Looking around statutory prescription involved in acquiring assets of a striked off company

Acquiring units/undertakings/assets of a defunct or striked off company, can be economically viable for any person who is interested in expanding within a particular venture or entering into a new venture. But a certain level of forethought, might be required before acquiring the assets. 

The Company is an artificial person incorporated under the Act by entering its name in the register of companies maintained by the registrar. The Act provides for the procedures for incorporation of the company and dissolution of company. There are various modes of dissolution of company provided in the Act. One of the methods of dissolution of company is by way of removal of name of the company from the register of the companies under Section 248 of the Companies Act, 2013. This section empowers the Registrar to remove the name of a company from the register of companies which has failed to commence the business within one year of its incorporation or which has not been carrying on any business or operation for a period of two immediately preceding financial years and has not made an application for obtaining the status of dormant under section 455. This section also empowers a company itself after extinguishing all its liabilities on the same grounds to approach the registrar for removal of the name of the company from the register of companies.

Further, Section 250 provides that, where a company stands dissolved under section 248, it shall on and from the date mentioned in the notice under sub-section (5) of that section cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.

When a company gets strike off under Section 248, by virtue of (5) a publication is done by the Registrar in official gazette and on the publication in the Official Gazette the company shall stand dissolved. But, it is highly likely that on the date of such dissolution, the company owed debts/dues towards the creditors, suppliers, employees and government/statutory authorities.

Though as per S. 248 (6), the registrar has to satisfy itself 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 within a reasonable time and, if necessary it may obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company. But, still there might be circumstances that certain creditors were not vigilant enough and weren’t aware of the striking off the company, and later on realize the need to protect their interests.

Rule 7 (2) of the Companies (Removal of Names of Companies from Register of Companies) Rules, 2016, require Registrar of Companies to 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 of removal or striking off the names of such companies and seek objections, if any, to be furnished within a period of thirty days from the date of issue of the letter of intimation and if no objections are received within thirty days from the respective authority, it shall be presumed that they have no objections to the proposed action of striking off or removal of name. But, still the said rule cannot estop these authorities from claiming their dues in future.

The proviso to S. 248 (6), imposes a non-obstante obligation that, “notwithstanding the undertakings referred to in this sub-section, 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.” 

Further 248(7) provides for continuance and enforceability of the liability or obligation of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-section (5). In this respect it had been made clear in Narmada Choudhury v Motor Accidents Claims Tribunal [l (1984) ACC 12, 1985 58 CompCas 596 Gauhati) that, “It merely continues the liability of the officers including the Directors of the company existing, if any on the date of its dissolution it does not convert the existing liability of the company on its dissolution into that of the officers named in the proviso. The liability of such officers contemplated under the proviso is their liability qua such officers which was existing on the date of dissolution.” 

But, the law even provides a protection to non-vigilant creditors under Section 252 R/w 248(8), wherein any person aggrieved by the order of Striking off by the Registrar, may prefer an appeal to NCLT within 3 years from the date of order. Also, the company, member, creditor and workmen have been given special protection, they may approach NCLT against the striking off order within 20 years from the date of order.

Having seen the relevant provisions, we know that, the liabilities and obligations of the company doesn’t get extinguished merely by such dissolution, and the assets of the company stand under obligation towards company’s creditors.

Interestingly, in this line one may also consider the doctrine of Bona Vacantia, being recognized as to its applicability in case of strike off by the Hon’ble Supreme Court.  The Supreme Court acknowledged In Re U.N. Mandal’s Estate Private Ltd, AIR 1959 Cal 493 and has held in Peirce Leslie and Co. Ltd. vs. Violet Ouchterlony Wapshare AIR 1969 SC 843, that the shareholders or creditors of a dissolved company cannot be regarded as its heirs and successors. On dissolution of a company, its properties, if any, will vest in the Government. Further in Narendra Bahadur Tandon v. Shankar Lal AIR 1980 SC 575 the Apex Court held that if the company had a subsisting interest in the lease on the date of dissolution then such interest must necessarily vest in the Government by escheat or as bona vacantia. On similar lines the Patna High Court in Bihar State Sugar Corporation Ltd v. Ahmad Abdullah (2015) 2 PLJR 437, held that a shareholder in a company has a limited right conferred by the Companies Act and has no right, title or interest in the assets of the company. If a factory is acquired by the State Government then the assets of that factory will be vested in the State Government free of all encumbrances. Moreover in Yeshwant Raghunath Bhide vs. Income Tax Officer [1974] 44 CompCas290 (Kar), the Karnataka High Court stated that if the name of a company is struck off the register, it’s undisposed of property is not appropriated towards its liabilities. Nobody would claim that property. It vests in the Crown as bona vacantia subject to its rights to disclaim.

In this regard we can say that, law is clear in respect of bona vacantia, and if the assets of the company is left without any charge/encumbrance of the creditors or when the company didn’t had any creditors at the time of dissolution, then the assets might be subjected to escheat. But, any decision as to post striking off transfer of the property can only be given on case to case basis.

Hence, it can be said that acquiring any property of a struck off company should be after a comprehensive due diligence as to company’s outstanding liabilities, charges and obligations (as existed prior to dissolution). Also, a check into the previously raised tax (whether Income Tax, Sales/VAT, Customs, Excise or GST) should be done so as to prevent a bonafide buyer from the unwanted troubles attached to the property. One may also consider approaching NCLT for restoration of the company, and then acquire company as a going concern.

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Qualification: LL.B / Advocate
Company: JMVD Legal
Location: INDORE, Madhya Pradesh, IN
Member Since: 20 Jul 2020 | Total Posts: 5
(+91-9632259597; [email protected]) I am an advocate & Company Secretary practicing in the field of Tax, Corporate, Insolvency and security law field. I am a law graduate from Christ University Bangalore with an additional qualification of Company Secretary. I am also a registered mediato View Full Profile

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September 2021