Alliance Commodities Pvt Ltd vs Office Of Registrar Of Companies, West ...

[Arising out of Order dated 26th October, 2018 passed by the National Company Law Tribunal, Kolkata Bench, Kolkata in CP (Appeal) No. 321/KB/2018]

IN THE MATTER OF:

Alliance Commodities Private Limited, P-50, Princep Street, Kolkata, West Bengal - 700 072. ...Appellant Vs

Office of Registrar of Companies - West Bengal, Nizam Palace, 2nd MSO Building, 2nd Floor, 234/4, A.J.C. B. Road, Kolkata - 700 020. ....Respondent

Present: For Appellant: Mr. Dhiran Dave, PCS. For Respondent: Mr. Vikram Singh, Dy. ROC, West Bengal.

BANSI LAL BHAT, J.

Appellant - 'Alliance Commodities Private Limited' is aggrieved of

dismissal of its appeal preferred under Section 252 (3) of the Companies Act,

2013 (hereinafter referred to as "the Act") against striking off of its name by

the Respondent - 'Registrar of Companies, West Bengal' (ROC). The

impugned order was passed by the National Company Law Tribunal, Kolkata

Bench, Kolkata (hereinafter referred to as the 'Tribunal') on 26th October, -2-

2018 in exercise of its appellate jurisdiction 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. The

Tribunal 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. Aggrieved by the order of

Tribunal, the Appellant seeks reversal of its order passed in appeal as also

setting aside of the order of striking off of its name by Respondent primarily

on the ground that the Appellant Company had assets and had filed all its

income tax returns which has been ignored by the Tribunal which landed in

error in holding that the Appellant Company was a Shell Company and had

violated provisions of law in giving loans and advances. The impugned order

is assailed as being legally unsustainable.

2. For proper appreciation of the issue in controversy it would be

appropriate to notice the facts. The Appellant Company was incorporated

on 1st day of February, 2008 with an object of doing business of trading in

all types of commodities. The Appellant had been complying with the

statutory requirements of filing returns and financial statements till 2013

but thereafter failed to abide by the statutory compliances resulting in the

name of the Appellant Company being struck off by the Registrar of

Companies, West Bengal. In its appeal before the Tribunal the Appellant

contended that the Appellant was unaware of the notice issued by the

Respondent and thereby the default committed by the Appellant Company

Company Appeal (AT) No. 20 of 2019 -3-

was unintentional. It sought restoration of its name on the aforesaid

ground. The Registrar of Companies contested the appeal on the ground

that the Appellant Company failed to file its Annual Returns and Financial

Statements for more than two consecutive years and it did not pray for

obtaining the status of a 'Dormant Company'. The Appellant Company was

accordingly struck off after complying with the mandate of Section 248 of

the Act as there were reasonable grounds to believe that the Appellant

Company was not carrying on any business or was not in operation for a

period of two immediately preceding financial years. The Tribunal found

that the Appellant Company had not filed its statutory returns and balance

sheets since 2014. It is contended that the ROC has issued notice under

Section 248(1) of the Act r/w Rule 7 of the Companies (Removal of names of

companies from the Register of Companies) Rules, 2016 in the prescribed

form for removal of the name of the Company from the Register of the

Companies. The petitioner Company's name is appearing at S. No. 272 of

the Register of Companies notice (STK - 7) dated 30.06.2017 which was

published in the official gazette on 15th July, 2017. The Tribunal also

recorded the specific finding that all statutory notices have been issued in

terms of Section 248 (1) of the Act to the Appellant and there was no

irregularity or illegality in the ensuing action. The Tribunal also found that

the Appellant had not even pleaded that it was doing business or was in

operation on the date of striking off of its name by the ROC. On analysis of

financial statements for the financial years 2013 to 2017, the Tribunal

found that the Appellant Company was not doing the business of trading in

Company Appeal (AT) No. 20 of 2019 -4-

all types of commodities as per its object but was engaged in granting of

short term loans and advances for which it was not incorporated. Even

these advances were made to the sister concern of the Appellant Company.

The Tribunal found that there was no business activity and not even a single

employee was paid any salary though some administrative expenses were

incurred. The Tribunal also noticed that the Income Tax Return for the

Assessment Year 2014 reflected gross income of the Appellant Company as

Zero. The Statement of Bank Account was also found to be only referring to

the transfer of funds by the Appellant Company in favour of its own sister

concern. The Tribunal also took note of the fact that no shareholder's

meeting was convened and the Director's Report revealed that no loans were

advanced to others though the balance sheets did show that the Company

was engaged in advancing loans. On noticing these facts, the Tribunal

found that the Appellant Company was not a going concern and was not

engaged in the business for which it was incorporated but was advancing

money to corporate persons which could be viewed as an illegal transaction

by a Shell Company. The Tribunal 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.

3. Learned counsel for Appellant submits that the factum of the

Appellant Company having financial assets, placing of its financial assets in

the Promoter Group Company/Firms and filing of Income Tax Returns being

admitted facts as reflected in the impugned order, the Appellant Company

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could not be struck off just for the reason of non-filing of Annual Return and

Accounts with ROC culminating in deactivation of Director's DIN. It is

submitted that the Appellant Company is eligible to be restored even under

the Condonation of Delay Scheme 2018 (CODS) as the Appellant Company

applied for its restoration much before closure of CODS. It is further

submitted that the Director's DIN should be activated for doing business in

other Companies and LLPs where they have ceased to be Directors due to

deactivation of Director's DIN. Lastly it is submitted that the restoration of

the Appellant Company can be ordered under Section 252 on the ground

that it is 'just' to restore the Company to the Register of Companies.

