Reviving Active Companies That Have Been "Struck Off"

INTRODUCTION

The Companies Act, 2013, governs the incorporation, regulation, and dissolution of Companies in India. Among its various provisions, Section 252 is particularly significant as it deals with the restoration of Companies that have been struck off by the Registrar of Companies (ROC). This section provides mechanisms for Companies to be reinstated in the register if they have been removed due to non-compliance or other reasons. The restoration process ensures that genuine businesses are not unduly impacted while maintaining regulatory oversight.

Striking off a Company can occur for various reasons, including failure to commence business, prolonged non-filing of statutory returns, or voluntary application by the Company. However, under Section 252, there are provisions allowing for the revival of such Companies under specific conditions.

UNDERSTANDING SECTION 252

Section 252 of the Companies Act, 2013, outlines the legal recourse available to a Company, its members, creditors, or other aggrieved parties when a Company is struck off by the ROC under Section 248. The restoration process is categorized into two primary avenues:

Restoration by Tribunal (NCLT) - Section 252(1) & 252(3)

If a Company has been struck off, an appeal can be made to the National Company Law Tribunal (NCLT) within three years from the date of the order.

The application can be filed by:

• The Company itself
• Any Member, Creditor, or Workman who is aggrieved by the striking off

If the Tribunal finds that the Company was active at the time of its removal and that it was struck off unjustly, it may order the restoration of the Company's name in the register.

Upon such an order, the Company is deemed to have continued in existence as if its name had never been struck off.

The Tribunal may impose conditions, such as

• The payment of penalties and fees.
• The requirement to file all pending annual returns and financial statements.
• Submission of an affidavit verifying the Company's operations.

Restoration by the ROC - Section 252(2)

If a Company has been struck off due to non-filing of returns or other regulatory lapses, an application can be made to the Registrar of Companies (ROC) within three years of the striking-off notification.

The application can only be made by the Company itself or its Members.

• If the ROC is satisfied that the removal was erroneous or that the Company was operational, it can restore the name of the Company in the register.
• The Company must provide substantial evidence proving that it was in operation or carrying out business activities before being struck off.
• Restoration by the ROC is typically applicable in cases where non-compliance was unintentional, and the Company wishes to rectify its regulatory filings.

Rules and Regulations Governing Restoration

Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016

This rule specifies the procedure for Companies to apply for restoration and the criteria for eligibility.

It mandates that Companies must file their overdue financial statements and annual returns before applying for restoration.

It also lays down provisions for Companies that have been voluntarily struck off but seek revival.

National Company Law Tribunal (NCLT) Rules, 2016

These rules outline the procedural requirements for filing an appeal under Section 252(1) & 252(3).

The petition must be filed using Form NCLT-9 along with necessary supporting documents.

A hearing is conducted, and the Tribunal decides based on the merits of the case.

The applicant must ensure compliance with all legal and regulatory requirements before filing an appeal.

Companies Act, 2013 - Section 248 (Striking Off of Companies)

Section 248 empowers the ROC to remove Companies from the register if they fail to commence business within one year or fail to file financial statements for two consecutive years.

The restoration process under Section 252 is a remedy for such Companies that have been struck off under this provision.

Companies must establish that they were either operational at the time of striking off or that they have rectified their compliance failures.

Documents Required for Restoration

List of documents that are required to be submitted when applying for restoration under section 252:

• Application in Form NCLT-9 (for Tribunal appeal) or prescribed ROC forms
• Affidavit and Memorandum of Petition
• Copy of the Striking-off notice issued by the ROC
• Financial statements and compliance records proving the Company was operational
• Any other supporting documents required by the authorities
• Court fees and proof of payment
• Latest Income Tax Returns (if applicable)
• Bank statements to establish the Company's operational status

Judicial Precedents and Case Laws

Several judicial decisions have reinforced the importance of Section 252 in ensuring justice for Companies unfairly removed from the register. Notable cases include:

Case Law: Kaynet Finance Ltd. v. Registrar of Companies (NCLAT 2018)

In Kaynet Finance Ltd. v. ROC (NCLAT 2018), the NCLAT ruled in favor of the Company, restoring it after being struck off due to non-filing of annual returns, despite being operational.

CASE FACTS & ARGUMENTS

• Kaynet Finance Ltd. was removed from the Register of Companies due to non-filing of financial statements.
• The Company argued that it was active and submitted bank statements, invoices, and tax filings as proof.
• The ROC justified the striking-off decision based on statutory non-compliance.

JUDGMENT & SIGNIFICANCE

• NCLAT ruled in favor of the Company, stating that non-filing alone does not imply cessation of business.
• The Tribunal directed restoration, subject to submission of pending returns and penalties.
• The case underscores that administrative lapses should not result in punitive dissolution and Companies should be given an opportunity to rectify defaults.

CONCLUSION

Section 252 of the Companies Act, 2013, serves as an essential safeguard for Companies wrongfully struck off due to procedural lapses. It ensures that Companies that continue to operate are given a fair chance to reinstate themselves, provided they comply with regulatory requirements. The restoration process, however, involves strict scrutiny to prevent misuse and ensure corporate governance. Companies seeking restoration must adhere to the prescribed timelines, furnish the required documents, and comply with the necessary legal provisions to successfully reinstate their status.

Restoration is a complex legal process that requires compliance with regulatory formalities and may involve professional assistance from legal experts or Company secretaries. A proactive approach to maintaining compliance can help Companies avoid the risk of being struck off and the subsequent legal and financial burden of restoration.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.