Contents of the Article:
1. Grounds for Removal of Company’s Name from register of companies
2. Procedure for Strike off by the Registrar.
3. Procedure for Strike off by the Company.
4. Companies whose name cannot be removed.
5. Restrictions from making application for removal of name.
6. Judgments on meaning of carrying on any business or operation
- Insys Instruments Systems (India) Pvt. Ltd. Vs. Registrar of Companies (Karnataka) MANU/NL/0131/2019
- Adroit Trade (P) Ltd. vs. Registrar of Companies, Chennai (29.04.2019 – NCLAT) MANU/NL/0185/2019
- Basant Kumar Berlia and Ors. vs. Registrar of Companies, West Bengal Nizam Palace and Ors. (24.01.2019 – NCLAT): MANU/NL/003 1/2019
- State of Gujrat v. Raipur Manufacturing Company Limited [Civil Appeal NO. 603 of 1965]
- Khachen v. Ram Ditta Mal (23/12/1983: Punjab & Haryana High Court)
- Anandan v. Noorjahan (1994) 1 M.L.J. 657,
- Commissioner of Sales Tax v. Sai Publication Fund [Case No. Appeal (civil) 9445 of 1996]
7. Judgments on meaning of reasonable cause
- Woodward Governors India (P) Ltd. v. CIT [2001] 118 Taxman 433
- CIT v. Modi and Sons [1976] 102 ITR 548 (MP)
- CWT v. Jagdish Prashad Chaudhary AIR 1996 Pat 58 FB
- Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471/ 116 Taxman 249
8. Appeal to National Company Law Tribunal.
In this Article an attempt has been made by the author to decode, simplify and interpret the provisions pertaining to strike off of companies or removal of names of companies from the register of companies, enshrined under Section 248 to 252 of Companies Act, 2013 (hereinafter called as “the Act”) read with Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016
(hereinafter called as “the Rules”) and various judicial pronouncements.
The subsequent paragraphs of this article encompasses step by step interpretation of provisions of Section 248 to 252 of the Act supported by various judicial precedents.
Section 248: Power of Registrar to Remove Name of Company from Register of Companies
On conjoint probe of Section 248 and Rule 3 and 4 following can be inferred:
Grounds for Removal of name
The Registrar or the Company may proceed to remove the company’s name on all or any of the following grounds:
a) company failed to commence its business within one year of its incorporation
b) company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.
c) the subscribers to the memorandum have not paid the subscription which they had undertaken to pay at the time of incorporation of a company and a declaration to this effect has not been filed within one hundred and eighty days of its incorporation under subsection (1) of section 10A.
d) the company is not carrying on any business or operations, as revealed after the physical verification carried out under sub-section (9) of section 12.
[ Whereas, Section 12(9) empowers the Registrar to carry on physical verification of the registered office of the company if he has reasons to believe that the company has not been carrying any business or operations.]
Procedure for removal of company’s name by Registrar
Step 1: The Registrar has reasonable cause to believe that the company falls under all or any of the grounds mentioned hereinbefore.
Step 2: Registrar shall send 30 days show cause notice in form STK-1 by registered post with the Company and all its directors.
Step 3: The notice in Form STK-5 shall be
- placed on the official website of the Ministry of Corporate Affairs
- Published in the Official Gazette
- published in English language in a leading English newspaper and at least once in vernacular language in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated in Form STK-5A.
Step 4: The Registrar shall, simultaneously intimate the concerned regulatory authorities regulating the company, viz, the Income-tax authorities, central excise authorities and service-tax authorities having jurisdiction over the company, about the proposed action and seek objections, if any, to be furnished within a period of 30 days and if no objections are it shall be presumed that they have no objections to the proposed action
Step 5: The Registrar shall satisfy himself that sufficient provision has been made for the realization of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company.
Step 6: At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies,
Step 7: Registrar shall publish notice in Form STK-7 in the Official Gazette, and on its publication, the company shall stand dissolved and the same shall also be placed on the official website of the Ministry of Corporate Affairs.
Procedure for removal of company’s name by Company
Step 1: The Company must fall under all or any of the grounds for removal of name mentioned hereinbefore.
Step 2: Company shall extinguish all its liablities.
Step 3: Company shall either pass special resolution in general meeting or obtain consent of seventy-five per cent members in terms of paid-up share capital.
(If the company regulated under a special Act, no objection certificate of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application)
Step 4: File an application in Form STK-2 along with fees of Rupees 10,000 to the Registrar.
Step 5: Registrar shall, on receipt of such application, issue a notice in Form STK-5 which shall be
- placed on the official website of the Ministry of Corporate Affairs
- Published in the Official Gazette
- published in English language in a leading English newspaper and at least once in vernacular language in a leading vernacular language newspaper, both having wide circulation in the State in which the registered office of the company is situated in Form STK-5A
- Placed on Company’s website if any till disposal of application.
