Restoration of name of company not allowable

2 KNOWLEDGE RESOURCE [Vol. 51

Chartered Accountant Practice Journal v January, 2017

Restoration of name of company not allowable whenthe name was struck off on the prayer of company itself

Dr. Rajeev Babel*

The Registrar of Companies has been empowered under Section 248 of the CompaniesAct, 2013, for the removal of names of companies from the Register of Companies. Thissection corresponds to Section 560 of the old Companies Act, 1956 and its sub-section (6)have a clause for restoration of the name of the company after it has been struck off and atime limit of 20 years from the date of struck off, has been prescribed. The prayer for therestoration of name of the company may be made by the aggrieved person (i.e. a companyor any member or creditor thereof), however where the company/ its directors, itself hadmade the application for struck off the name, whether the restoration of the name of suchcompany is allowable. This article narrates the circumstances under which the restorationof name can be allowed under Section 560(6) of the old CA 1956.

1. Introduction:

1.1. The companies which are not in operation are treated as ‘Defunct companies. Acompany during the course of its winding up may not be doing any business but solong it is not finally dissolved, it will be considered to be in operation1. A companywhich do not exist and is almost dead, the name of such companies may be removedby the Registrar of the concerned jurisdiction. The circumstances under which theRegistrar may exercise his powers for removal of names of the companies from theRegister of companies are contained in Section 248 of the Companies Act, 2013.However, this section have not been enforced yet. This section corresponds to Section560 of the old Companies Act, 1956. While Sub-section (1) to (5) of Section 560 of CA1956 deals with the matter relating to the removal of name of such company, the sub-section (6) deals with the restoration of name of company and put in the same positionas if the name of the company had not been struck off.

1.2. Section 560 (6) of CA 1956 provides that if a company, or any member or creditorthereof, feels aggrieved by the company having been struck off the register, the Tribunal,on an application made by the company, member or creditor before the expiry oftwenty years from the publication in the Official Gazette of the notice aforesaid, may,if satisfied that the company was, at the time of the striking off, carrying on businessor in operation or otherwise that it is just that the company be restored to the register,order the name of the company to be restored to the register; and the Tribunal may, bythe order, give such directions and make such provisions as seem just for placing thecompany and all other persons in the same position as nearly as may be as if thename of the company had not been struck off.

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* FCS, MBA, Ph.D, LLB, AIIB, M.COM. Company Secretary in Practice. The author may becontacted at [email protected]

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1.3 In the case of Meghdoot Services Ltd. v. Registrar of Companies, West Bengal,arising on account of APOT No. 386 of 20152, ACO No. 142 of 2015, CA No. 423 of2015 & CP No. 936 of 2014, decided by the High Court of Calcutta on 11th May, 2016,the question for consideration was that where the company’s name was struck offfrom Register on the prayer of company itself or of its directors, whether the applicationfor restoration of name by the company or its director would be allowable. The factsof the case are as under:

2. Facts of the case:

n This appeal is against an Order dated 21st July, 2015 passed by the learnedCompany Court, recalling an earlier order dated 13th November 2014, passedon a petition under Section 560(6) of the Companies Act, 1956, by which theCompany, Meghdoot Services Limited, whose name had been struck off, waspermitted to be revived.

n Meghdoot Services Limited, (Meghdoot) was incorporated on 7th July, 1984,under the Companies Act, 1956, to carry on business inter alia of investment. In2007, the Directors of Meghdoot decided to file an application before the Registrarof Companies, West Bengal, for striking off the name of Meghdoot from theRegister, as investments made by Meghdoot had ceased to have any value, andwere written off by the directors of Meghdoot. On the basis of the said application,the name of Meghdoot was struck off from the Register of Companies.

n Later on the value of investments written off by the Directors of Meghdoot roseand the economic position of the company changed subsequently. However,by that time the name of Meghdoot had already been struck out.

n Viswanath Agarwal, an erstwhile Director of Meghdoot, who had made theapplication for striking off the name of Meghdoot from the Register maintainedby the Registrar of Companies, West Bengal, made an application before thelearned Company Court under Section 560(6) of the Companies Act for ordersdirecting the Registrar of Companies to restore the name of Meghdoot in theRegister, in the same position as if its name had not been struck off.

n The Company Court vide its order dated 13th November, 2014 directed theRegistrar of Companies, to restore the name of the company in the Register, inthe list of Active Companies, within a fortnight from date, subject to thecompany paying Rs. 90,000/- to the Registrar of Companies, West Bengal.

n From the said Order dated 13th November 2014, it appears that the attention ofthe Company Court was not drawn to the fact that the name of Meghdoot hadbeen struck off from the Register, on the application of the directors of Meghdoot,including Viswanath Agarwal, who had filed the application underSection 560(6) of the Companies Act.

