HIGH COURT OF CALCUTTA
Basanti Cotton Mills (1998) (P.) Ltd.
Registrar of Companies, West Bengal
C.P. NO. 432 OF 2010
AUGUST 8, 2012
I.P. Mukerji, J.
Section 560 of the Companies Act, 1956 is involved in this case. It provides that if the Registrar of Companies has reasonable cause to believe that a company is not carrying on business or the company is not in operation, he can strike off its name from the register. A challenge to that decision lies to the High Court under Section 560(6) of the Act. This appeal may be preferred by the company or by any member or creditor thereof. The company whose name was struck off by the above process was Basanti Cotton Mills (1998) Pvt. Ltd.
2. This matter stood consideration before me on an earlier occasion.
3. The name of this company had been struck off the register by an order of the Registrar of Companies, West Bengal, on 27th January, 2006. The applicant had challenged that decision in 2010. The Central Government filed an affidavit in that application to the effect that the procedure under Section 560 of the Act had not been followed by them. On this admission by them, by an order dated 6th October, 2010 this Court set aside the decision of the Registrar but reserved to him the right to take fresh action in the future in accordance with law.
4. Mr. Gopal Navinbhai Dave, Mr. Nikhil Vasantalal Merchant and Mr. Paresh Vasantalal Merchant made an application for vacation of that order. They claimed themselves to have been the directors, principal shareholders and persons in control of the company before its being declared defunct. It was numbered as C.A. No. 95 of 2011. It came up before me for consideration. On 22nd March, 2011 the application was disposed of. The entire matter was referred to the Registrar for reconsideration. The Company’s name would remain to be struck off. But if the Registrar while deciding whether it was doing any business or not found that determination of this question involved substantial oral and documentary evidence, he would have to relegate the parties to a suit in a court of law. In such event, he could only do so upon restoring the name of the company in the register. The order dated 6th October, 2010 was set aside.
5. Mr. Dave and Messers Merchants went up in appeal before a Division Bench of this Court (A.P.O. No. 176 of 2011). The Appeal Court reversed my order, by an order made on 3rd August, 2011. According to the learned Judges of the Appeal Court the Registrar of companies had no power to decide the question. I was to rehear the application of the petitioner.
6. It appears that an application was made by Mr. Gopal Navinbhai Dave and Mr. Nikhil Basanta Lal Merchant to the Registrar of Companies, West Bengal. They, it seems, made this application under section 560 of the Companies Act, describing themselves as directors of the said company. In the body of the application it was said that it was being made under the “simplified exit scheme” of the Central Government. What exactly was this simplified exit was neither explained to me by the learned counsel for the parties nor by the Central Government. In that application it was said that for five years the company was not doing any business. It was also said in paragraph 8 thereof that the paid up capital of the company was Rs. 7,000/-. Hence, it was alleged that the company may be deemed to be defunct under Section 3(5) of the Companies Act, 1956 read with Section 560 thereof. On the foundation of this application caused to be made by an affidavit, the name of the company was struck off on 27th January, 2006.
7. Undisputedly, the procedure mentioned in Section 560 of the said Act was not followed. The decision was made on Section 3(5) of the Act.
8. Sections 3(3), (4) and (5) of the said Act are very important. They are in the following terms:
“3. (3) Every private company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less that one lakh rupees, shall, within a period of two years from such commencement, enhance its paid-up capital to one lakh rupees.
(4) Every public company, existing on the commencement of the Companies (Amendment) Act, 2000, with a paid-up capital of less that five lakh rupees, shall within a period of two years from such commencement, enhance its paid-up capital to five lakh rupees.
(5) Where a private company or a public company fails to enhance its paid-up capital in the manner specified in sub-section (3) or sub-section (4), meaning of section 560 and its name shall be struck off from the register by the Registrar.”
9. The applicants in that affidavit mentioned that the company’s paid up capital was Rs. 7,000/-. The Registrar of Companies, West Bengal accepted this assertion and on the basis of these two provisions of the said Act struck off the name of the company.
