2025 (8) TMI 814 - AT - Companies Law

Limitation Period for Company Name Restoration Under Section 252(3) Extended to 20 Years by NCLAT

Tahir Vasanali Isani Versus Registrar of Companies, Goa, Daman and Diu Panaji

Tahir Vasanali Isani Versus Registrar of Companies, Goa, Daman and Diu Panaji - TMI 1. ISSUES PRESENTED and CONSIDERED 1. Whether the appeal filed under Section 252(3) of the Companies Act, 2013 was maintainable given the circumstances of the company's name being struck off by the Registrar of Companies (RoC) for non-compliance under Section 248(1) of the Act. 2. The applicable period of limitation for filing an appeal or application for restoration of the company's name to the Register of Companies under Sections 252(1) and 252(3) of the Companies Act, 2013. 3. Whether the company was carrying on business or operations at the time of striking off, specifically considering the company's financial statements showing nil revenue and the nature of holding property as business activity. 4. Whether it is just and equitable to restore the name of the company to the Register of Companies despite non-compliance and non-filing of statutory returns. 5. The consequences of restoration including compliance conditions and the rights of the RoC to initiate further proceedings. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Maintainability of Appeal under Section 252(3) and Applicable Limitation Period - Relevant Legal Framework and Precedents: Section 252(1) of the Companies Act, 2013 allows any aggrieved person to file an appeal against an order of the RoC within three years from the date of such order when the company is struck off under Section 248(1). Section 252(3) provides that a company, member, creditor, or workman may make an application for restoration within twenty years from the publication of the notice under Section 248(5) when the company's name is struck off voluntarily under Section 248(2). Precedents indicate a distinction between appeals under Section 252(1) and applications under Section 252(3), where the former applies to striking off initiated by RoC for non-compliance, and the latter to voluntary striking off by the company itself. - Court's Interpretation and Reasoning: The impugned order held that since the company was struck off by the RoC for non-compliance under Section 248(1), the appeal should have been filed under Section 252(1) within three years, not under Section 252(3). The appeal filed under Section 252(3) was thus time-barred. However, the Appellate Tribunal analyzed the provisions and held that Section 252 does not explicitly distinguish limitation based on the sub-section of Section 248 under which striking off occurred. The Tribunal opined that since the appeal was filed by a member (shareholder), the limitation period under Section 252(3) of twenty years applies, allowing restoration. The Tribunal treated the appeal as an application under Section 252(3) despite the incorrect caption and found the appeal to be within limitation. - Application of Law to Facts: The company was struck off on 05.09.2018, and the appeal/application was filed on 08.09.2023, which is within twenty years but beyond three years. Given the Tribunal's interpretation, the longer limitation period applies. - Treatment of Competing Arguments: The Tribunal rejected the NCLT's strict limitation interpretation, emphasizing the absence of explicit legislative distinction and the identity of the appellant as a member entitled to file under Section 252(3). - Conclusion: The appeal/application was maintainable and within the twenty-year limitation period under Section 252(3) of the Companies Act, 2013. Issue 3: Whether the Company was Carrying On Business or Operations at the Time of Striking Off - Relevant Legal Framework and Precedents: Section 248(1)(c) provides that the RoC may strike off the name of a company if it is not carrying on business or operation for a period of two immediately preceding financial years and has not applied for dormant status under Section 455. Judicial precedents emphasize that mere holding of property does not constitute carrying on business. Business requires real, substantial, systematic, and organized activity with a view to earning income or profit. - Court's Interpretation and Reasoning: The Tribunal noted the company's financial statements from FY 2011-12 to FY 2017-18 showed nil revenue from operations, indicating no business activities during this period. The company's sole activity was holding a land parcel purchased through unsecured loans from directors, with no evidence of business operations. The Tribunal observed that the company was formed primarily to hold the property and that the directors could have purchased the land in their own names, indicating no genuine business purpose. Further, discrepancies in financial statements and bank accounts raised doubts about the sources of funds and the company's conduct, including non-filing of returns to avoid scrutiny. - Application of Law to Facts: The company's holding of property without active business operations did not meet the statutory requirement of carrying on business or operations under Section 248(1)(c). - Treatment of Competing Arguments: The appellant argued the company intended to develop the property and had substantial assets, supported by the Memorandum of Association and bank statements. The Tribunal acknowledged these but also noted the lack of actual business activity during the relevant period. - Conclusion: The RoC's action to strike off the company's name on grounds of non-operation and non-compliance was lawful and justified at the time of striking off. Issue 4: Whether it is Just and Equitable to Restore the Company's Name - Relevant Legal Framework and Precedents: Section 252(3) allows the Tribunal to restore the company's name if satisfied that the company was carrying on business or operations at the time of striking off or if it is otherwise just and equitable to do so. Precedents establish that restoration may be granted where the company has substantial assets, is not a shell company, and restoration would prevent irreparable loss or prejudice, especially where property is free from encumbrances. - Court's Interpretation and Reasoning: The Tribunal considered the company's ownership of a large land parcel worth over Rs. 6 crores as of 2008, the company's stated intention to develop real estate projects per its Memorandum of Association, and the absence of any prosecution or cash deposits during demonetization. The Tribunal relied on certificates and bank statements submitted by the appellant to conclude the company was not a shell and had substantial assets. It referenced multiple precedents where restoration was allowed to prevent wastage of valuable property and to uphold public policy. - Application of Law to Facts: Despite non-filing of returns and nil revenue during certain years, restoration was found just and equitable due to the company's asset ownership and potential prejudice from non-restoration. - Treatment of Competing Arguments: The RoC's concerns about non-compliance and potential misuse were acknowledged, but the Tribunal balanced these against the risk of irreparable loss to the company and public interest in preserving property value. - Conclusion: The Tribunal held it was just and equitable to restore the company's name to the Register of Companies. Issue 5: Conditions and Consequences of Restoration - Court's Reasoning and Directions: The Tribunal ordered restoration subject to the company paying costs of Rs. 2,00,000 to the RoC within eight weeks and filing all outstanding annual returns and financial statements within four weeks along with payment of applicable fees. The Tribunal clarified that the RoC retains the right to initiate any punitive or other proceedings under the Companies Act for non-compliance or late filing of statutory documents against the company and its directors. - Conclusion: Restoration is conditional upon compliance with statutory filings and payment of costs, with no bar on RoC's future actions for regulatory enforcement.