Step 6: The Registrar shall, simultaneously intimate the concerned regulatory authorities regulating the company, viz, the Income-tax authorities, central excise authorities and service-tax authorities having jurisdiction over the company, about the proposed action and seek objections, if any, to be furnished within a period of 30 days and if no objections are it shall be presumed that they have no objections to the proposed action.
Step 7: The Registrar shall satisfy himself that sufficient provision has been made for the realization of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company.
Step 8: At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies,
Step 9: Registrar shall publish notice in Form STK-7 in the Official Gazette, and on its publication, the company shall stand dissolved and the same shall also be placed on the official website of the Ministry of Corporate Affairs
Important Notes:
1. It is pertinent to note that the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
2. Further, the liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company shall continue and may be enforced as if the company had not been dissolved.
3. Kindly also note that the power of the Tribunal to wind up a company whose name of which has been struck off shall not be affected.
4. The companies registered under Section 8 of the Act are not eligible to apply for removal of its name in terms of express prohibition for the same under Section 248(3).
5. Company must have filed overdue returns Form No. AOC-4 (Financial Statement) or AOC-4 XBRL, as the case may be, and Form No. MGT-7 (Annual Return), up to the end of the financial year in which the company ceased to carry its business operations.
6. If a company intends to file Form No. STK-2 after the action for removal of name has been initiated by the Registrar, it shall file all pending overdue returns in Form No. AOC-4 (Financial Statement) or AOC-4 XBRL, as the case may be, and Form No. MGT-7 (Annual Return) before filing Form No. STK-2.
7. If notice in Form No. STK-7 has been issued by the Registrar, a company shall not be allowed to file an application in Form No. STK-2.
Attachments to STK-2
The application in Form STK 2 shall be accompanied by –
(i) indemnity bond duly notarised by every director in Form STK 3;
(ii) a statement of accounts in Form STK-8 containing assets and liabilities of the company made up to a day, not more than thirty days before the date of application and certified by a Chartered Accountant;
(iii) An affidavit in Form STK 4 by every director of the company;
(iv) a copy of the special resolution duly certified by each of the directors of the company or consent of seventy five per cent of the members of the company in terms of paid up share capital as on the date of application;
(v) a statement regarding pending litigations, if any, involving the company.
Further, it must be noted that certain categories of companies mentioned hereinbelow can not removed from the register of companies:
(i) listed companies;
(ii) companies that have been delisted due to non-compliance of listing regulations or listing agreement or any other statutory laws;
(iii) vanishing companies;
(iv) companies where inspection or investigation is ordered and being carried out or actions on such order are yet to be taken up or were completed but prosecutions arising out of such inspection or investigation are pending in the Court;
(v) companies where notices under section 234 of the Companies Act, 1956 (1 of 1956) or section 206 or section 207 of the Act have been issued by the Registrar or Inspector and reply thereto is pending or report under section 208 has not yet been submitted or follow up of instructions on report under section 208 is pending or where any prosecution arising out of such inquiry or scrutiny, if any, is pending with the Court;
(vi) companies against which any prosecution for an offence is pending in any court;
(vii) companies whose application for compounding is pending before the competent authority for compounding the offences committed by the company or any of its officers in default;
(viii) companies, which have accepted public deposits which are either outstanding or the company is in default in repayment of the same;
(ix) companies having charges which are pending for satisfaction; and
(x) companies registered under section 25 of the Companies Act, 1956 or section 8 of the Act.
♦ Whereas the expression “vanishing company” means a company, registered under the Act or previous company law or any other law for the time being in force and listed with Stock Exchange which has failed to file its returns with the Registrar of Companies and Stock Exchange for a consecutive period of two years, and is not maintaining its registered office at the address notified with the Registrar of Companies or Stock Exchange and none of its directors are traceable.
Section 249: Restrictions on making application under section 248
An application in Form STK 2 shall not be made if, in the previous three months, the company³
(a) has changed its name or shifted its registered office from one State to another;
(b) has made a disposal for value of property or rights held by it, immediately before cesser of trade or otherwise carrying on of business, for the purpose of disposal for gain in the normal course of trading or otherwise carrying on of business;
(c) has engaged in any other activity except the one which is necessary or expedient for the purpose of making an application under that section, or deciding whether to do so or concluding the affairs of the company, or complying with any statutory requirement;
(d) has made an application to the Tribunal for the sanctioning of a compromise or arrangement and the matter has not been finally concluded; or
(e) is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.
