2019 (9) TMI 465 - AT - Companies Law

Appellate Tribunal Allows Restoration of Company Name After Inactivity

The National Company Law Tribunal dismissed the appeal for restoration of a company's name to the Register of Companies due to inactivity since 1999 and ... Restoration of company name to the Register of Companies - striking off from the Register of Companies - procedural compliance under Section 248 of the Act - status of a Dormant Company - corporate misconduct affecting company operations - restoration subject to compliance with statutory requirements and payment of fees and penalties - effect of removal from register on realization of dues and prosecution of remediesStriking off from the Register of Companies - procedural compliance under Section 248 of the Act - Whether the Registrar of Companies complied with the statutory procedure in striking off the Company's name and whether any procedural lapse vitiated the action. - HELD THAT: - The Tribunal's finding that the Company's name appeared in the Gazette Notification and that the ROC struck off the Company w.e.f. 21st August, 2017 was examined against the record, including the Gazette publication. The appellate forum found that there was no procedural lapse going to the root of the ROC's action; accordingly, objections premised on non-issuance of prior notices or breach of the strike-off procedure under the Act were overruled. The Court therefore upheld the lawfulness of the ROC's striking off action as a matter of procedure, while treating procedural objections as insufficient to impugn the removal. [Paras 6]Procedural challenge to the striking off was rejected; ROC's removal of the Company's name was not vitiated by any material procedural lapse.Restoration of company name to the Register of Companies - status of a Dormant Company - corporate misconduct affecting company operations - effect of removal from register on realization of dues and prosecution of remedies - restoration subject to compliance with statutory requirements and payment of fees and penalties - Whether the Company's name should be restored despite its long period of inactivity, having regard to the theft of assets by a director, acquisition proceedings, frozen accounts and impediments to realisation of dues. - HELD THAT: - Although the Tribunal had treated the prolonged inactivity and failure to apply for dormant status, and the 19 year delay, as grounds for refusing restoration, the appellate court accepted the appellants' evidence of two causative events that effectively terminated operations: (i) clandestine removal/theft of machinery, raw material and finished goods by a director (criminal proceedings and seizure having been recorded), and (ii) acquisition of the Company's land with attendant compensation proceedings and a pending execution petition. The court noted that removal of the Company's name impeded recovery and realization of awarded compensation and other deposits because bank accounts were frozen and proceedings could not be effectively pursued. In those circumstances it was held to be unjust to deny restoration solely for failure to seek dormant status. Balancing the circumstances, the court set aside the Tribunal's order and directed restoration, while conditioning relief on the appellants' compliance with statutory formalities for the defaulting period and payment of fees and penalties as determined by the ROC within one month. [Paras 7, 8]Appeal allowed; Company's name to be restored to the Register of Companies subject to compliance with statutory requirements for the defaulting period and payment of fees and penalties as determined by the Registrar within one month.Final Conclusion: The Tribunal's dismissal of the appeal was set aside; although the ROC's procedural strike-off was not vitiated, the Court ordered restoration of the Company's name in view of the theft of assets by a director and acquisition-related impediments to realization of dues, directing restoration subject to fulfilment of statutory filing requirements and payment of fees and penalties within one month. Issues:- Appeal for restoration of company's name to Register of Companies under Section 252(3) of the Companies Act, 1956.- Company struck off for inactivity and failure to apply for dormant status.- Allegations of theft of assets and machinery by a director leading to cessation of business activities.- Dispute regarding acquisition of company's land by Haryana Government.- Non-realization of compensation amounts due to frozen bank account post company's strike off.Analysis:1. The appeal was filed seeking restoration of the company's name to the Register of Companies after it was struck off for being inactive. The National Company Law Tribunal dismissed the appeal citing the company's lack of business activity since 1999 and failure to apply for dormant status, emphasizing a significant 19-year delay in starting business operations.2. The case presented to the Tribunal highlighted that the company was profitable until 1999 when a director, in collusion with staff, committed theft of assets, leading to police involvement and subsequent investigation. The appellants argued that the Registrar of Companies (ROC) did not follow due process before striking off the company's name, denying them an opportunity to rectify any pending documents.3. The appeal also raised issues regarding the theft of company assets, the acquisition of company land by the Haryana Government, and pending legal matters related to compensation enhancement. The appellants contended that the company's strike off hindered recovery of assets and compensation amounts, including funds remitted by government bodies.4. The Tribunal's decision was challenged on grounds of overlooking the impact of theft on business operations, ongoing legal proceedings against the accused director, and the frozen bank account preventing realization of compensation amounts. The appellants argued that the company's strike off impeded their ability to recover assets and compensation.5. Upon review, the Appellate Tribunal acknowledged the company's past profitability and the disruptive events leading to cessation of operations. Considering the unjust consequences of the company's strike off and frozen account, the Tribunal set aside the impugned order, allowing the appeal for restoration of the company's name on the Register of Companies subject to compliance with statutory requirements and payment of applicable fees and penalties within one month.6. The Tribunal's decision emphasized the valid grounds presented during the hearing, including the impact of theft, legal disputes over company assets, and the financial implications of the frozen bank account. The restoration of the company's name was deemed necessary to address the unjust consequences of the strike off and facilitate the recovery of assets and compensation amounts.