Activation of Companies Struck Off under Companies Act

[Anirudh Singh is a 4thyear B.A LL.B (Hons) student of NALSAR University, Hyderabad]

When a company is registered on incorporation, it is necessary that it should have a process of deregistration other than by way of winding up. This is so if, after registration, the company does not carry on business. Such process, known as “striking off”, is specified in section 248 of Companies Act, 2013(“Act”) where the company’s name is removed from the register of companies.

An analysis of the strike-off provisions under the Companies Act has been discussed succinctly by Utsav Mitra on this Blog. To summarise the provisions, there are two ways under which a company’s name can be struck off. One of them is a suo moto action taken by the Registrar of Companies (“RoC”) under section 248(1) of the Act, provided that the RoC has reasonable cause to believe that (a) a company has failed to commence its business within one year of its incorporation; (or b) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455.

Another way to initiate the strike off provision is the voluntary application of a company under section 248(2), wherein it can through a special resolution file an application to the RoC for removal of its name from the register of companies. This application can be filed on all or any of the grounds as mentioned in section 248(1) of the Act.

The corresponding provision of section 248 in the Companies Act, 1956 is section 560of that Act. Section 560(6) of Companies Act, 1956 allowed the activation of deregistered company. It states:

(6) If a company, or any member of creditor thereof, feels aggrieved by the company having been struck off the register, the Court (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, and the Court (Tribunal) may, by the order, give such directions and make such provisions as seen 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.

On the bare comparison of both section 248 of Companies Act, 2013 and section 560 of Companies Act, 1956, it is clear that the provision for activation of struck-off companies by the RoC is absent from section 248 of the 2013 Act. However, an order of striking off by the RoC is appealable to the National Company Law Tribunal (“NCLT”), whose powers are of the highest amplitude. Therefore, in this case a company finds that it is capable of carrying business operations, or is worthy or restoring its name in the register, it can appeal against the order of RoC before the NCLT which may activate the status of a struck-off company. 

The rationale of section 560(6) of Companies Act, 1956, was first explained by the Bombay High Court in Purushottamdass and Anr. (Bulakidas Mohta Co. P. Ltd. v. Registrar of Companies, Maharashtra & Ors. where a single judge observed:

  1. The objects of Section 560(6) of the Companies Act, is to give a chance to the company, its members and creditors to revive the company which has been struck off by the Registrar of Companies, within a period of 20 years, and to give them an opportunity of carrying on the business only after the company judge is satisfied that such restoration is necessary in the interests of justice. The Company judge may be satisfied that either the company was carrying on its business or was in operation of otherwise, and it is, in the circumstances of the case, equitable and just to restore the company. It, however, does not mean that the rights and liabilities of the company are lost during the interim period, insasmuch as Section 560(6) of the Companies Act provides that after an order of restoration is passed, it shall be deemed as if the company was never struck of the register of Companies. The Section also provides the company judge with wide powers to put certain conditions or directions at the time of ordering the restoration.

The aforesaid judgment was also referred in various Delhi High Court judgments, namely Santaclaus Toys Pvt. Ltd. v Registrar of Companies, Deepsone Non Ferrous Rolling Mills Pvt. Ltd. v RoC, NCT of Delhi and Haryanaand Sohal Agencies Pvt. Ltd. v RoC, NCT of Delhi and Haryana. Therefore, it is clear that the NCLT is bound to take an equitable approach in order to remove any company from the list of companies that have been struck off. The NCLT, according to the abovementioned judgments, cannot take a narrow view that jeopardizes the opportunity of the company to carry on its business.

However, with the recent action of Union Government wherein it ordered banks to freeze 2.09 lakh bank accounts of struck-off companies, it becomes important for the courts to come up with an objective test to ascertain which of the companies should be removed from the struck-off companies list by the RoC. It is a strong possibility that companies with such frozen bank accounts will appeal en masseto the NCLT seeking a remedy, and the NCLT cannot use a subjective parameter to grant relief to such companies. The grounds of equity and restoration of justice are of widest amplitude, and it will be interesting to see how the adjudicatory bodies reformulate the activation of companies in such cases.

Anirudh Singh

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