For the proper appreciation of the letter and intent of provisions relating to removal of company’s name, it is imperative to elaborate and discuss some important terms used therein, the same are discussed hereinbelow:
Meaning of carrying on any business or operation
The words carrying on any business or operation does not find any place under the Act or Rules made thereunder and thus the same is interpreted in light of judicial pronouncements mentioned hereinbelow:
In the matter of Insys Instruments Systems (India) Pvt. Ltd. Vs. Registrar of Companies (Karnataka) MANU/NL/0131/2019 the National Company Law Appellate Tribunal while setting aside the order of National Company Law Tribunal inter alia held where the company was continuously taking efforts to set up industry and also observing that the company had applied for land and submitted project report in 2013 and the land was allotted in 2016 it can not be said that the company is not carrying on any business.
In the matter of Adroit Trade (P) Ltd. vs. Registrar of Companies, Chennai (29.04.2019 – NCLAT) : MANU/NL/0185/2019 NCLAT while setting aside the order of NCLT held that failure to file financial statements can not be sole ground for removal of name of a company as such failure does not imply that the company is not carrying on any business.
In Basant Kumar Berlia and Ors. vs. Registrar of Companies, West Bengal Nizam Palace and Ors. (24.01.2019 – NCLAT) : MANU/NL/0031/2019 the NCLAT ordered the restoration of company which was struck off on the ground of non- filing of annual returns which as per the impugned order constitutes non carrying of any business activity.
Hon’ble Supreme Court in the matter of State of Gujrat v. Raipur Manufacturing Company Limited [Civil Appeal NO. 603 of 1965] held that coal purchased by the company for lighting of furnaces and heating boilers cannot qualify that the company is carrying on business of coal. Mere sale of a commodity which a company requires for the purpose of its business will not justify an inference that a business of selling of that commodity was intended.
The Hon,ble Punjab and Haryana High Court in the matter of Khachen v. Ram Ditta Mal 23/12/1983 held that casual advance of money to few persons does not make such a person as money lender and therefore plaintiff can not be said to be carrying on business of money lending.
In Sasikala v. Syed Ibrahim only step that was taken was, the landlady was having funds and she wanted to start a hotel business. It was held that saving of necessary funds amounts to one step to start a business and, therefore, it will amount to “carrying on business”
In T. Anandan v. Noorjahan (1994) 1 M.L.J. 657, it was held that carrying on business does not mean actually carrying on business, but only taking some steps for the purpose of “carrying on business. It was further held that Carrying on business is a mixed question of fact and law. Each case will have to be decided on facts and no general proposition can be evolved as to what constitutes Carrying on business.
The Hon’ble Supreme Court in the matter of Commissioner of Sales Tax v. Sai Publication Fund [Case No. Appeal (civil) 9445 of 1996] held that irrespective of the profit motive it could not be said that the Trust was carrying on business. The court further held that whether a particular person carries on business, are the matters to be decided on facts and circumstances of each case.
Form the perusal of the above mentioned judgments it can be said that in terms of no definition of the said words, it is left for court to the interpret the same in light of the facts and circumstances of a particular case.
However, in the author’s humble opinion, the words ‘’carrying on business or operation’’ implies and includes preparation to start a business or one step towards starting a business.
Meaning of reasonable cause
The Hon’ble Delhi High Court in the case of Woodward Governors India (P) Ltd. v. CIT [2001] 118 Taxman 433 held as under:
“Reasonable cause’ as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It can be described as a
probable cause. It means an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which, assuming them to be true, would reasonably lead any ordinary prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do”.
The Madhya Pradesh High Court in CIT v. Modi and Sons [1976] 102 ITR 548 (MP), observed that the question of existence or otherwise of a reasonable cause is purely a question of fact and normally no question of law arises.
In the matter of CWT v. Jagdish Prashad Chaudhary AIR 1996 Pat 58 FB the Hon’ble Patna High Court observed that the expression “reasonable cause” has not been defined under the Act but it could receive the same interpretation which is given to the expression “sufficient cause”. Therefore, in the context of penalty provision the expression “reasonable cause” would mean a cause which is beyond
the control of the assessee. Reasonable cause obviously means a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances without negligence or inaction or want of bona fide.
The meaning of the term “reasonable cause” as enunciated by the Hon’ble Delhi High Court in the case of Azadi Bachao Andolan v. Union of India [2001] 252 ITR 471/ 116 Taxman 249 reads as follows:
“Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or want of bona fides”.
Section 252: Appeal to Tribunal
(1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of companies:
Provided that before passing any order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned.
Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently or on the basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such company.
(2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certificate of incorporation.
(3) If a company, or any member or creditor or workman thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal on an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off from the register of companies.
Important Notes:
- The Petition under Section 252 is to be file in Form NCLT-9 [Rule 87A of National Company Law Tribunal (Amendment) Rules, 2017]
- It must also be noted that the time limit of 3 years or 20 years, as the case may be, shall be reckoned form the date of publication of Form STK-7 in the Official Gazette.
Author Bio
Keep it up…..Well define the term “carrying on any business or operation”