n Pursuant to a Judges Summons taken out on 22nd June, 2015, CalcuttaInvestment Ltd., a shareholder of Meghdoot, holding 24,000 shares in thecompany, took out an application for setting aside of the Order dated13th November 2014, passed by the Company Court. The Calcutta Investment Ltd.apprised the Company Court that Viswanath Agarwal along with two otherdirectors of the company, Abha Devi Agarwal and Ishan Agarwal had affirmedan affidavit and furnished an indemnity bond along with the application for

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RESTORATION OF NAME OF COMPANY NOT ALLOWABLE WHEN THENAME WAS STRUCK OFF ON THE PRAYER OF COMPANY ITSELF



striking off the name of the company, wherein they had categorically assertedthat the company had no assets and no liabilities and the company had beeninoperative for the last one year and did not intend to do any business orcommercial activity in future.

n By the Order dated 21st July 2015 under appeal, the Company Court allowedthe application filed by Calcutta Investment Ltd. and recalled the Order dated13th November 2014, by which the name of the Company had been restored tothe list of Active Companies. The Company Court made it clear that theCompany’s name remained struck off and the Company had no legal existencesince the day its name had been struck off in 2007.

n The Company Court found, in effect, that Calcutta Investment Ltd. being ashareholder of Meghdoot who had accepted the name of Meghdoot beingstruck off, Calcutta Investment ought to have been given notice of theapplication under Section 560(6). No notice was issued to any creditor orshareholder of Meghdoot.

n The Company Court also held that since it was the Company which hadapplied to have its name struck off under the Easy Exit Scheme, the Companycould not have applied under Section 560(6) after lapse of about 7 years.

n Aggrieved from the decision of the Company Court the Petitioner’s appealedto the High Court of Calcutta and made the following arguments:

3. Issue involved in the case:

n Whether petition for restoration of company’s name to Register of companiescould be filed only if a company, or any member or a creditor of company feelsaggrieved by company having being struck off.

n When company’s name was struck off from Register on prayer of companyitself or its directors (same could not be aggrieved by striking off) whetherapplication for restoration by company or its director would be allowable.

4. Arguments made by Meghdoot, the Appellant:

n The impugned order affects the right of the company or persons in control ofthe company. The impugned order is therefore appealable at the instance ofthe company which is in existence by reason of the Order dated 13th November,2014, which has been recalled by the order under appeal.

n In the case of Basanti Cotton Mills (1998) (P.) Ltd. v. Nirendranath Kar3 where aDivision Bench held that an order of the Single Bench under Section 560 of theCompanies Act, 1956 would be appealable under Clause 15 of the LettersPatent, if it was a final order deciding a controversy or deciding any right of aparty. In support of his submission, the Appellant cited Shah Babulal Khjmji v.Jayaben D. Kania4

n The company had been restored to the list of active Companies by the Order dated13th November, 2014. Upon restoration pursuant to the Order dated 13thNovember, 2014, the amount as mentioned in the said order had been depositedwith the Registrar of Companies. All annual returns and the Balance sheet fromthe year 2007 to 2014 had been filed with the Registrar of Companies. The DirectorsIshan Agarwal, Abha Devi Agarwal and Viswanath Agarwal had resigned from

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the company and Arvind Parasramka being the Appellant No. 2, Mrs. ShabanaKhatoon and Mrs. Gita Prasad had become directors of the Company. Newpersons had come into the management of the company and shares of thecompany had been transacted for valuable consideration. The company wasfunctional doing business in compliance with all regulatory requirements. Stepshad also been taken for filing Income Tax Returns which were in default andPAN Card had been obtained from the Income Tax department.

n The company had instituted proceedings before the Company Law Board,Calcutta and filed complaints before the Income Tax Department, PoliceAuthorities and Serious Fraud Investigation Office (SFIO) against the misdeedsof the persons controlling Calcutta Investment, being the Respondent No. 2.The application of Calcutta Investment for recalling the order dated13th November, 2011 was by way of a counter blast.

n The application for restoration had been made by Viswanath Agarwal, anerstwhile Director of the company on whose application the name of the companyhad been struck off from the Register. The company was struck off under theSimplified Exit Scheme, Clause 9(ii) and 9(iii) whereof requires as follows:—

• The company should give audited accounts for the year in which theapplication is made showing no assets and no liabilities.

