Restoration of Companies Struck Off Amidst Pending Disputes: NCLT's Interpretation under Section 252(1) of the Companies Act, 2013

Introduction

The case of Registrar of Companies v. Sushila Pandey & Ors. adjudicated by the National Company Law Tribunal (NCLT) on September 24, 2020, serves as a pivotal judgment in the realm of corporate law in India. This case revolves around the striking off and subsequent restoration of Rajasilan Development Trust Private Limited (RDTPL), a company incorporated under the Companies Act, 1956. The core issues pertain to the striking off of a company's name due to non-filing of statutory returns amidst internal disputes among directors and shareholders, and the restorative measures under the Companies Act, 2013.

Summary of the Judgment

The Registrar of Companies (RoC), Rajasthan, Jaipur, initiated the striking off process of RDTPL under Section 252(1) of the Companies Act, 2013, citing non-filing of statutory returns since 2014. However, it was later discovered that internal disputes among directors and shareholders had impeded the company's ability to file these returns. Recognizing that the striking off was inadvertent and prejudicial to ongoing legal matters, the RoC sought the restoration of RDTPL's name. The NCLT deliberated on the matter, considering similar precedents, and ultimately ordered the restoration of the company's name, provided that it complies with the requisite statutory compliances within a stipulated timeframe.

Analysis

Precedents Cited

The judgment references several key precedents that shaped the Tribunal's decision:

• C.A (A) No. 0UJPB/208 (Dr. JhaDan Mehta vs. Registrar of Companies): This case emphasized that companies with pending disputes before authorities should not be struck off without due procedure.
• CA (A) No. 969/KB2019 (Registrar of Companies vs. K Steel Pvt. Ltd.): This appeal highlighted the necessity of proper communication and procedural correctness in the striking off process.
• Panjwahi vs. Registrar of Companies & Associates: Reinforced that striking off without considering ongoing legal disputes can be deemed unjustifiable.

These precedents collectively underscore the judiciary's stance on ensuring that administrative actions by the RoC do not adversely affect companies embroiled in legal disputes.

Legal Reasoning

The Tribunal's legal reasoning was multifaceted:

• Inadequate Communication: The RoC issued notices for striking off without adequately communicating the pending internal disputes that hindered RDTPL's compliance.
• Pending Disputes: The existence of a pending dispute under Sections 397-398 of the Companies Act, 1956, indicated that the company's operational issues were not mere oversights but stemmed from substantive internal conflicts.
• Due Process: The RoC's action, while technically correct under Section 252(1), lacked consideration of the broader context, including ongoing litigation and the company's inability to comply due to internal disputes.
• Judicial Precedents: As reinforced by prior judgments, the Tribunal emphasized that striking off should not be a tool to deliberately hinder ongoing legal matters or manipulate corporate standing.

Consequently, the Tribunal deemed it appropriate to restore RDTPL's name, ensuring that the company remains operational and can address its legal and compliance obligations without prejudice.

Impact

This judgment holds significant implications for corporate governance and the RoC's administrative practices:

• Enhanced Due Diligence: The RoC must now ensure comprehensive assessment of a company's standing before initiating striking off, especially in cases of internal disputes.
• Protection of Legal Rights: Companies embroiled in legal disputes are afforded protection against inadvertent administrative actions that could impede justice or business continuity.
• Clear Restoration Procedures: The judgment provides a clear guideline for restoration, emphasizing compliance within stipulated timelines, thereby reducing ambiguity and ensuring fair treatment of companies.
• Boost to Corporate Confidence: Businesses can have increased confidence that their rights will be safeguarded during disputes, promoting a more stable corporate environment.

Overall, the judgment reinforces the importance of balancing administrative efficiency with justice and corporate fairness.

Complex Concepts Simplified

Conclusion

The Registrar of Companies v. Sushila Pandey & Ors. judgment is a landmark in corporate jurisprudence, reinforcing the necessity for meticulous administrative processes that consider the broader context of a company's legal and operational status. By prioritizing the protection of companies embroiled in internal disputes, the NCLT has underscored the judiciary's commitment to fairness and justice in corporate governance. This decision not only offers a clear pathway for the restoration of inadvertently struck-off companies but also sets a precedent that administrative actions must be tempered with an understanding of underlying disputes and their implications. Moving forward, this judgment will serve as a guiding beacon for both the RoC and corporate entities, ensuring that due diligence and equitable treatment remain at the forefront of corporate regulatory practices.