National Company Law Appellate Tribunal
Karan Luthra & Anr vs Registrar Of Companies Nct Of Delhi & ... on 29 November, 2022
1
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH
NEW DELHI
COMPANY APPEAL (AT) NO.211 OF 2022
&
I.A. NO.4384 OF 2022
In the matter of:
Karan Luthra & Anr Appellant
Vs
Registrar of Companies
NCT of Delhi and Haryana & Anr Respondent
For Appellant: Mr. Sudhanshu Batra, Sr. Advocate, Mr. Rajiv
Dewan, advocate.
For Respondent : None
ORDER
29.11.2022: Heard Mr. Sudhanshu Batra, learned senior counsel assisted by Mr. Rajiv Dewan, learned counsel for the appellant on the IA No.4384/2022. IA No.4384/2022 has been filed due to the reason that in refiling the appeal 43 days delay has occurred. One of the reasons for delay in refiling as has been explained in the application is that the record was voluminous consisting of about 900 pages. There are other reasons also for delay which were not intentional. The appellants have assigned detailed reason for allowing the condonation petition. After going through the same 2 we are satisfied that there is delay in refiling which was not intentional. Accordingly delay in refiling the appeal of 43 days is condoned.
Heard Mr. Sudhanshu Batra, learned senior counsel assisted by Mr. Rajiv Dewan, learned counsel for the appellant. The present appeal has been preferred under Section 421 of the Companies Act, 2013 against an order dated 10.08.2022 whereby National Company Law Tribunal, New Delhi, Bench IV, has rejected the Appeal No.71/252/ND/2021. The said appeal was filed by the appellant under Section 252(3) of the Companies Act, 2013 with a prayer to restore the name of the company i.e. K.N. Traders Pvt Ltd in the register of Registrar of Companies, Delhi and Haryana.
It was submitted by the learned senior counsel for the appellant that despite the fact that Learned NCLT has notice that the company was having 15 acres of land in the prime location of Aaya Nagar, Mehrauli which is in Delhi, Learned NCLT failed to exercise its jurisdiction applying just decision in the matter for restoring the company in question. In support of his submission learned senior counsel has referred to number of judgements passed by this Tribunal and also referred to High Court judgement which was referred to in a judgement passed by NCLT. It was 3 submitted that in Company Appeal (AT) No.148/2020 (Vikas Sureshbhai Patel & Anr Vs Registrar of Companies, this Tribunal considering the fact that the struck off company was having land, this Tribunal allowed the appeal and directed for restoration of the company to the register of the Registrar of Companies. He has also placed reliance on an another judgement passed in Company Appeal (AT) No.231/2018 (M/s Insys Instruments Systems Ltd Vs ROC) and he has referred to paras 12, 36, 38, 40 and 42 of the judgement which are quoted hereinbelow-
12.It is submitted that on verification of the MCA 21 portal in the month of March 2017 when action under Section 248(1) of the Companies Act, 2013 was initiated against the eligible Companies, it was seen that the appellant Company has not filed either the Balance Sheet or the Annual Returns from the date of incorporation till 2015-16. Therefore, the Respondent had reasonable cause to believe that the appellant Company is not carrying on any business or operation and therefore a notice in Form STK-1 date 18.03.2017 was sent to the Company. Further, STK-1 notice dated 31.03.2017 was sent to all the Directors of the Company to the address available in the MCA 21 portal.
36.Learned counsel for the appellant argued that the appellant company had been allotted a plot of land by KIADB based on substantial amounts already paid and was in the process of making the required additional payments. Learned counsel further argued that huge investment has been made by the Directors of the appellant company. Learned counsel for the appellant further argued that even though the appellant company 4 is not carrying on any business, the appellant company should be considered to be fully operating and that the same is sufficient in view of Section 252(3) of the Companies Act, 2013 to restore the company.
