NCLAT finds no infirmity in the order of the NCLT upholding the striking off of the name of the Appellant Company by the ROC; finds that Appellant Company was not in operation and did not conduct any business of the nature bearing nexus with its intended object.
The Appellant Company ‘Alliance Commodities Private Limited’ is aggrieved by the order passed by the NCLT wherein its appeal under Section 252 (3) of the Companies Act, 2013 (the Act) against striking off of its name by the Respondent – ‘Registrar of Companies, West Bengal’ (ROC) was dismissed by NCLT after coming to conclusion that the Appellant Company was not in operation and was not doing any business on the date of striking off of the name of the company. NCLT was further influenced by the fact that the Appellant Company appeared to have engaged in advancing inter-corporate loans in violation of Section 186(1) of the Companies Act, 2013. Appellant Company was incorporated with an objective of doing business of trading in all types of commodities. The name of the Appellant Company was stuck off by the Registrar of Companies, West Bengal for failure to abide with statutory compliances. NCLT observed that Appellant Company was not doing its business as per its objective but rather was engaged in granting of short term loans and advances for which it was not incorporated. NCLT also held the appeal to be non maintainable on the ground that the same had been preferred by a Director who was disqualified in terms of provisions of Section 164(2)(a) of the Act.
NCLAT overrules the objection raised by Respondent qua maintainability of appeal before the Tribunal at the instance of a Director whose status even otherwise as a member of the Company is not disputed. Upon perusal of the facts and submissions, NCLAT finds that the Appellant’s name was struck off by ROC, West Bengal after following due procedure laid down in the Act.
NCLAT, from a perusal of the financial statements covering fiscal period beginning 2013 through 2017 finds that they amply demonstrate that the Appellant Company was not in operation and did not conduct any business of the nature bearing nexus with its intended object. NCLAT agrees with the finding that Appellant Company was not doing the intended business as the Appellant Company is shown to have been engaged in granting short term loans and advances to its sister concern contrary to the intended object of the Company. NCLAT further agrees with the view taken by the Tribunal that making of such loan advances being prima facie violative of Section 186 of the Act can be termed as illegal transactions by a Shell Company and that probability of advancing loans for the purpose of siphoning of the funds and for evasion of tax cannot be ruled out.
NCLAT mentions 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.
NCLAT disagrees with the contention of 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”. NCLAT states that, the 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, the 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. NCLAT states that 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 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.”
NCLAT dismissed the appeal finding that Appellant has failed to make out a just ground warranting interference with the impugned order which is neither shown to be legally infirm nor are the findings recorded therein shown to be erroneous, much less perverse.