LIABILITY OF A STRUCK OFF COMPANY UNDER FEMA

Removal of name of company

Section 248 of the Companies Act, 2013 (‘Act’ for short) provides power to the Registrar of Companies to remove the name of the company from register of companies if the Registrar has reasonable cause to believe that-

• a company has failed to commence its business within one year of its incorporation;
• a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455; or
• the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under sub-section (1) of section 10A; or
• the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12

he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.

Removal of name at the request of the company

A company may, after extinguishing all its liabilities, by a special resolution or consent of 75% members in terms of paid-up share capital, file an application in the prescribed manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in sub-section (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner.

Approval by regulator

in the case of a company regulated under a special Act, approval of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application.

Dissolution of company

the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved.

The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company.

The assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.

Case law

A breach of civil obligation which attracts penalty in the nature of fine under the provisions of the Act and the Regulations would immediately attract the levy of penalty irrespective of the fact whether contravention must be made by the defaulter with guilty intention or not. The same has been confirmed by the Appellate Tribunal under SAFEMA in M/s Vijeta Marines Pvt. Ltd. and Shri N. Sreenivas Versus The Additional Director, The Directorate of Enforcement, Chennai - 2026 (2) TMI 534 - APPELLATE TRIBUNAL UNDER SAFEMA, NEW DELHI.

In the above said case, the Additional Director, Enforcement Directorate, Chennai, passed orders against the company and the appellant N. Sreenivas for contravention of Section 8 of Foreign Exchange Management Act (‘FEMA’ for short) – failure to repatriate foreign exchange to our country. The Adjudicating Authority imposed the cumulative penalty of Rs.1,01,13,971/- as detailed below-

• For contravention of Section 8 of FEMA – penalty Rs.22,00,000 for the failure to repatriate foreign exchange to the tune of Rs.43 crores;
• For contravention of Regulation 16 of Foreign Exchange Management (Export of Goods and Services) Regulations, 2000 – penalty Rs.1,13,971/- - contravention to the tune of Rs.1,13,971/-;
• For contravention of Section 7 of FEMA read with Regulation 3(1) and Regulation 7 of the above said regulations – penalty Rs.78 lakhs – contravention to the tune of Rs. 13.05 crores.

Shri N. Sreenivas, the second appellant and also the Director of the Company was imposed a penalty of Rs.10.10 lakhs for the above said contraventions. The Adjudicating Authority observed that Shri N. Sreenivas, Director, VMPL, was the person in-charge of and was responsible for the entire activities of the company during the period when the aforesaid contraventions occurred. He had signed the buyback agreement between Eastward Exim & Shipping Pte Limited,and VMPL. Shri N. Sreenivas had also signed the invoices raised by VMPL on behalf of VMPL and he is in full knowledge of the pending exports with regard to the advances received. He did not produce any evidence before the Adjudicating Authority that the alleged contravention took place without his knowledge or that he had exercised all due diligence to prevent such contravention. 

Against the order of the Adjudicating Authority, the appellants filed the present appeals before the Appellate Tribunal. The Tribunal, on 28.10.2024, directed the appellant company to make a pre-deposit of Rs.10 lakhs and the Director Rs.1 lakh within 60 days from the date of order.

The Director made the pre-deposit with the Tribunal but the company did not pay the same on the contention that the name of the company was struck off by the Registrar of Companies from the Register of Companies. The appellants contended for the waiver of penalty as they are not having any intention to contravene the provisions of FEMA and the regulations made there under.

The Department contended that the penalty is attracted as soon as the contravention of the statutory obligation as contemplated by the Act and the Regulations is established and hence the intention of the parties committing such violation becomes wholly irrelevant.The present appeal deals with provisions which are strictly civil obligations and penalty for the contraventions of these provisions are imposable under Section 13(1) of FEMA which provides for penalty only, up to thrice the sum involved in such contravention.

The Tribunal dismissed the appeal filed by the appellant company. In respect of the individual appeal filed by the Director of the Company, the second appellant pleaded to make the penalties proportionate. Since on evaluation of the gravamen of the charges, it is argued that the penalty has been imposed for the inadvertent failures. The Appellate Tribunal reduced the penalty imposed on the Director of the Company to Rs.1 lakh to meet the ends of justice.