• The application should be accompanied by an affidavit of at least twodirectors sworn before an Executive Magistrate, to the effect that thecompany had not carried on any business and had no assets or liabilities.

n After the Company had been struck off, there could be no question of existenceof the company or its directors. The same director who had applied under theExit Scheme, applied for restoration of the name of the Company, within theperiod provided under Section 560(6) of the Companies Act.

n Section 560(6) of the Companies Act does not however enable an erstwhiledirector of the Company to apply under the said section. An application underSection 560(6) can be made by a Company, its shareholder or creditor.

n The main ground taken in the application for restoration was that in 2007 itappeared that investments made by the company did not have value andsuch investments were written off. It later came to the knowledge of the directorsas well as the shareholders that the value of investment of the company, earlierwritten off, had appreciated and could now be in the market at good price,which would be in the interest of all stake holders.

n In the application under Section 560(6), it was also pleaded that there had notbeen any change in management after the date on which the name of the companywas struck off. The assertion is irrelevant since there could be no question ofchange in management when there was no existence of the Company.

n The Directors of the company, Mr. Ishan Agarwal, Mrs. Abha Devi Agarwal andMr. Viswanath Agarwal had expressed their intention not to continue as directorsof the company and Mrs. Shabana Khatoon, Mrs. Gita Prasad and Mr. ArvindParasramka had expressed interest in being appointed directors of the company.

n The Agarwals had ceased to be directors, when the name of the Company wasstruck off. There was no question of any intention to continue or not to continue




as Director. There could be no requirement for the directors of the company totake steps for filing any e -Form with the Registrar of Companies for theirresignation or of cooperating with the company to ensure that the companybecame active. Documents like Annual Returns and Balance Sheets of theyear ending 31st March, 2006 and subsequent years could not be filed with theOffice of the Registrar of Companies as the status of the company had beenstruck off. There was no company in existence.

n Notice had not been given to the Registrar of Companies before moving theapplication for recalling the Order dated 13th November, 2014. There was norequirement of law to give notice to any other shareholder. If notice to the RespondentNo. 2 were necessary, such notice should have been insisted upon when the companywas struck off in 2007. The Respondent No. 2 did not have any notice then.

n The Company Court erred in law in holding that notice had to be given to ashareholder for an application under Section 560(6) of the Companies Act,1956. Section 560(6) does not require any notice to shareholders.

n The Company Court had gone beyond the scope and ambit of Section 560(6)of the Companies Act, 1956. The impugned order was therefore withoutjurisdiction and perverse.

n The applicant for recalling of the Order dated 13th November, 2014, CalcuttaInvestment is not an aggrieved party and as such, lacked locus standi to file theapplication which culminated in the order under appeal. Calcutta Investmentholds 9% shareholding in Meghdoot Services Limited. It cannot therefore beaffected by the order of restoration of the company. The Appellant has attributedmalafide motive to the applicant, Calcutta Investment, contending that it sufferedno legal grievance. In support of his contention that Calcutta Investment wasnot an aggrieved party, In re (XIV ChD 458) Thammanna v. K. Veera Reddy5. Theproposition of law which emerges from the aforesaid judgments is that aggrievedperson must be a man who has suffered legal grievances, a man against whoma decision has been pronounced which has wrongfully deprived him ofsomething or wrongfully refused him something or wrongfully affected histitle. Mr. Banerjee argued that Calcutta Investment had not been able to showthat it had suffered any legal grievance or had wrongfully been deprived orwrongfully been refused or his title affected by the Order dated 13th November,2014. Calcutta Investment cannot be termed as an aggrieved party.

n Calcutta Investment had come to Court with unclean hands. The applicationfor recalling of the Order dated 13th November, 2014 was a counterblast to thepending company petition before the Company Law Board and a mischievousattempt to prevent the Company Law Board from making an enquiry into theserious management oppression and criminal acts by persons in themanagement of Calcutta Investment.

n The orders striking off the company was itself a nullity under the SpecifiedExit Scheme since Section 560 of the Companies Act does not allow a companyto take the benefit of the Simplified Exit Scheme to have its own name struckoff from the list of active Companies. All the benefits taken by a companyunder the said Simplified Exit Scheme were, therefore, a nullity. The provisionsof the Companies Act, 1956 could not have been bypassed to take the benefitof the Simplified Exit Scheme to strike itself off. Mr. Banerjee finally argued

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that the definition of ‘Company’ under Section 560(6) would have to be givena wider meaning to include directors who were directors at the time of thecompany being struck off.

5. Arguments made by the Respondents:

n The Respondent No. 2 submitted that the restoration Order dated13th November, 2014 had adversely affected the Respondent No. 2 in theproceedings under Sections 397 and 398 pending before the Company LawBoard. As such, the Respondent No. 2 had locus standi to apply for recall of theOrder dated 13th November, 2014.

n It was submitted that under Section 560 it is not necessary for a personaggrieved to make a recalling application. As such, the judgment cited by theAppellant was not applicable.