38.We have heard the parties on this issue. We observe from the allotment letter dated 16.12.2016 (Page 104) that the appellant company was allotted 0.50 acres of land for setting up an industry for the manufacture of "Aerospace Components" on certain terms and conditions as mentioned therein. We further observe from para 3(a)(i) of the said letter dated 16.12.2016 (Page
105) that a sum of Rs.50,00,005/- has been paid by the appellant towards 40% of the tentative premium of land and EMD. We have gone through the Balance Sheets for the March 2014 (Page 161) and March 2017 (Page 123) and find that there is no reflection of Rs.5000005/- in these Balance Sheets. We have also gone through letter dated 21st November, 2016 (Page No.109) of the appellant addressed to KIADB, Bangalore enclosing therewith a Demand Draft No.220653 dated 21.11.2017 for Rs.6,25,000/- towards first instalment for 0.5 acres of land allotted to appellant. These documents go to prove that the appellant has been allotted 0.50 acre of land by the KIADB and the appellant has deposited the amount of Rs.25,00,000/- vide DD No.140802 dated 28.10.2013 (Page No.73) way back in 2013 and the KIADB has issued Receipt No.33781 dated 5/11/2013 for setting up an industry. Further the appellant has also deposited more amount vide Receipt No.37675 dated 30.11.2016 and an amount of Rs.625000/- as first instalment.
40.On hearing the parties and perusing the record we observe that the appellant has applied for allotment of land to KIADB in the year 2013 and also deposited Rs.25 lakhs in 2013 and also Rs.25 lakh in 2016 and have also deposited first instalment of 5 Rs.625000/- with the KIADB in 2017. That as per letter of allotment dated 16.12.2016 (Page 104) the last instalment is due by 16.12.2019 which has not arrived so far. As per 4(a) of allotment letter, in case the appellant fails to pay the amount mentioned in para 3(a)(2) of the said letter before the expiry of the time stipulated therein, the offer of allotment stands automatically cancelled and the Earnest Money Deposit and 20% of the amount paid by appellant towards premium stands automatically forfeited. The appellant company was allotted 0.50 acres of land in 2016, though it was applied in 2013, to set up an industry. We also observe that the appellant company is continuously corresponding with the local authorities for allotment of land and getting other approval since 2013.
42.From the above discussions and observations we have come to the conclusion that in the light of huge investment made by the directors/company and the appellant is continuously making efforts to set up the industry and also still depositing the instalments towards land, it would be just that the name of the company is directed to be restored. The following orders/directions are passed:-
i) Impugned order is quashed and set aside. The name of appellant company shall be restored to the Register of Companies subject to the following compliances:
ii) Appellants shall pay costs of Rs.10000/- to the Register of Companies within 30 days. The minimum costs is being imposed seeing that the company is a Start Up company.
iii) Within 30 days' of restoration of the company's name in the register maintained by the Registrar of Companies, the company will file all their annual returns and financial statements due till date. The company will also pay requisite charges/fee as well as late fee/charges, as applicable.6
iv) Inspite of present orders, ROC will be free to take any other steps, punitive or otherwise under the Companies Act, 2013 for non-filing/late filing of statutory returns/documents against the company and directors.
v) The appeal is accordingly disposed of. No order as to costs.
Learned senior counsel has further referred to a judgement of Hon'ble Delhi High Court decided on 2.12.2013 (M.A. Panjwani Vs Registrar of Companies & Anr). In this judgement he referred to para 12, 15, 16 and 17 which are quoted herein below:-
12. Under sub-section (6) of Section 560 of the Companies Act, 1956 the company court has the power to order restoration of the company's name to the register of companies on the application made by the company itself or its member or creditor. Such an application can be made at any time before the expiry of 20 years from the publication of the notice for striking off the name published in the official gazette. There are only two circumstances in which the company court can exercise the power. The first is when it is satisfied that the company was, at the time of the striking off of its name from the register, carrying on business or was in operation. The second circumstance is when it appears to the company court that it is "otherwise just" that the name of the company be restored to the register. Obviously the petitioner is not the company itself and, therefore, he has to be either a member or creditor. It was submitted on behalf of the ROC that the petitioner is neither a member nor a creditor of the company.
15. Quite apart from the above position, the sub-section recognises that if the Court is of opinion that it is "otherwise just" that the company be restored to the register, restoration can be ordered.