10. I do not know whether he was made aware of the disputes which have come to surface in this application.
11. Now I will discuss the disputes between the parties.
12. An affidavit was affirmed by Satya Prasanna Sen on 26th August, 2011. There, he describes himself to be the constituted attorney of Mr. Gopal Navin Bhai Dave, Mr. Nikhil Basantalal Merchant and Mr. Paresh Basantalal Merchant. Annexed to this Affidavit-in-Opposition is an annual return of the company filed under Section 159 of the above Act read with its Schedule V Part (II). The annexed return is dated 4th February, 2003. In that document the above three persons were described as the Directors of the company. All of them were said to have been appointed on 12th August, 1998. The date of the previous Annual General Meeting was declared as 29th January, 2002. The paid up capital of the company was shown as Rs. 7,000/- divided into equity shares of Rs. 10/ each. Mr. Dave was declared to have held 300 shares, Mr. Nikhil Merchant 300 shares and Mr. Paresh Merchant 50 shares.
13. Now, I come to Form DIN-3. It relates to intimation of Director’s identification number by the company to the Registrar. This Form at page 64 of this affidavit relates Nirendra Nath Kar. The form shows that the date of approval of the DIN by the Central Government was 2nd September, 2008. He was declared as the promoter. His date of appointment was shown as 23rd September, 1998. This “Form DIN-3” was accepted by the Registrar of Companies, West Bengal. If this Form DIN-3 was accepted by the Registrar it goes to atleast show that such form was accepted after striking off the name of the company by the Registrar of Companies, West Bengal on 27th January, 2006. This form further shows that Nirendra Nath Kar declared himself or the company declared him to be the Director which was accepted by the Registrar after 27th January, 2006.
14. Now, I come to the application and affidavit-in-reply of Nirendra Nath Kar affirmed on 20th September, 2011. The company was incorporated on 12th August, 1998. It was declared in the Memorandum of Association that Mr. Dave, Mr. Nikhil Merchant and Mr. Paresh Merchant would take 10 shares each in the company. The Memorandum of Association is annexed to the application. On 23rd September, 1998 there was a meeting of the Board of Directors of the company. These 30 shares were to be allotted to the above persons but would be transferred to Nirendra Nath Kar. Further to this resolution, 30 shares were duly transferred to Nirendra Nath Kar in 1998. Share transfer forms are annexed to the Affidavit-in-Reply. The date in the share transfer form was 4th September, 1998 but the approval date at the base of the form was shown as 23rd September, 1998.
15. On this Mr. Nirendra Nath Kar claims to have assumed control of the company.
16. According to Mr. Basak, learned advocate appearing for the group opposing Mr. Kar, namely Mr. Dave and Messers Merchants the share transfer forms are all forged and no reliance should be placed on them.
17. The real dispute is this. The original company Basanti Cotton Mills Ltd. was incorporated on 14th November, 1932. On 18th January, 1982 this Court sanctioned a scheme of amalgamation between Basanti Cotton Mills Ltd. and Swan Mills Ltd. which is a Mumbai company. After amalgamation, Basanti Cotton Mills Ltd. was dissolved. Swan Mills Ltd. is controlled by Mr. Dave, Mr. Nikhil Merchant and Mr. Paresh Merchant. They incorporated Basanti Cotton Mills Pvt. Ltd. (1998) on 12th August, 1998. According to Mr. Narendra Nath Kar the undertaking of Swan Mills Ltd. comprising of Basanti Cotton Mills Ltd. would be transferred to this new company. After transfer of their shares in favour of Nirendra Nath Kar Mr. Dave and the two Merchants cannot seek to be the shareholders or directors of this company according to Mr. Nirendra Nath Kar. As persons in control of Swan mills Ltd., these three persons do not want Basanti Cotton Mills (P) Ltd. to claim the property from Swan. Hence, if this company is struck off the registrar it would be unable to claim the properties from the Swan.
Whilst Narendra Nath Kar asserts that he is in control of Basanti Cotton Mills (1998) Pvt. Ltd., Mr. Dave and the two Merchants contend that they were in control when the company was declared defunct. The latter say that the paid up capital was Rs. 7,000/- in 2009 and was the same on 27th January, 2006. Mr. Kar claims that the paid up capital is now over Rs. 1 lakh on the basis of the balance-sheet of the company as on 31st March, 2009 which is annexed to the application.
18. As I have said before, the said three persons claim that the share transfer was a forgery. The company was doing no business. Therefore, the Registrar rightly struck off its name.
19. Disucssion and Findings:
Section 560 of the Companies Act reads as follows:
“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 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.
(4) If, in any case where a company is being would up, the Registrar has reasonable cause to believe either that no liquidator is acting, or that the affairs of the company have been completely would up, and any returns required to be made by the liquidator have not been made for a period of six consecutive months, the Registrar shall publish in the Official Gazette and send to the company or the liquidator, if any, a like notice as is provided in sub-section (3).
