AGD Private Limited vs. Registrar of Companies (C. R. P. (NPD). No. 1476 of 2018)

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Procedure of striking off the name of a company from the Register of Companies is laid down in Section 248 of the Companies Act, 2013. The Registrar must follow this procedure along with the relevant rules. In this case, the Registrar failed to do so.

Introduction

The case of AGD Private Limited vs. Registrar of Companies (C. R. P. (NPD). No. 1478 of 2018), filed in the High Court of Madras (“the Court”) and decided on October 01, 2018, has given judicial interpretation to the procedure of striking off a company under Section 248 of the Companies Act, 2013 (“the Act”). The Court determined that the ROC had not followed proper procedure and that the NCLT had made an erroneous order.

Facts

  • AGD Private Limited (“the Company”) is a private company incorporated on April 24, 1959 under the Companies Act, 1956. They are carrying on the business of agriculture of growing all kinds of trees and plants, and production of various agricultural commodities.
  • The Company had proposed to enter into an agreement, for sale of a part of its agricultural land, to a third party. Upon proceeding to execute the agreement of sale, it was brought to the Company’s notice that the name of the company was struck off from the Register of Companies. On further scrutiny, it was found that the Company’s name was struck off on account of failure of the Company to file the statutory returns since 2010, via a suo motu action of the respondent (i.e., the ROC), after issuing a notice of striking off and dissolution in Form STK-7 under Section 248 of the Act dated June 28, 2017.
  • Consequent to the striking off the Company’s name from the Register of Companies, the Company is unable to proceed with the sale of part of agricultural land to the third party. 
  • The Company prayed for in C. P. No. 178 of 2019 dated January 09, 2018, under Section 252(3) of the Act, that the National Company Law Tribunal (NCLT) 
  • direct the ROC to restore the name of the Company in the Register of Companies.
  • direct the Company to file the Audited Financial Statements and Annual Return for the financial year 2009-10 onwards with the ROC.
  • The NCLT rejected the application stating that – “Representative for the Applicant submitted that the Applicant Company has been struck off and for the last 8 years no business was carried on by the Company. The object of the Company was to cultivate the agricultural lands. The intention is to sell some of the lands. Therefore, there is no plausible reason for revival of the Company. The Applicant can explore the possibilities of winding up the Company. Accordingly, the Application stands rejected.”
  • Aggrieved by the order of the NCLT, this civil revision petition was filed.

Issue

Whether the order of the NCLT in C. P. No. 178 of 2017, filed under Section 252(3) of the Companies Act, 2013, was correct?

Arguments

Arguments of the Petitioner

  • The Company argued that the NCLT had failed to appreciate the fact that the Company had been in business for more than 57 years and had been carrying on business or operations for a period of 2 immediately preceding financial years. The requirements for striking off the Company under Section 248 were not satisfied. The Company further contended that the NCLT ignored the documentary evidence placed before it that the Company had never ceased to carry on its business or operations.

Section 248(1) states the following circumstances in which the name of a company can be struck off from the Register of Companies;

  1. A company has failed to commence its business within 1 year of its incorporation, or
  2. A company is not carrying on any business or operation for a period of 2 immediately preceding financial years and has not made any application within such period for obtaining the status of dormant company under Section 455.
  • Regarding the default in filing annual returns from 2009-10 onwards, the Company stated that it had employed the services of a part-time accountant from the year 2009-10 onwards and, the said accountant had violated the trust of the directors and had not filed any statutory returns in spite of being paid for his services. The directors were not aware that the returns were not filed with the ROC. The Company argued that the NCLT had failed to appreciate that the non-filing of the annual returns from 2009-10 onwards was not wilful but was beyond the control of the Company.
  • The Company contended that the NCLT had erred in holding that the intention of the Company to sell some of its agricultural lands will lead to exploring the possibilities of winding up the Company.
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Arguments of the Respondent

  • The ROC filed a counter affidavit, submitting that the Company had not filed its statutory returns with the ROC for the financial year 2010 to 2016. As per the Ministry of Corporate Affairs’ (“MCA”) instructions and the provisions of Section 248(1) of the Act, the ROC has taken suo motu action of striking off the Company from the Register of Companies. As such, notice was sent to the Company and its directors on February 28, 2017 in Form STK – 1. Since no reply was received from the Company, notice in Form STK – 7 was issued for striking off.