The argument addressed on behalf of the ROC to the effect that the word "just" has to be understood in the background of the specific language of the sub- section on the basis of the principle of ejusdem generis does not appeal to me. As I read the sub- section, there are two situations in which the company court can order restoration. One is when the company was carrying on business or was in operation at the time of striking off its name. The second situation, which is an alternative situation, is one where it appears "just" to the company court that the name of the company be restored to the register. I do not see any scope for the 7 application of the rule of ejusdem generis because of the presence of the words "or otherwise" between the words providing for the two types of situations. The presence of the words "or otherwise"
denotes that even if the company was not carrying on any business or was not in operation at the time of striking off, it is still open to the company court to order restoration if it appears to the Court to be "otherwise just". I may add that the words "or otherwise" have not been generally construed ejusdem generis as seen from the judgments of the Supreme Court in Lilawati Bai Vs State of Bombay : (AIR 1957 SC 521) and Kavallappara Kottarathil Kochuni V. State of Madras : (AIR 1960 SC 1080).
16. In Helen C Rebella Vs Maharashtra S.R.T.C. : (1999) 1 SCC 90, it was observed by the Supreme Court that the word "just"
denotes equitability, fairness and reasonableness having a large peripheral field. In understanding its scope, one must take into account all the facts and circumstances of the case and then decide what would be just and equitable. In M.A. Rahim and Anr Vs Sayari Bai : (AIR 1973 Mad.83) it was held by a Division Bench of the Madras High Court that the word "just" connotes reasonableness and something conforming to rectitude and justice, something equitable and fair. In Sidhant Garg and Anr Vs Registrar of Companies & Ors. : (2012) 171 Comp. Cas. 326 it was held by this Court (Manmohan, J.) that the word "just" would mean that it is fair and prudent from a commercial point of view to restore the company and that the Court has to examine the concept of "justness" not exclusively from the perspective of a creditor or a member or a debtor, but from the perspective of the society as a whole. The special facts of the present case attract this principle. The respondent has received monies from the petitioner. He was entrusted with the job of finding a house for the petitioner in Delhi. The averments in the petition prima facie indicate that the property "Jodhpur Gardens" was purchased not in the name of the petitioner but in the name of the company. The shares held by the petitioner in the company were also taken away from him without his knowledge or consent. The settlement entered into between Quli and Singhania by which the shares were transferred to Quli was held by this Court to be collusive. These are disputes which are pending in the trial court. The company is a defendant in the trial court. If its name is not restored, it would cause injustice to the petitioner and also cause prejudice to the trial as a whole. The message sent to the society as a whole, if the name of the company is not restored to the register, would be quite disturbing. The petitioner has to be protected in the litigation pending before the trial court. As observed by the Indore Bench of the Madhya Bharat High Court in Bhogi Lal Chiman Lal vs. Registrar, Joint Stock Companies :
AIR 1954 M.B. 70, the effect of the order of the Registrar of Companies striking off the name of the company from the register 8 would be that the company will be deemed to be dissolved and it may be difficult for the petitioner to obtain any relief in the suit pending before the trial court. It is not also known whether the company had brought to the notice of the ROC about the pendency of the litigation in the trial court. If it had, perhaps the ROC would not have struck off the name from the register.
17. It was submitted on behalf of the Registrar of Companies that in striking off the name of the company, the procedure prescribed in Section 560 of the Act was followed. That may be so. Sub-
section (6) of Section 560 gives power to the company court to order restoration of the name of the company if it finds that such a course was "just". The fact that the ROC did follow the due procedure prescribed by law while striking off the name cannot, therefore, be an answer to a petition filed on the ground that it would be "just" to restore the name of the company.
On aforesaid grounds it has been argued that Learned NCLT has miserably failed to consider that the appellant company was having sufficient land and ignoring those facts has rejected the appeal which was filed for restoration of the company in question to the register of Registrar of Companies.