(5) At the expiry of the time mentioned in the notice referred to in sub-section (3) or (4) , the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette; and on the publication in the Official Gazette of this notice, the company shall stand dissolved:
Provided that –
(a) 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; and
(b) nothing in this sub-section shall affect the power of the Court to wind up a company the name of which has been struck off the register.
(6) If a company, or any member or creditor thereof, 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 of twenty 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 business or 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, by the order, give such directions and make such provisions as seem 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.
(7) Upon a certified copy of the order under sub-section (6) being delivered to the Registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off.
(8) A letter or notice to be sent under this section to a company at its registered office, or if no office has been registered, to the care of some director, manager or other officer of the company or if there is no director, manager or officer of the company whose name and address are known to the Registrar, may be sent to each of the persons who subscribed the memorandum, addressed to him at the address mentioned in the memorandum.
(9) A notice to be sent under this section to a liquidator may be addressed to the liquidator at his last known place of business.”
For the application of this provision, the satisfaction of the Registrar of Companies is necessary. The satisfaction is to the effect that a particular company is not doing any business or is not in operation. Thereafter he issues two notices to the company to controvert this satisfaction. The Company may reply by saying that it is not doing business or may not reply at all. In either of these two cases, the Registrar may strike off the name of the Company, after publishing the proposal in the Official Gazette. A company or any member or creditor can challenge this decision by filing an application in the High Court (Section 560 (6) of the Act).
20. According to the records the Registrar of Companies, West Bengal did not take recourse to sub sections (1), (2), (3) and (5)of Section 560, at all.
The foundation of his decision were sub Sections (3) (4) and (5) of Section 3 of the Companies Act. They lay down that if the paid up capital of a private company was less that Rs. 1 lakh after two years of commencement of the Companies (Amendment) Act, 2000, it would be deemed to be a defunct company within the meaning of Section 560. Its name had to be struck off. The effect of the subsections, upon a plain and ordinary interpretation thereof, is that if the paid up capital of a private company falls below Rupees 1 lakh on and after the above date, then, without any further act it becomes a defunct company. As a matter of course the Registrar of companies is to strike off its name from the register.
This course has been followed by the Registrar by accepting the declaration in the application made before him by way of an affidavit that the paid up share capital of the company was only Rs. 7,000/- .
21. In my understanding and interpretation of these two sub-sections the existence of the paid up capital below Rupees one lakh has to be undisputed. It is a question of fact. Therefore, in order to be deemed to be a defunct company the paid up capital must be less that Rs. 1 lakh admittedly or undisputedly. These words have to be read into those sub-sections. Otherwise this section may be misused or work injustice. In this kind of a small company there is often a dispute regarding shareholding, paid up capital, directorship, control of the company and so on. This is not to say that these issues are absent in big companies.
Therefore, before striking off the name of a company, in all cases, a proper procedure has to be followed by the Registrar of Companies, by giving notices as contemplated in Section 560 of the Act. Response to the notice would show whether a company is admittedly defunct.
This procedure was not followed.
In fact, after this litigation this procedure should not be followed at all, now, because I am convinced that there are serious disputes between the persons laying claim on the control of the company. There are serious conflicting claims regarding paid up capital. Mr. Nirendra Nath Kar says it is more than rupees one lakh whereas, Mr. Dave and the two Merchants say it is Rs. 7,000/-. In such a situation there is no question of treating the company as defunct, as its paid up capital is in dispute.
22. I would add that, on reading sub-sections (1), (2), (3) and (5) of Section 560, it does seem to me that a company can only be defunct, if it does not reply to the notice or says in reply that it does not carry on any business or is not in operation. If it asserts to the contrary, it cannot be struck off at all. Hence striking off is on the admission by the Company that it is defunct. The same principle applies in the application of Sections 3(3), (4) and (5) of the Act. It necessarily follows that if there is any dispute regarding the paid up capital or whether the Company does business, it cannot be declared defunct. Moreover, the petitioner, claiming to be a shareholder and director had sufficient locus to file this application.
23. The order of the Registrar of Companies dated 27th January, 2006 is set aside. The Company be put back in the Register of Companies immediately, by the Registrar of Companies, West Bengal. This application is allowed. Mr. Dave, Mr. Nikhil Merchant and Mr. Paresh Merchant are at liberty to approach any appropriate forum for adjudication of the rights that they claim with regard to the company.