POWER OF REGISTRAR OF COMPANIES TO STRIKE DEFUNCT COMPANY OFF REGISTER

[Mr. M. GOVINDARAJAN]

                        A company, either it is a private limited company or a public limited company is to register under the provisions of Companies Act, 1956.  The life of the company starts from the date of incorporation and ends on winding up of the company.   The procedure for winding up of the company is not an easy and procedure oriented.  But if the company is a defunct one then it may be removed from the Register of companies in the office of Registrar of Companies and dissolved.

                        Sec. 560 of the Companies Act deals with the power of Registrar of Companies to strike defunct company off register.   Sec. 560(1) provides that where the Registrar of Companies 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 sending the letter receive any answer thereto, he shall, within fourteen days after the expiry of the month, send 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 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 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.

                        Section 560(6) provides that if a company, or any member or creditor thereof, feels aggrieved by the company having been struck off the register, the Court on an application 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 to the register; and the Court may, by the order, give such directions and make such provisions as seem 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. 

                         Thus the reading of the above provisions show that before striking off the name of the company the Registrar has to follow the step by step by procedure as mentioned in the above said provisions.  

                        In ‘Newage Commercial (P) Limited and another V. Registrar of Companies’ – (2011) 102 CLA 312 (Cal)   In this case the Registrar of Companies issued the first notice on 24^th March, 2006.   Since the company did not send any answer to this notice the Registrar send second notice on 30.12.2006 stating that because the letter dated 24^th March, 2006 was not replied to, the company would be deemed to be defunct under Section 560(3).    The company under provisions of Sec. 560(6) filed an application before the High Court as the name of the company has been wrongly struck off the register.

                        The High Court observed that there was some procedural irregularity in the issuance of notices under Section 560(1), (2) and (3).    The High Court held that if the letter dated 30.12.2006 is treated as the second notice then according to the statute the second notice cannot declare the company to be ‘defunct’.   The third notice accompanying the publication in the Official Gazette is not forthcoming. 

                          The High Court further held that the step by step procedure for issue of notice is nothing but compliance with the rules of natural justice by the statute.   Any breach of such rules would violate those principles.   Any action taken in breach of such procedure will be illegal for being against the terms of the statute, including the rules of natural justice embodied therein. 

                          The High Court opined that if any order is to be passed on the question whether a company is carrying on business or not, it should ordinarily be passed after hearing the representative of the company.   Ex parte orders are not good.  Naturally, only after hearing the company or at least giving it reasonable opportunity to be heard should any determination under Section 560 be made.  

                        The High Court set aside the order.   It further directed that all the entries in the register or website to the effect should be reversed for the time being.   The company should be given a hearing according to the notice mentioned.   The company should be given an opportunity to show cause and to file a reply, if necessary.   Thereafter the Registrar of Companies should pass a reasoned order after hearing the company in accordance with law.