6. Observations made by the High Court:

n The High Court observed that the Company Court rightly held that eventhough the word ‘Company’ in Section 560(6) of the Act may be given a widermeaning, it was not possible to accept that a Company whose name had beenstruck off on its own invitation, 6 or 7 years ago, should be permitted to applyunder the said provision for the striking off to be undone. In such a situation,only a creditor or a shareholder of the Company could have applied, providedof course the application was made within 20 years from the date on whichthe Company’s name had been struck off.

n The Company Court rightly took note of the fact that the petition underSection 560(6) had not been filed by any shareholder or any creditor of theCompany. had not even been filed by the Company. Accordingly, the Orderdated 13th November, 2014 was recalled.

n In Dasaprakash (P.) Ltd. v. Registrar of Companies6, a Single Bench of the MadrasHigh Court held that a company voluntarily striking off its name from theRegister of Companies under the first track scheme could not avail the benefitof restoration of its name under Section 560(6) since the provision was intendedfor the benefit of a company which felt aggrieved by the removal of its namefrom the Register of Companies. We agree with the view taken by the learnedSingle Bench of Madras High Court in Dasaprakash (P.) Ltd.’s case (supra).

n The Appellant had argued that the judgment of the Single Bench of the MadrasHigh Court was contrary to the judgment of other High Courts and in particularthe unreported judgment of the Karnataka High Court dated 8th February, 2013in the case of Sri Mukambika Agricultural Estates and Forest Industries Pvt. Ltd.

n The Karnataka High Court did not consider the question of whether a companyvoluntarily applying for striking off its name from the Register of Companies undera fast track scheme could be said to be aggrieved by the removal of its name from theRegister of Companies, to maintain an application under Section 560(6) of theCompanies Act. Furthermore, the Registrar of Companies had, in the case before theKarnataka High Court given his consent to the restoration of the company.

n A bare reading of Section 560(6) of CA, 1956, the aforesaid provision makes itamply clear that if a company, or any member or creditor thereof felt aggrievedby the Company having been struck off the Register, the Court might, on an




application made by the Company, member or creditor, before expiry of 20years from the date of publication in the official Gazette of the notice of strikingoff, the Court might pass orders and/or directions for placing the Companyin the same position as nearly as may be, as if the name of the ‘Company’ hadnot been struck off, provided the Court was satisfied that the Company was,at the time of striking off, carrying on business, or any operation or otherwisesatisfied that it was just that the Company be restored to the Register.

7. Decision of the High Court:

n In view of the assertion made by the erstwhile directors of the Company,including Viswanath Agarwal, in their affidavits and indemnity bonds insupport of their prayer for striking off the name of the Company from theRegister, the Court could not have been satisfied that the Company wascarrying on business or was in operation.

n The directors including the applicant under Section 560(6) had asserted tothe contrary. The Order dated 13th November, 2014 does not disclose the reasonsfor arriving at the finding that it was just that the Company be restored to theRegister. In any case, an application could have been filed under Section 560(6)only if a Company, or any member or creditor felt aggrieved by the Companyhaving been struck off.

n The Company having been struck off on the prayer of the Company itselfand/or its directors, there can be no question of the Company being aggrievedby the striking off. Viswanath Agarwal who had himself prayed for strikingoff also could not be aggrieved by the striking off.

n For the reasons discussed above, the appeal is dismissed and the judgmentand the order under appeal is affirmed.

8. Summing up:

Incidentally the provisions relating to the restoration of the name of the company asmentioned in Section 506(6) of CA, 1956 do not find place in Section 248 of the new CA,2013. This new section seeks to provide the circumstances under which the Registrarshall sent a notice to the company and all the directors of the company of his intention toremove the name of the company from the register of companies. This new section furtherprovides that a company may by a special resolution or with the consent of 75% membersin terms of paid-up share capital may also file an application to the Registrar for removingthe name of the company from the register of companies. This new section further seeksto provide that at the expiry of the time mentioned in the notice, the Registrar may strikeoff the name of the company from the register of companies, and on the publication in theOfficial Gazette of this notice, the company shall stand dissolved. Section 248 of CA, 2013has not yet been enforced so the erstwhile provisions will continue.

Endnotes

1 Re. Outlay Assurance Society(1887) 34 Ch.D 479.

2 Arising out of order of Company Court dated 13-11-2014.

3 116 SCL 613 (Cal.)

4 MANU/SC/0036/1981

5 MANU/SC/0294/1980

6 MANU/TN/1940/2012