1. Since the issue involved in both these writ petitions are common and both writ petitions have been filed by the same writ petitioners they are taken up together and disposed of by a common order.
2. The prayer in W.P.No.2464 of 2003 is for issuance of writ of mandamus to direct the second respondent, the Registrar of Companies to strike off the name of the first petitioner company bearing registration No.6168 of 1972 from the register of companies in terms of Section 3(5) of the Companies Act, 1956 (hereinafter referred to "as the Act").
3. The prayer in W.P.No.17120 of 2003 is for issuance of writ of issue a writ of Declaration to declare the general circular No.13/2003 dated 25.03.2003, issued by the first respondent herein as ultra vires the provisions of Article 14, 19(1)(g), 265 of the Constitution of India and Section 3(5), 560, 642 and Regulations 75 of Table-A to Schedule-I of the Companies Act, 1956 in so far as the petitioner is concerned.
4. Heard Mr.Aravind.P.Datar, Senior Counsel appearing for the petitioners and Mr.Haja Mohideen Gisthi Senior Central Government Standing Counsel for the respondents.
5. The learned Senior counsel appearing for the petitioner would submit that the impugned circular was issued by the Government of India for simplification of procedure for removal of name of defunct companies and that the scheme itself was in operation only upto 31.12.2003 and therefore, the circular is no longer in force and no further adjudication is required in the said writ petition. There is no record placed before this Court to show that the scheme continues to be in vogue or the period of its validity stood extended beyond 31.12.2003. In that view of the matter, the writ petition No.17120 of 2003 is dismissed as infructuous.
6. The facts which are necessary for the disposal of the writ petition No.2964 of 2003 are as follows:-
The first petitioner is a company, registered under the Indian Companies Act on the file of the second respondent and the second petitioner is one of its Director. The company was incorporated in 1972 and granted registration No.6160 and due to various reasons, the company closed its operation in 1979 and despite their being no activity, the company filed all the returns and statutory records as on 31.12.1999. During 2000, the Companies Act, 1956, was amended and minimum capital was stipulated for private limited companies and public limited companies. In terms of Section 3(3) a private limited company must have a minimum paid-up share capital of Rs.1,00,000/- and two years time was given to all private limited companies to raise their share capital. The paid-up capital of the first petitioner was Rs.80,000/- and it is stated that since there was no business carried on, it became pointless to infuse further money to raise the minimum share capital of the company. In terms of Section 3(5) if a private limited company does not raise its capital to Rs.1,00,000/- within the two years period, it shall be deemed to be a defunct company within the meaning of Section 560 of the Act and its name shall be struck off by the second respondent. The petitioner company passed resolution on 03.05.2001 to get their name struck off from the files of the second respondent and an application to the said effect was made to the second respondent on 08.05.2001, the application was not considered and was pending. Subsequently, the petitioner received a notice dated 09.09.2002 from the office of the second respondent stating that the petitioner ought to have held the Annual General Meeting in respect of the financial year ended 30.06.2000 and 30.06.2001 on or before 31.12.2000 and 31.12.2001, in terms of Section 166 read with Section 210 of Companies Act and the Directors ought to have laid the balance sheet and profit and loss account for the said financial years in the Annual General Meeting. Since, the annual returns and balance sheet have not been filed in the office of the second respondent, the petitioner was called upon to show cause why prosecution should not be launched against them. The petitioner submitted their reply dated 26.09.2002, stating that they have already sent a letter on 08.05.2001 requesting to treat the companies as the defunct company and delete its name and that the company is not functioning since 1979 and the second petitioner herein has no contact with any of the erstwhile Directors and therefore requested to treat the company as the defunct company under Section 560 of the Companies Act. The petitioner did not receive any further communication thereafter. At that stage of the matter, the circular dated 25.03.2003 came to be issued introducing a scheme for removal of name of defunct companies. This scheme/circular was challenged by the petitioner by a separate writ petition in W.P.No.17120 of 2003, which has been disposed of as stated above. In the above factual background, the petitioner has filed this writ petition to strike of the first petitioner company from the register of the second respondent in terms of Section 3(5) of the Act.
4. The learned Senior Counsel appearing for the petitioner would contend that the petitioner has been unnecessarily harassed and the provisions of Section 3(5) are very clear and if the petitioner has not increased their share capital the company is deemed to have become defunct and therefore, the action of the second respondent in refusing to treat the petitioner company as a defunct company is not tenable and contrary to the statutory provision.
5. The learned Senior Central Government Standing counsel appearing for the Department by relying upon the Counter affidavit filed by the second respondent submits that the company has been advised to file the balance sheet and annual returns for the year 2000-01 which they have not complied and in terms of the general circular No.13/03 a simplified procedure for removal of defunct company has been introduced and the petitioner ought to have availed the said procedure and not resorted to filing the writ petition. Further, it is contended that if the petitioner company applies to the second respondent under the simplified exist scheme the same would be dealt with on merits. Therefore, the learned Senior standing Counsel for the department would submit that the writ petition is liable to be dismissed.
6. The only question to be decided in the writ petition is as to whether by operation of law, the company has become a defunct company and whether it has to be struck off from the register of the second respondent.
