Court overturns Registrar's decision to strike off company, orders restoration and allows rights adjudication.

The High Court set aside the Registrar's decision to strike off a company's name for not following the proper procedure under Section 560 of the Companies Act. Disputes over the company's paid-up capital and control prevented it from being deemed defunct. The court ordered the company's restoration to the Register of Companies and allowed interested parties to seek adjudication of their rights through appropriate channels, with a stay on the judgment's operation for three weeks.

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Issues Involved:
1. Legitimacy of the procedure followed by the Registrar of Companies under Section 560 of the Companies Act, 1956.
2. Validity of the company's paid-up capital and its implications on the defunct status.
3. Disputes regarding the control and directorship of the company.

Issue-wise Detailed Analysis:

1. Legitimacy of the procedure followed by the Registrar of Companies under Section 560 of the Companies Act, 1956:

The Registrar of Companies, West Bengal, struck off the name of Basanti Cotton Mills (1998) Pvt. Ltd. from the register on 27th January 2006, citing the company was not carrying on business or in operation. The procedure under Section 560 involves the Registrar sending two notices to the company to confirm its operational status before striking off its name. However, the Registrar did not follow this procedure, as admitted by the Central Government in an affidavit. Consequently, the High Court set aside the Registrar's decision on 6th October 2010 but allowed the Registrar to take fresh action in accordance with the law.

2. Validity of the company's paid-up capital and its implications on the defunct status:

The Registrar based his decision on Sections 3(3), (4), and (5) of the Companies Act, which mandate that a private company must have a paid-up capital of at least Rs. 1 lakh. The company's paid-up capital was only Rs. 7,000/- as per the affidavit submitted by Mr. Gopal Navinhhai Dave and Mr. Nikhil Vasantalal Merchant. The Registrar accepted this declaration and struck off the company's name. However, the court noted that the existence of paid-up capital below Rs. 1 lakh must be undisputed for the company to be deemed defunct. Since there were serious disputes regarding the paid-up capital, the company could not be declared defunct without following the proper procedure under Section 560.

3. Disputes regarding the control and directorship of the company:

There were conflicting claims regarding the control and directorship of the company. Mr. Gopal Navinhhai Dave, Mr. Nikhil Vasantalal Merchant, and Mr. Paresh Vasantalal Merchant claimed to be the directors and principal shareholders before the company was declared defunct. They filed an application for vacation of the order, which was referred to the Registrar for reconsideration. However, Mr. Nirendra Nath Kar claimed to have assumed control of the company based on share transfers allegedly made in 1998. The court noted that these share transfers were disputed as forgeries by Mr. Dave and the Merchants. Given the serious disputes over control and paid-up capital, the court concluded that the company could not be declared defunct.

Conclusion:

The court found that the Registrar of Companies did not follow the proper procedure under Section 560 of the Companies Act before striking off the company's name. Additionally, the disputes regarding the company's paid-up capital and control precluded it from being declared defunct. The court set aside the Registrar's order dated 27th January 2006 and directed the company to be restored to the Register of Companies. The court allowed Mr. Dave, Mr. Nikhil Merchant, and Mr. Paresh Merchant to approach an appropriate forum for adjudication of their rights regarding the company. The operation of the judgment was stayed for three weeks to allow for compliance with requisite formalities.

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