5. Per contra, it is contended on behalf of ROC that notice contemplated

under Section 248(1) of the Act r/w the Rule 3 of the Companies (Removal of

names of companies from the Register of Companies) Rules, 2016, the notice

dated 22.03.2017 was issued on 06.04.2017 by Speed Post to the Appellant

Company and its Directors, copies whereof form Annexure (ii) to the Counter

Affidavit. The copy of notice was published in the official website calling for

objections to proposed removal/ striking off of the name of the Company

within 30 days from the publication of the notice. The copy forms Annexure

B to the Counter Affidavit. The copy of notice was published in the Official

Gazette on 06th May, 2017 to 12th May, 2017. Copy thereof forms Annexure

C to the Counter Affidavit. Public Notice dated 7th April, 2017 published in

Times of India and in Bengali Newspaper - 'Anand Bazar Patrika' both

issues dated 30th April, 2017. Copies thereof form Annexure D to the

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Counter Affidavit. The copy of notice was published in the official website -

'Company stands struck off from the Register of Companies' copy thereof is

annexed as Annexure E to the Counter Affidavit. The copy of notice dated

30th June, 2017 was published in the Official Gazette dated 15th July, 2017

to 21st July, 2017, copy whereof marks Annexure F to the Counter Affidavit.

It is submitted that the Appellant's name was struck off by ROC, West

Bengal after following due procedure laid down in the Act. It is submitted

that the Directors of the Company stand disqualified and the office of

Directors stands vacated on account of incurring disqualification under

Section 164(ii)(a) r/w Section 167(1) of the Act. It is further submitted that

the reasons assigned for failure to file annual statutory returns by the

Appellant are not tenable and that the Appellant failed to establish that it

was carrying on any business or was in operation during the relevant

period.

6. Heard the rival sides and perused the record. At the very outset we

may overrule 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. The issue before

the Tribunal was whether the Appellant Company could justifiably be

restored. As the very basic edifice of the action taken by the ROC

culminating in striking off of the Company was assailed, the question

relating to disqualification of Directors and vacation of the position of the

Appellant Director from Directorship was anterior to the issue raised in

Company Appeal (AT) No. 20 of 2019 -7-

appeal and did not warrant consideration, much less returning of a finding

regarding disqualification or otherwise of the Directors. Reliance placed by

learned counsel for the Appellant on 'Condonation of Delay Scheme 2018',

General Circular No. 16/2017 dated 29.12.2017 circulated by the Ministry

of Corporate Affairs in regard to reactivation of 'Directors DIN' under orders

of Tribunal is irrelevant as the same falls beyond the scope of issue raised

in this appeal. Any observation by the Tribunal on the issue not being the

subject matter of appeal would be beyond its province and cannot be

supported. Viewed thus, finding in respect of maintainability being legally

infirm and unwarranted is overturned.

7. Now coming to the core issue, we take note of the affidavit in

opposition filed by the Respondent - ROC, West Bengal spelling out in detail

the procedure adopted in passing of impugned order. It is noticed that the

notice contemplated under Section 248(1) of the Act r/w the Rule 3 of the

Companies (Removal of names of companies from the Register of

Companies) Rules, 2016 dated 22.03.2017 was issued on 06.04.2017 by

Speed Post to the Appellant Company and its Directors. The copy of notice

was published in the official website calling for objections to proposed

removal/ striking off of the name of the Company within 30 days from the

publication of the notice. The copy of notice was published in the Official

Gazette on 06th May, 2017 to 12th May, 2017. Public Notice dated 7th April,

2017 was published in Times of India and in Bengali Newspaper - 'Anand

Bazar Patrika' both issues dated 30th April, 2017. The copy of notice was

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published in the official website notifying that the 'Company stands struck

off from the Register of Companies'. The copy of notice dated 30th June,

2017 was published in the Official Gazette dated 15th July, 2017 to 21st

July, 2017. Copies of relevant notices etc. form part of the record. No legal

infirmity or flaw is pointed out in adherence to the provisions relevant to the

process of striking off of the Appellant Company. It is found that the

Appellant's name was struck off by ROC, West Bengal after following due

procedure laid down in the Act.

8. On the crucial issue of the Appellant Company being in operation and

doing business in consonance with its object be it noticed that the financial

statements covering fiscal period beginning 2013 through 2017 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.

The Tribunal has tabulated the factual position emanating from such

financial statements reflecting the assets, liability and turn-over of the

Company as 'NIL'. Thus, the finding that the Appellant Company was not

doing the intended business cannot be termed erroneous notwithstanding

the fact that the Appellant Company is shown to have been engaged in

granting short term loans and advances to its sister concern which was not

the intended object of the Company. During hearing of this appeal, learned

counsel for Appellant tried to rely upon the so called admissions of

Respondent in regard to transactions of the Appellant Company post 2013,

least realizing that in absence of any proof of transaction other than the

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loans and advances made in favour of its sister concern, that too without

the knowledge of shareholders and specifically negatived by the Director's

Report, no benefit could be derived from the so called admission in regard to

the Appellant Company's activity in advancing loans to its sister concern.

No fault can be found 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. Indulging in business activity not falling within the

ambit of object of the Company or not being incidental or ancillary thereto

cannot be termed a legitimate business for demonstrating that the Company

was in operation. The finding recorded by the Tribunal and the conclusions

deducible from the material on record do not warrant interference as no

contrary view is possible.

9. 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

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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 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.

10. For the foregoing reasons, we are of the considered view that the

Appellant has failed to make out a just ground warranting interference with

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the impugned order which is neither shown to be legally infirm nor are the

findings recorded therein shown to be erroneous, much less perverse. Being

devoid of merit the appeal is dismissed.

[Justice Bansi Lal Bhat] Member (Judicial)

[Balvinder Singh] Member (Technical)

NEW DELHI

9th July, 2019

AM

Company Appeal (AT) No. 20 of 2019