other documents with filing fee and additional fee as applicable
    Principle of Natural Justice:
There is another aspect concerning principles of natural justice assuming there is violation. When the Courts exercise jurisdiction to quash an order on the ground of violation of principles of natural justice then another mitigating principle comes in play. If the result of quashing an order would result in revival of an illegal order then jurisdiction to quash an order on the ground of violation of principles of natural justice need not be exercised.
If the order of the Registrar as published in the gazette is set aside it would give rise to activities which have become illegal as there is wholesome violation of the provisions of section 159 of the 1956 Act.

Decision of NCLT:

A perusal of the above cited provision would show that the Registrar is required to send by post a letter inquiring whether the company is carrying on business or in operation after ascertaining that there is a reasonable cause to believe so.

After bestowing our thoughtful consideration on the submissions made at the bar, we are of the view that the provisions of Section 560 (1) to (4) are deemed to be the whole procedure culminated in publishing a Notification dated 23.06.2017 followed. There is no room to doubt about any lapse on the part of the Registrar of Companies, The record being old has been shifted to Manesar and is reported to be untraceable.

A flimsy and tenuous explanation has been tendered which no reasonable person would accept. How can there be any directors if a company has no activity or operation. We may hasten to add that the provision relating to restoration are primarily intended for companies which were active at the time of their 'mortal wound' The other ground is discovery of outstanding unknown assets of the company which justifies the provision of seeking restoration after 20 years.

The basic ground available under Section 252(3) for restoring a company to its original name is completely impeded because the petitioner has admitted in para 12 of the petition that for the last twelve years no operation has been carried out by the company.

The company has not been carrying on business or in operation and therefore, the benefit of the grounds available for restoration cannot be extended to the petitioner.


(Author – CS DiveshGoyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION. 
 THIS PETITION FAILS AND THE SAME IS DISMISSED.

                          

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