2012 (10) TMI 111 - HC - Companies Law

Strike off the name of the company from the register of ROC - Held that - For the application of this provision of Section 560 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. This procedure was not followed here in the present case. 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 - on reading sub sections (1), (2), (3) and (5) of Section 560, it does seem 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. 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 - thus the order of the ROC is set aside & Company be put back in the Register of Companies immediately, by the Registrar of Companies, West Bengal.

Summary

Issues Involved:
1. Legitimacy of the procedure followed by the Registrar of Companies under Section 560 of the Companies Act, 1956.
2. Validity of the company's paid-up capital and its implications on the defunct status.
3. Disputes regarding the control and directorship of the company.

Issue-wise Detailed Analysis:

1. Legitimacy of the procedure followed by the Registrar of Companies under Section 560 of the Companies Act, 1956:

The Registrar of Companies, West Bengal, struck off the name of Basanti Cotton Mills (1998) Pvt. Ltd. from the register on 27th January 2006, citing the company was not carrying on business or in operation. The procedure under Section 560 involves the Registrar sending two notices to the company to confirm its operational status before striking off its name. However, the Registrar did not follow this procedure, as admitted by the Central Government in an affidavit. Consequently, the High Court set aside the Registrar's decision on 6th October 2010 but allowed the Registrar to take fresh action in accordance with the law.

2. Validity of the company's paid-up capital and its implications on the defunct status:

The Registrar based his decision on Sections 3(3), (4), and (5) of the Companies Act, which mandate that a private company must have a paid-up capital of at least Rs. 1 lakh. The company's paid-up capital was only Rs. 7,000/- as per the affidavit submitted by Mr. Gopal Navinhhai Dave and Mr. Nikhil Vasantalal Merchant. The Registrar accepted this declaration and struck off the company's name. However, the court noted that the existence of paid-up capital below Rs. 1 lakh must be undisputed for the company to be deemed defunct. Since there were serious disputes regarding the paid-up capital, the company could not be declared defunct without following the proper procedure under Section 560.

3. Disputes regarding the control and directorship of the company:

There were conflicting claims regarding the control and directorship of the company. Mr. Gopal Navinhhai Dave, Mr. Nikhil Vasantalal Merchant, and Mr. Paresh Vasantalal Merchant claimed to be the directors and principal shareholders before the company was declared defunct. They filed an application for vacation of the order, which was referred to the Registrar for reconsideration. However, Mr. Nirendra Nath Kar claimed to have assumed control of the company based on share transfers allegedly made in 1998. The court noted that these share transfers were disputed as forgeries by Mr. Dave and the Merchants. Given the serious disputes over control and paid-up capital, the court concluded that the company could not be declared defunct.

Conclusion:

The court found that the Registrar of Companies did not follow the proper procedure under Section 560 of the Companies Act before striking off the company's name. Additionally, the disputes regarding the company's paid-up capital and control precluded it from being declared defunct. The court set aside the Registrar's order dated 27th January 2006 and directed the company to be restored to the Register of Companies. The court allowed Mr. Dave, Mr. Nikhil Merchant, and Mr. Paresh Merchant to approach an appropriate forum for adjudication of their rights regarding the company. The operation of the judgment was stayed for three weeks to allow for compliance with requisite formalities.