Registrar of Companies Cannot Strike Off Company When Insolvency Process Is Pending: NCLT

The Registrar of Companies (ROC) cannot strike off the name of a company during Corporate Interim Resolution Process, which is reported to have pending litigation, the Ahmadabad Bench of National Company Law Tribunal has held.

A bench of Harihar Prakash Chaturvedi (Member Judicial) and Prasanta Kumar Mohanty (Member Technical) said so while deciding the appeal moved by the liquidator of a company against its name being struck off the register of companies for non-filing of annual returns.

The order of the Tribunal came on an appeal moved by Vinod Tarachand Agrawal, the liquidator of M/s J R Diamond Pvt Ltd, the deregistered company to restore the name of the company in the register of companies maintained by the Registrar of Companies (ROC), Gujarat.

Agrawal's counsel Nipun Singhvi and Vishal Dave submitted that J R Diamonds, at the time of deregistration had assets over Rs 81,26,35,384 which included its investment in preference shares of another firm. They said since the said preference shares are matured and the payment recovery is due for which a petition is pending before NCLT, Bengaluru, the name of the company should not have been struck off.

The ROC struck off the name of the company from its Register with effect from August 6, 2018 without issuing proper notice mainly on the ground that the company had failed in filing its financial statements and statutory annual returns from Financial Year 2013-14 onward and annual returns from FY 2014-15 onward.

In the instant case, the company was originally incorporated in 1977 as a private limited company. On February 13, 2018, the Tribunal admitted petition under section 9 of the IB Code in respect of Corporate Debtor and appointed Agrawal as the Interim Resolution Professional.

He was later confirmed as the resolution professional. In October,2018, the Tribunal further appointed him as the Liquidator of the company.

At the time of his appointment as the liquidator, the company was "active". However, during the process of liquidation, he learnt from the web portal of the Ministry of Corporate Affairs that the name of the company has been struck off.

Referring to Sections 252(1) and 252(3) of the Companies Act which allows Tribunal to order restoration of name of a company in the register of companies if it is of the opinion that the removal of name was not justified, the Tribunal noted that with CIRP commenced on February 13, 2018 and moratorium declared under section 14 of the IB Code, no proceedings against the company could have been legally initiated.

"That apart, the relevant circular issued by the Ministry of Corporate Affairs in respect of removal of name of company by the Registrar of Companies …speaks such that provision of Section 248 may not be applicable in respect of such companies against which any prosecution of an offence is pending or its application for compounding of offence is pending or any investigation is going on pursuant to order of the court being carried out/ are being contemplated by a competent authority, then, the name of the company ought not be removed".

The Tribunal relied on an order of the Delhi High Court in case titled M A Panjwani Vs Registrar of Companies & Anr wherein it was held that where there is a litigation pending by or against the company before any competent court of law…striking off the name by ROC was not justified.

"…the main reason shown for striking off the name of the company was that it had failed in filing its statutory returns (e.g. balance sheets, annual returns) before the ROC.

"However, when the order of striking off the name of the company was passed, the company was under CIRP and thereafter, goes into liquidation process by an order of NCLT dated October 1, 2018. Hence, the liquidator took over the charge of the assets of the Corporate Debtor-Company. Hence, such impugned action cannot be treated a legally valid and just action on part of ROC to strike off the name of the company during Corporate Interim Resolution Process, which is reported to have pending litigation. All such action is also not in conformity with the provisions of Section 14 of the IB Code…," it said.

The Tribunal also held that the striking off of the name of the company was a void order because Section 238 IB Code has an overriding effect on any other law.