Besides hearing learned senior counsel for the appellant we have minutely examined the materials available on record particularly the order impugned in this appeal. After hearing the learned senior counsel and perusing the impugned order it is not in dispute that the company in question was struck off long back in the year 2007. Thereafter after lapse of several years in the year 2021 the appeal was filed being Appeal No.71/252/ND/2021 before NCLT for restoring the company on the register of Registrar 9 of Companies. We think it proper to reproduce certain paras of the order which has been assailed in the present appeal:
8. Since, the name of the Company was strike off by the Registrar of Companies, NCT of Delhi & Haryana vide order dated 31.05 2007, which was published for public notice under Section 560(5) of the Companies Act, 1956 on 23.06.2007. Therefore, it will be relevant to examine Section 560 of the Companies Act, 1956 which is reproduced as under in verbatim
560. Power of Registrar to strike defunct company off register.
(1) Where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or in operation.
(2) If the Registrar does not within one month of sending the letter receive any answer thereto, he shall, within fourteen days after the expiry of the month, send to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette with a view to striking the name of the company off the register.
(3) If the Registrar either receives an answer from the company to the effect that it is not carrying on business or in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette, and send to the company by registered post, a notice that, at the expiration of three months from the date of that notice, the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.
[Emphasis Supplied) 11 We observe that the RoC, NCT of Delhi & Haryana has taken action for striking off the names of non-functional and non- operational, companies from the register of companies and keep it free of the names of defunct companies as part of his administrative functions. This action, it should be underlined, has been taken by following the stipulated legal procedure and by application of relevant provisions of the erstwhile Companies Act, 1956 and not in any arbitrary manner 10
13. Regarding the matter whether the company was in business or in operation, on perusal of the submissions made by the appellants in their petitions and also during arguments, we inferred that the company was not functioning or in operations and the appellants have very unequivocally admitted that due to unfavorable market conditions and technical difficulties, the company have faced some issues leading to a lot of financial issues for the company This resulted in a phase where the company had no operations and all the activities of the company were put to a halt and therefore, the company did not have any significant business activities in the past few years. The appellants also admitted that the directors of the company were facing personal health issues which inhibited them from fulfilling the activities of the company involving corporate compliances.
14.As per the information provided by the appellants in the petition, we observe that appellants have not bring on record the acknowledgement of Income Tax Returns as the company does not have the Permanent Account Number (PAN card) and it is pertinent to mention that one of the major consequence of not having PAN card is that the company will not be possible to operate bank accounts with transaction above Rs 50,000/- or to use credit/debit card or purchase motor vehicles or property etc as envisaged under Section 114B of the Income Tax Rules, 1962 which ultimately results in a virtual commercial death of the Company. We further observe that the company was having 'NIL' revenue from the financial years 2005-06 to 2013-14 which evidently shows that the company was not carrying any business or operations.
16. As to the issue whether any case could be made out for the reason "it is otherwise just" for restoring the name of the company in the register of companies Fairness and Justice go hand in hand and an we must weigh the requirement of being just from the lens of fairness and justice based on the reasons put forth by the appellants in the petition. We find that the appellants has not given any cogent or convincing reason as to why the company was not in operation and the reasons provided by him about poor market conditions and bad health of the directors of company are not convincing when we know that many other companies having similar businesses and production were functioning in the said time period. Moreover, the appellants failed to take any action to acquire the status of Dormant Company' by resorting to action under Section 455 of the Act. In addition, the company did not even care to file necessary balance sheets and 11 annual returns for any of the financial years in question. The entire conduct of the appellants point to a situation that the company was not operational and the directors/shareholders were not interested in running the company and take action as required under law. Consequently, we do not find any cogent reason preferred by the appellant that could be considered as providing 'just' ground for restoring the name of the company in the register of companies
17. We further place our reliance on wherein Hon'ble NCLAT in case Alliance Commodities Private Limited v. Office of Registrar of Companies - West Bengal (Company Appeal (AT) No. 20 of 2019) decided on 09.07.2019 held that:
"Section 252 (3) of the Companies Act, 2013 empowers the Tribunal to order restoration of a Company whose name has been struck off from the Register of Companies, if such company, any member or creditor or workman thereof feeling aggrieved by such striking off applies before the Tribunal seeking restoration of the struck off company to the Register of Companies before the expiry of twenty years from the publication in Official Gazette of notice under Section 248(5). The exercise of such power is properly regulated and depends upon satisfaction of the Tribunal that the Company at the time of its name being struck off was carrying on business or in operation or otherwise it is 'just' that the name of company be restored. We do not find ourselves persuaded to agree with the proposition canvassed by learned counsel for the Appellant that inspite of Appellant's inability to demonstrate that the Company was at the relevant time carrying on business or in operation, the Tribunal had vast powers to order restoration of Company on the ground "or otherwise", This term "or otherwise" has been judiciously used by the legislature to arm the Tribunal to order restoration of a struck off company within the permissible time limit to take care of situations where it would be just and fair to restore company in the interest of company and other stakeholders Such instances can be innumerable. However, this term "or otherwise cannot be interpreted in a manner that makes room for arbitrary exercise of power by the Tribunal when there is specific finding that the Company has not been in operation or has not been carrying on business in consonance with the objects of the Company. A Shell Company or a Company having assets but advancing loans to sister concerns or corporate persons for siphoning of the funds, evading tax or indulging in 12 unlawful business or not abiding by the statutory compliances cannot be allowed to invoke this expression "or otherwise" which would be a travesty of justice besides defeating the very object of the Company. Such course would neither be just nor warranted. Arguments raised on this score are repelled
18. Apparently, the appellant admits that the company was not in operation since the year 1998 to 2007 1c., about 9 years, that too when approximately 15 acres of land is owned by the company in the periphery of NCT, Delhi and all of sudden it started generating income from the financial year 2014- onwards that too revenue of only Rs 86,850 to 2,65,690/- in financial year 2019-20, which creates numerous doubts about the operations of the company and leads to conclusion that the company ie, K N Traders Private Limited was a shell company, though having assets but created for some ulterior motive to evade taxes and indulging in unlawful activities. In the given facts, citations referred on behalf of appellant are not helpful whereas the law laid down in Alliance Commodities Private Limited (supra) is squarely applicable in the present case.
On perusal of the aforesaid order it is not in dispute that despite non-filing of statutory returns before the Registrar of Companies, the name of the company in question was struck off long back in the year 2007 and even thereafter till date of filing of the appeal before the NCLT the appellant was not in a position to substantiate as to why the company in question has no bank account nor the company has any PAN and why it has not filed Income Tax Return before the Income Tax Authority. On examination of the impugned order we are satisfied that the Learned NCLT has not committed any error in rejecting the appeal.
It is true that under Section 252(3) of the Companies Act, 2013 powers is vested with NCLT to restore a company within a period 13 of 20 years, however, there is certain restrictions also. One of the main restriction in passing restoration order is to examine as on the date of striking off the name of the company, the company was doing business and generating revenue but there is nothing on record to suggest that the company was doing any business, rather it goes without saying that the company was not maintaining bank account. It is true that there is other also grounds for passing restoration order that if a case is otherwise just in that event restoration application can be allowed. The exercise of power in favour of company to the extent of using word 'Otherwise Just' is simply a discretionary jurisdiction. It is also settled that discretion is to be exercised not indiscreet manner. Meaning thereby if a discretionary jurisdiction is vested in a Court it has to be exercised in the fair and just manner. In the present case we find that in view of the facts and circumstances the Learned NCLT was not required to exercise second option i.e. for just decision in the matter to allow the application. So far as the judgements as referred to above are concerned, in none of the judgement it was a case that after such a long time an application was filed for restoration or even the concerned companies at the time of striking off their name were non-operational or not doing any business.
14However, in the present case there is nothing on record to show that at the time of striking off the name of company in question it was carrying on any business or was in operation. Even till date the appellant was not in a position to establish that the company was having any Bank account, Permanent Account Number or filed statutory returns with Income Tax Authority. In such a situation we are of the opinion the Learned NCLT while rejecting the appeal has committed no error, rather it is otherwise just and correct decision which warrants no interference.
The appeal stands dismissed.
(Justice Rakesh Kumar) Member (Judicial) (Dr. Ashok Kumar Mishra) Member (Technical) Bm/gc