2020 (11) TMI 1020 - AT - Companies Law

Registrar's decision to strike off non-operational company upheld, with dissenting restoration order

R Narayanasamy Versus The Registrar of the Companies, Tamil Nadu AGT Business Park, Avinashi Road, Coimbatore

The case involved the legality of the Registrar of Companies' decision to strike off a company's name for non-operation. The company admitted to being ... As per Dr. Alok Srivastava, Member(T) Seeking restoration of name of company in the ROC - Section 248 (5) of the Act and Rule 9 of the Companies (Removal of names of companies from the Register of the Companies) Rules, 2016 - HELD THAT:- The appellant has not given any cogent or convincing reason as to why the company was not in operation and the reasons provided by him about lack of electric supply and available manpower and poor market conditions are not convincing when we know that many other companies having similar businesses and production were functioning in the said time period. Moreover, the appellant failed to take any action to acquire the status of 'Dormant Company' by resorting to action under Section 455 of the Act. In addition, the company did not even care to file necessary balance sheets and annual returns for any of the financial years in question. The entire conduct of the directors of the company point to a situation that the company was not operational and the directors were not interested in running the company and take action as required under law. There are no cogent reason preferred by the appellant that could be considered as providing 'just' ground for restoring the name of the company in the register of companies - it is succinctly clear that Registrar of Companies Tamil Nadu, Coimbatore has acted in pursuance of the provisions of Section 248 of the Companies Act, 2013. He has complied with the procedural requirements as outlined in Section 248(1) of the Act and therefore his action of striking off the name of the Company M/s. Shri Laxmi Spinners Private Limited from the Register of Companies has full force of law. Moreover the appellant has not been able to make out a case in his favour as to why it would be 'just' to restore the name of his company in the register of companies in accordance with the provision of Section 252 (3) of the Companies Act, 2013. The decision of NCLT, Chennai Bench in dismissing the appeal is, therefore, correct. As per Venugopal M. J It is to be remembered that the right to seek restoration of a name of a company to the register of companies maintained by the 'Registrar of Companies' is not lost as long as 20 years have not expired. A 'Creditor' in Section 252 of the Companies Act ought to be construed widely so as to include a 'creditor' whose debt was contingent or prospective. In restoring a company to the register of companies, the court has no jurisdiction to impose any penalty for the defaults under the Act, but may order costs as a term of restoration - A dissolved company has no legal existence and, therefore, it cannot carry on business operations in accordance with the objects clause or Memorandum of Articles of Association. The effect of dissolution is that the certificate of incorporation issued to the Company is deemed to be cancelled from the date of dissolution. In the instant case on hand, the reasons assigned by the Appellant that due to inadvertence and deficient professional advice the Company had not filed the 'Balance Sheets' and 'Annual Returns' for some time, the Consultant who was entrusted with the filing of 'Returns', had no knowledge of Company Law requirements and that there was no proper superintendence to ensure that the statutory filings were completed within the time period are not acceded to by this Tribunal. The impugned order of the 'National Company Law Tribunal', Chennai Bench is set aside - application allowed. Issues Involved:1. Legality of the Registrar of Companies' action in striking off the company's name.2. Whether the company was carrying on business or in operation at the relevant times.3. Justification for restoring the company's name on the register of companies.4. Compliance with procedural requirements under Section 248 and Section 252 of the Companies Act, 2013.Issue-wise Detailed Analysis:1. Legality of the Registrar of Companies' Action:The Registrar of Companies (ROC) issued a notice under Section 248 of the Companies Act, 2013, proposing to strike off the company's name due to non-operation for two financial years and failure to obtain dormant company status. The company admitted to not filing balance sheets and annual returns due to market conditions and technical difficulties. The ROC followed the legal procedure, including issuing a notice and waiting for the company's representation. The company's name was struck off on 29.08.2018, and a public notice was issued on 31.08.2018. The Appellate Tribunal found no illegality or procedural deficiency in the ROC's actions.2. Whether the Company was Carrying on Business:The company admitted in its reply dated 24.07.2018 that it was not operational at the time of the notice and had not been functioning for the previous four years. The company’s income tax returns for the assessment years 2014-15 to 2017-18 showed 'Nil' gross income and tax paid. The Tribunal concluded that the company was non-functional and non-operational when the notice was issued.3. Justification for Restoring the Company's Name:Under Section 252(3) of the Companies Act, 2013, a company can be restored if it was carrying on business or if it is just to restore it. The appellant argued that improved power supply and available infrastructure made it viable to restart operations. However, the Tribunal found no convincing reasons for the company's non-operation and noted the failure to apply for dormant status or file necessary documents. The Tribunal emphasized fairness and justice, concluding that no just grounds were presented for restoring the company's name.4. Compliance with Procedural Requirements:The ROC complied with Section 248 by issuing a notice, waiting for the company’s representation, and following the stipulated time frame. The appellant's claim of antedating the notice was not substantiated with evidence. The Tribunal confirmed that the ROC's actions were legally sound and procedural requirements were met.Separate Judgments Delivered:One member of the Tribunal dismissed the appeal, upholding the ROC's decision and finding no reason to interfere with the NCLT, Chennai Bench's order. However, another member differed, emphasizing that the company had valuable assets and potential for restarting operations. This member argued that the failure to file returns was due to inadvertence and deficient advice, and restoration was just and proper, subject to compliance with statutory requirements and payment of costs.Conclusion:The appeal was ultimately allowed by the dissenting member, setting aside the NCLT's order and restoring the company's name on the condition of fulfilling statutory requirements and paying costs.