STATUTORY REQUIREMENT OF STRIKING OF NAME OF A DEFUNCT COMPANY UNDER SEC. 560 OF THE COMPANIES ACT, 1956

[Mr. M. GOVINDARAJAN]

            Sec. 560 of the Companies Act, 1956 ('Act' for short) gives power to Registrar of Companies to strike defunct company off register subject to observing some formalities.  Sec. 560(1) provides that where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, he shall send to the company by post a letter inquiring whether the company is carrying on business or in operation.

            Sec. 560(2) provides that if the Registrar does not within one month of send the letter receive any answer thereto, he shall, within fourteen days after the expiry of the month, and to the company by post a registered letter referring to the first letter, and stating that no answer thereto has been received and that, if an answer is not received to the second letter within one month from the date thereof, a notice will be published in the Official Gazette with a view to striking the name of the company off the register.

            Sec. 560(3) provides that if the Registrar either receives an answer from the company to the effect that it is not carrying on business or in operation, or does not within one month after sending the second letter receive any answer, he may publish in the Official Gazette, and send to the company by a registered post, a notice that, at the expiration of three months from the date of that notice, the name of the company mentioned therein will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved.

            Sec. 560(4) provides that if, in any case where a company is being wound up, the Registrar has reasonable cause to believe either that no liquidator is acting or that the affairs of the company have been completely wound up, and any return required to be made by the liquidator have not been made for a period of six consecutive months, the Registrar shall publish, in the Official Gazette and send to the company or the liquidator, if any, a like notice as is provided in sub section (3).

            Sec. 560(5) provides that at the expiry of the time mentioned in the notice referred to in Sub section (3) or (4) the Registrar may, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved.

            Sec. 560(6) provides that if a company or any member or credit thereof, feels aggrieved by the company having been struck off the register, the Tribunal, on the 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 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 to the register and the Tribunal may by the order give such directions and make such provision 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.  Upon a certified copy of the order being delivered to the Registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off.

             The Ministry of Company Affairs by letter dated 08.11.2006 issued instructions to Registrars to strike off the name of such defunct company, which had not filed statutory returns for a period of three consecutive years or more.  In 'Gautam Buddha Children's Hospital (P) Ltd., V. Union of India' - (2010) 99 CLA 93 (Pat.) the RoC strike off the name of a company as per the instructions of the Ministry of Company affairs issued vide letter dated 08.11.2006 without issuing notice.   The same has been challenged in the Court.  The fact of the case runs as follows:

             Gautam Buddha Children's Hospital (P) Ltd., was registered.  Since disputes and differences had cropped up between the directors and shareholders, an application was filed on 29.08.2000 by all the four directors before the RoC to strike off the name of the company.   Subsequently some of the directors decided to continue the functioning of the company and also filed an application on 18.12.2000 for changing the name of the company to Gautam Buddha Hospital & Research Institute (P) Limited, which after following due procedure was allowed by the order dated 13.02.2001.  The company has been continuing in operation continuously.   Due to differences among the directors the statutory returns were not filed before the RoC.   RoC in exercise of the power under Sec. 560(5) of the Act struck off the original name of the petitioner company mentioning the correct Registration number, which the petitioner subsequently learnt, by the notification.   Aggrieved by the said action, the petitioner has approached the High Court for restoration of the name in the RoC.

           The petitioner put for the following contentions:

• The company was continuously functional and carrying on its activity, which is evident from the audited balance sheet and profit and loss accounts of the company as well as statement of accounts of the bank;
• The name has been wrongly struck off without following the mandatory procedure laid down in Sec. 560 of the Act;
• No notice at all was issued to the petitioner company before its name was struck off as required under the provisions of the Act;
• The RoC has struck off the name only on the directive of the Government of India, which as a statutory authority shows complete non application of his independent mind and, thus, his action is  vitiated on the said ground also;
• In any view of the matter when the company is carrying on its operation continuously since its establishment, for the sole reason that the statutory returns were not submitted in time, the name of the company could not have been struck off, as there are other provisions for non compliance of such requirements of the Act, but the same cannot lead to striking off the name of the company treating it to be a defunct company without following the statutory provisions and making necessary enquiry in terms of the explanation that may be given by the company.

            The RoC contended that the company was not filing statutory returns from the very beginning.   All the four directors of the company had also filed a petition before the RoC on 29^th August, 2000, to strike off the name of the company from the RoC and accordingly RoC has rightly struck off its name.  It has been further contended that an instruction has been received from the Ministry of Company Affairs by letter dated 08.11.2006 to strike off the name of such defunct company, which has not filed statutory returns for a period of three consecutive years or more and, thus, on considering the aforesaid petitioner dated 29.08.2000 along with the instructions contained in the letter dated 08.11.2006, the name of the company was struck off from the RoC by notification dated 12.10.2007 in exercise of the power under Sec. 560(5) of the Act.  The RoC further contended that subsequent to the filing of the petition dated 29.08.2000, no further application was received withdrawing the said application for striking off the name of the company and thus RoC has rightly acted in the manner.

           The Court is of the view that the action of RoC is wholly unjustified being contrary to the mandatory provisions of Sec. 560 of the Act.   No reply has been given by the Registrar in his counter affidavit to the specific contention raised on behalf of the petitioner that the procedure under Section 560 of the Act has not been complied with, as no notice was even sent to the petitioner as provided by Section 560 of the Act.    Despite the court provided another opportunity to RoC to file a supplementary counter affidavit answering the said point, the RoC has not answered the same in the supplementary counter affidavit also.   It is, thus, evident that the fact regarding non sending of notice under the provisions of Sec. 560 of the Act has been admitted by the RoC.   In the said circumstances the action of the RoC is contrary to the mandate of Section 560 of the Act and the same has to be treated as illegal and non-est.

            The High Court quashed the said notification.   It is also of the opinion that in view of the audit reports of accounts submitted by the petitioner-company and the statements of the bank annexed that the company has been carrying on the business and is in operation continuously and it is certainly not a defunct company.   Had the Registrar taken care by following the mandatory provisions prescribed under the Act, he would have discovered that the company was not defunct and its name could not have been struck off by the RoC in exercise of his power under Sec. 560(5) of the Act.

             The Court further held that the RoC has shown non application of the mind to the fact that subsequent to the filing of the application dated 29.08.2000, by the directors for striking off the name of the company, an application was filed on 18.12.2000, for change of the name of the petitioner from Gautam Buddha Children's Hospital (P) Ltd., to Gautam Buddha Hospital & Research Institute (P) Ltd., which application for changing the name of the company was allowed by order dated 13.02.2001.   Thus, the very filing of the subsequent application for change of the name of the petitioner company, which was allowed by the Registrar, would show that the earlier application dated 29.08.2000 was impliedly withdrawn by the said action of the directors of the company and the plea taken by the Registrar in his reply that no such letter of withdrawal was filed is without any basis. 

             The Court further observed that there was further non application of mind to the aforesaid facts because the name of the petitioner company having been changed from Gautam Buddha Children Hospital (P) Ltd., to Gautam Buddha Hospital & Research Institute (P) Ltd., it could not have been struck off from the register of company in its original name of Gautam Buddha Children's Hospital (P) Limited., as the said name became non existent in the eye of law once the name of the petitioner company was permitted to be changed after following the due procedure.