The MCA vide letter dated February 17, 2017 had advised ROCs to initiate action under Section 248 of the Act for striking off the name of the companies which have failed to file financial statements or annual returns for immediately preceding 2 financial years. In this background, the ROC had identified 4266 companies. The Company was one of the 4266 identified companies. After following due procedure, 3889 companies, the Company being one of them, were finally struck off. Their names were published in the Official Gazette on July 15, 2017.

  • However, it was submitted that the ROC had no objections to restoring the name of the Company to the Register if Companies, subject to the following;
  • As per Rule 87A(4) of the NCLT Rules, 2016, where NCLT makes an order restoring the name of a company to the Register of Companies, the order shall direct that:

a) The appellant or applicant shall deliver a certified copy of the order to the ROC within 30 days from the date of the order;

b) On such delivery, the ROC, in his official name and seal, publish the order in the Official Gazette;

c) The appellant or applicant pays to the ROC his costs of an occasioned by the appeal or application, unless the Tribunal directs otherwise; and

d) The company shall file pending financial statements and annual returns with the ROC and comply with the requirements of the Act and rules made thereunder with such time as may be directed by the Tribunal.

  1.  Further, as per instructions of the Regional Director, the filed offices have been directed to obtain an affidavit from the directors of the company that the company which is to be restored did not involve itself in any unlawful activities and was not used as a means to transact tainted money during the demonetization period.

The ROC had prayed for specific orders regarding the above from the NCLT.

  • The ROC, in his additional counter affidavit dated August 18, 2018, stated that he had followed the procedure of striking off as stipulated by the Companies (Removal of Names) Rules, 2016 wherein the ROC was required to notify the regulatory authorities regulating the company about the proposed action of removal or striking off the company and invite objections, if any, to be filed within 30 days from the date of issue of letter of intimation. If no objections are received, it shall be assumed that the regulatory authorities have no objections. 
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Thereafter as per Rule 9 of Companies (Removal of Names) Rules, 2016, the Registrar shall cause a notice under Section 248(5) of the Act for striking off the name of the company from the Register of Companies and its dissolution to be published in official gazette in Form STK-7 and the same shall also be placed on the official website of the MCA.

Judgement

The Court was of the view that there was no order under Section 248(6) of the Act passed by the ROC and the consequential publication effected under Section 248(5) was not valid. Hence, the Court disposed of the civil revision petition observing that it is for the Company to take appropriate course.

Regarding the procedure of striking off the name of a company from the Register of Companies, the Court scrutinised Sections 248 (5) & (6) and 252 and concluded that it is mandatory for the ROC to pass an order for striking off before publication of notice.  Section 248(5) deals with the publication of the notice in the Official Gazette. Sub-Section (6) specifically states that “The Registrar, before passing an order under sub-Section (5)”. Section 252 deals with appeal to Tribunal by an aggrieved person against the order of the Registrar notifying a company as dissolved under Section 248. In order to determine whether the ROC had passed any such order, the Court had directed the ROC to file a specific affidavit. Nowhere in the additional counter affidavit had the ROC stated that he had passed an order for striking off. After issuing the notice, the ROC had presumed that the Company had no objection to the proposed action of striking off or removal of the company     .

After examining the files of the ROC and the Deputy ROC regarding the Company, the Court noticed that the Company was found fit to be struck off under Section 248(3) only on July 04, 2017 whereas publication of notice under Section 248(5) was effected as if the Company had already been struck off from June 28, 2017 itself. It was also noted that the Company had not filed any appeal against striking off or against the publication of notice but filed an application under Section 252(3) of the Act.

The Court concluded that the Company had proceeded under Section 252(3) on the premise that an order for striking off had been passed by the ROC, when no such order had been passed.

Analysis

The NCLT, as revealed by the Court, had made a fundamental error in its order. A plain reading of Sections 248 and 252 shows that an “order” of striking off is required to be passed by the ROC. The ROC incorrectly stated that an order is required only when a public notice is to be issued in case of application by the company to strike off its name from the Register of Companies under Section 248(2) of the Act. The ROC had not followed proper procedure for striking off the name of the Company. The NCLT, by its order, had caused hardship to the Company. Since the ROC had not followed procedure there, the Company can challenge the publication of the notice in the Official Gazette and the action of striking off.

Conclusion

Though Section 248 does not explicitly state that the ROC is required to pass an order of striking off and then publish the notice of striking off in the Official Gazette, the Court has interpreted that the word “order” stated in Section 248(6) makes it a pre-requisite to the publication of notice of striking off.

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