2023 (6) TMI 103 - AT - Companies Law

Appellate Tribunal restores company name in Registrar, imposes compliance requirements and penalties

The Appellate Tribunal allowed the appeal, directing the restoration of the company's name in the Register maintained by the Registrar of Companies. The ... Seeking restoration of the name of the Company in the Register maintained by the Registrar of Companies - HELD THAT:- The Appellant Company has failed to file its Financial Statements and Annual Returns for the Financial Years 2015-16 and 2016-17 due to change of circumstances. Further, it is observed that the audited accounts for the Financial Years 2016-17 and 2017-18 shows that the company is in active and carrying on day-to-day business. Keeping in view of the above facts, the Appellant Company is having substantial movable as well as immovable assets, therefore, it cannot be said that the Appellant Company is not carrying on any business or operations. The name of the Company be restored to the Register of Companies subject to the compliances fulfilled - application allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Registrar of Companies' action under Section 248(1) of the Companies Act, 2013 to strike off the company's name from the Register on the basis of non-filing of statutory returns for two immediately preceding financial years was justified. 2. Whether the company's alleged non-operation status (and failure to apply for dormant status under Section 455) was correctly inferred from non-filing, in the absence of consideration of material demonstrating ongoing business activity and assets. 3. Whether the National Company Law Tribunal erred in dismissing the appeal for restoration of the company's name given the documentary material subsequently placed on record (audited accounts, tax payment, records of meetings) showing activity and assets. 4. Whether restoration of the company's name is appropriate and, if so, on what conditions the Appellate Tribunal should order restoration and permit future action by the Registrar. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of striking-off under Section 248(1) for non-filing of statutory returns Legal framework: Section 248(1) empowers the Registrar to strike off the name of a company from the Register if satisfied that the company is not carrying on any business or operation or is not in operation. Section 455 provides for declaration of a dormant company upon application. The statutory scheme links non-filing of returns and inactivity as relevant indicia for initiating striking-off proceedings. Precedent Treatment: No earlier judicial precedents were cited or applied in the impugned decision or by the Appellate Tribunal in the text of the judgment; the decision was based on statutory provisions and the parties' pleadings. Interpretation and reasoning: The Registrar relied on continuous non-filing of statutory returns for two preceding financial years as the basis for forming the requisite satisfaction under Section 248(1). The Court recognized that non-filing is an appropriate ground for the Registrar to initiate striking-off proceedings but emphasized that such action must be consistent with the factual matrix - in particular, whether the company was in fact carrying on business and whether it had assets and other indicia of activity. Ratio vs. Obiter: Ratio - Non-filing of statutory returns can validly form the basis for striking-off under Section 248(1) where it reflects inactivity, but the Registrar's satisfaction must be tested against available material showing business activity and assets. Obiter - Procedural guidance that circulars and internal directions may inform Registrar action but do not supplant consideration of material showing activity. Conclusions: The Registrar's action, though taken under the statutory power, was not sustainable on the record because material before the Tribunal and Appellate Tribunal demonstrated filing difficulties from change of circumstances and contemporaneous indicia of business activity; therefore, striking-off was quashed in this instance. Issue 2 - Inference of non-operation and failure to apply for dormant status under Section 455 Legal framework: Section 455 permits a company to apply to be declared dormant; absence of such application is a factor in the Registrar's assessment. The statutory scheme contemplates that the Registrar may treat prolonged non-filing and absence of dormant-company application as evidence of inactivity. Precedent Treatment: No precedents discussed in the judgment to modify or distinguish the statutory test. Interpretation and reasoning: The Court examined documentary evidence (audited accounts for relevant and subsequent years, minutes of general meeting, auditor reports, profit and loss statements, and income tax payment) and concluded that non-filing arose from inadvertence and exigent circumstances (death of a director, hospitalization of company secretary), rather than deliberate cessation of operations. The Court held that the presence of substantial movable and immovable assets and contemporaneous business records rebut the presumption of inactivity that the Registrar drew from non-filing and non-application under Section 455. Ratio vs. Obiter: Ratio - An inference of non-operation drawn solely from non-filing and absence of a dormant-company application can be rebutted by contemporaneous documentary evidence of ongoing business, assets and other indicia; such rebuttal must be considered before final strike-off is sustained. Obiter - The existence of unavoidable operational interruptions (death, hospitalization) are relevant factors in assessing reasonableness of non-filing. Conclusions: The Tribunal concluded that the Registrar's presumption of inactivity was not justified on the available record; therefore, striking-off could not stand as the company demonstrated active status and assets. Issue 3 - Whether the National Company Law Tribunal erred in dismissing the appeal for restoration Legal framework: Section 421 and the appellate jurisdiction permit an appeal against Tribunal orders; restoration applications require examination of whether the Registrar's order was lawful and whether the company has provided adequate explanation and remedial compliance. Precedent Treatment: The judgment does not rely on or distinguish prior appellate rulings; determination rests on application of statutory tests to the facts and records produced. Interpretation and reasoning: The Appellate Tribunal found that the NCLT decision failed to give due weight to material showing the company's active business, audited accounts for relevant years, and tax payment. The Appellate Tribunal observed that the NCLT had directed the Registrar to file a report but that the Registrar did not adequately comment on the reasonableness of the non-filing; moreover, the Appellate Tribunal accepted the explanation of inadvertence and change of circumstances (death of director, hospitalization) as credible. On this basis, the Appellate Tribunal held that the NCLT erred in dismissing the restoration appeal. Ratio vs. Obiter: Ratio - A judicial body (Tribunal) deciding restoration must evaluate factual material placed before it, and may set aside a strike-off where credible documentary evidence rebuts the presumption of inactivity; failure by the Registrar to address reasonableness of non-filing in its report weakens reliance on its satisfaction under Section 248. Obiter - Procedural note that the Registrar may still be permitted to take independent punitive or other action for non-filing despite restoration. Conclusions: The Court concluded that the NCLT's dismissal was not sustainable; restoration of the company's name was warranted given the evidence and explanation offered by the company. Issue 4 - Appropriateness and conditions of restoration, and scope for future action by the Registrar Legal framework: Restoration remedies may be conditional; Courts may impose costs, require filing of outstanding returns and permit the Registrar to take future action under the Companies Act for non-compliance. Precedent Treatment: No specific precedents cited; the decision exercises equitable and remedial powers consistent with statutory scheme. Interpretation and reasoning: Balancing the culpability of the company (inadvertent non-filing) and the Registrar's statutory duty, the Appellate Tribunal ordered restoration subject to conditions: payment of costs to the Registrar, filing of all outstanding annual returns and balance sheets and payment of requisite fees and late fees, and preserved the Registrar's liberty to take any other punitive or statutory steps for non/late-filing. The Tribunal considered the company's assets and operational records as decisive in favor of restoration but tempered relief by imposing monetary and compliance conditions to protect regulatory interests. Ratio vs. Obiter: Ratio - Restoration may be ordered where the company satisfactorily demonstrates activity and furnishes credible reasons for non-filing, but such restoration may be made conditional on payment of costs, compliance with filing obligations and without prejudice to the Registrar's authority to pursue statutory sanctions. Obiter - The specific quantum of costs (here fixed) reflects discretionary exercise and may vary on facts. Conclusions: The Court set aside the impugned order and directed restoration of the company's name subject to (i) payment of specified costs within a fixed time, (ii) filing all outstanding annual returns and balance sheets with payment of applicable fees/late fees, and (iii) reservation of the Registrar's right to initiate any further punitive or other statutory actions for non/late-filing.