Remedies available at NCLT against a company incorporated by means of false information


An entrepreneur forms a company to carry some business activities under certain Brand name and it takes years to establish such brand value. Now to take the advantage of such brand value in an illegal manner one may form a company with  similar name and with similar object just to take away the business opportunities from the exiting one.

Suppose Mr.X formed a company with a name of ABC Ship Services Private Limited( an existing company) and it has created it’s brand value over decades. Now Mr.Y wants to take the advantage of the brand value ABC and he formed a company with a name of ABC Shipping Services Private Limited( the new company ) after giving false and incorrect information to the Registrar of Companies.

It is quite obvious that newly formed company will snatch the business opportunity of the existing company and due to that the existing company will incur loss.

Now what are the remedies are available to the promoters of the exiting company to protect their business interest.

As per section 7(7) of the Companies Act 2013 the National Company Law Tribunal is empowered to deal in such matters.

Who can make the application: the said sub-section did not specify that who can make the application. So any person, whose interest is affected due to such fraudulent activity may make an application to the National Company Law Tribunal ( NCLT ) to get  relief.

How to make an application before NCLT: The application to be drafted as per format given in the  Form NCLT-1 with details facts and figures. It shall accompanied with the index , list of dates of events and the synopsis of the facts. Every allegation shall be supported with proper attachment. Like if the allegation is for similar name and object then the copy of the Memorandum of Association of both the existing and new companies along with other relevant Forms are required to be annexed. Every application shall be accompanied with an affidavit and that should be as per format of Form NCLT-6.

Servicing of the application: Once the petition is completed then the copy of the petition shall be served to the respondents and copy shall be served to the Registrar of Companies and Regional Director also.

Fees of the Application: The application fees for making an application under Section 7(7) is Rs.5000. However it is always advisable to make the application under section 213(b) also along with section 7(7). Since as per section 213(b) of the Companies Act 2013 NCLT may direct to investigate the affairs of the new company by an inspector or inspector appointed by the Central Government, which will be more effective. 

Notice of Mentioning: The petitioner shall give the notice of mentioning to the NCLT to heard the matter at least forty eight hours before of the date of the mentioning after giving intimation of the same to the respondents. There is no specific format of mentioning, it can be served in the form of letter.

Proceedings at the NCLT- The proceedings under section 7(7) is quite similar with the proceedings of the oppression and mismanagement. on the date of admission the Bench will allow both the parties to make their submission and after hearing both the parties either it may pass any interim order or may direct the respondent to  file it’s reply within a certain period and direct the petitioner to file it’s rejoinder within a specified time period. Both the respondent and the petitioner are required to serve the copy of the reply and rejoinder to each other. In case the respondent or the petitioner failed to file the reply or rejoinder within the given time limit then the bench may extend the time of filling after imposing a cost on the defaulted party.

Time Limit to dispose a matter: As per section 422 of the Companies Act 2013 NCLT shall dispose the matter within a period of ninety days from the date of admission and the said period may extend for a further  period  not exceeding ninety days. So the matter filed under section 7(7) shall be disposed by NCLT within a period of maximum six months.

Applicability of Limitation Act in oppression and Mismanagement:- Before filling the petition under section7(7) at the NCLT, one should take care that the application is within the time period as prescribed under the Limitation Act 1963 and the first cause of action has been arose within a period of Three years from the date of filling petition at the NCLT. If any matter which is beyond the limitation period then the Bench may reject the same on the ground of time barred under the Limitation Act 1963.

Power of the NCLT: After being satisfied that the company was formed after giving false and incorrect information the Bench may pass the following power:

(a) pass such orders, as it may think fit, for regulation of the management of the company including changes, if any, in its memorandum and articles, in public interest or in the interest of the company and its members and creditors; or

(b) direct that liability of the members shall be unlimited; or

(c) direct removal of the name of the company from the register of companies; or

(d) pass an order for the winding up of the company; or

(e) pass such other orders as it may deem fit

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SANDIP SARKAR 
on 11 July 2018
Published in Corporate Law
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