7. Substantial changes were made to the Companies Act by the Companies (Amendment Act), 2000 with effect from 13.12.2000. Clause 3 of Section 3(1) was modified to provide that a private company shall have a paid-up capital of Rs.1,00,000/- or such higher share capital as may be prescribed. Sub-section 3,4 & 5 to Section 3 have been inserted to provide that the existing public and private companies shall increase their paid-up capital up to the required minimum amount prescribed in either clause iii or clause iv within a period of two years from the date of commencing of Amendment Act 2000. The period of two years came to an end on 12.12.2002 and the Amending Act, further, provided under Sub-Section (5) of Section 3 that if the companies fails to effect increase, it shall be deemed to be a defunct company under Section 560 and its name shall be struck off from the register maintained by the Registrar of Companies. Thus in terms of the amended provision an existing company having less than the required minimum paid-up capital must increase their paid-up capital atleast to the level prescribed i.e., for a private company to Rs.1,00,000/- and the period was stipulated as two years. If the private company fails to do so within the time prescribed i.e., 12.12.2002, the deeming provision under Sub-section 5 Section 3 takes effect and the company shall be deemed to be a defunct company under Section 560 of the Companies Act.
8. In my view by operation of law, the company is declared to become a defunct company and the Registrar is not required to go through the procedures contemplated under Sub-Section 2 to 5 of Section 560 of the Act. The Hon'ble Full Bench of the Allahabad High Court in Darbari Lal and Others v. Smt. Dharam Wati, AIR 1957 Allahabad 541, while interpreting the term is deemed to be observed as under:- 30.... When a thing is "deemed to be" something, the only meaning possible is that whereas it is not in reality that something, the Act directs that it should be treated as if it were that thing."
9. If in terms of Section 3(5) of the Act if the company is deemed to be a defunct company, the only meaning possible is that whereas it is not in reality to be a defunct company, but the Act directs that the company which has not increased its share capital to be defunct company.
10. Hindustan Co-operative Housing Building Society Limited v. Registrar of Co-operative Societies and Another dated 12.02.2009, in Civil Appeal No.957/2009, wherein the Hon'ble Supreme court considered a deeming provision and held as follows:- "9. It is as noted above, a deeming provision. Such a provision creates a legal fiction. As was stated by James, L.J. In Levy, Re, ex p Walton 1881 (17) Ch. D 746.
When a statute enacts that something shall be deemed to have been done, which in fact and in truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to. After ascertaining the purpose full effect must be given to the statutory fiction and it should be carried to its logical conclusion and to that end it would be proper and even necessary to assume all those facts on which alone the fiction can operate. (See Hill V. East and West India Dock Co. 1884 (9) AC 448; State of Travancore Cochin V. Shanmugha Vilas Cashewnut Factory MANU/SC/0096/1953: [1954]1SCR53 ; American Home Products Corporation v. Mac Laboratories (P) Ltd. MANU/SC/0204/1985 : AIR 1986SC137 and Parayankandiyal Eravath Kanapravan Kalliani Amma V. K.Devi MANU/SC/0487/1996: AIR 1996SC1963. In an oft-quoted passage, Lord Asquith stated; (All ER p.599 B-D). If you are bidden to treat an imaginary state of affairs as real you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had, in fact, existed must inevitably have flowed from or accompanied it.... The statute states that you must imagine a certain state of affairs, it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. (See East End Dwellings Co.Ltd. v. Finsbury Borough Council 1951 (2) All ER 587 (HL)
10. "The word deemed' is used a great deal in modern legislation. Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible." Per Lord Radcliffe in St.Aubyn (L.M.) V. Attorney-General (No.2) 1951 (2) All ER 473, All ER 498 F-G.
11. "Deemed", as used in statutory definitions is meant "to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient devise for reducing the verbiage of an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words 'deem' and 'deemed' when used in a statute thus simply state the effect or meaning which some matter or thing has the way in which it is to be adjudged; this need not import artificiality or fiction; it may simply be the statement of an undisputable conclusion. "Per Windener, J. in Hunter Douglas Australia Pty. V. Perma Blinds 1970 (44) ALJ 257.
12. When a thing is to be "deemed" something else, it is to be treated as that something else with the attendant consequences, but it is not that something else per Cave, J., R.V.Norfolk County Court 1891 (60) LJ QB 379. When a statute gives a definition and then adds that certain things shall be 'deemed' to be covered by the definition, it matters not whether without that addition the definition would have covered them or not. Per Lord President Cooper in Ferguson V. McMillan 1954 SLT 109
13. Whether the word "deemed" when used in a statute established a conclusive or a rebuttable presumption depended upon the context see St. Leon Village Consolidated School Distt. V. Ronceray 1960 (23) DLR 32. I ...... regard its primary function as to bring in something which would otherwise be excluded. Per Viscount Simonds in Barclays Bank V. IRC 1961 AC 509 (HL)
14. "Deems" means "is of opinion" or "considers" or "decides" and there is no implication of steps to be taken before the opinion is formed or the decision is taken."
11. The above decision renders full support to the case on hand. In the instant case, admittedly, the petitioner company did not increase its paid-up capital to Rs.1,00,000/- with the time prescribed. In response to a notice issued by the second respondent dated 09.09.2002, the petitioner company requested the second respondent to refer to their earlier letter, which was received by the second respondent on 08.05.2001. In the said letter, copy of which is filed in the typed set of papers, it is seen that the letter was typed on non-judicial stamp paper and it was stated that since 1979, the company has not carried on any business and the promoters of company do not visualise any possibility to resume any business in future, therefore requested the Registrar to strike out the name of the company. Along with the letter dated 03.05.2001 an affidavit signed by two Directors of the company stating that the Company has no assets or liabilities on date and the company has not being carrying on any business from 1979 was enclosed. That apart an indemnity bond from the two Directors to the effect that the liabilities of the company if any will be met by them, even if the company is struck off from the register was also enclosed. Further, the balance sheet as at 30.04.2001 and Board resolution dated 03.05.2001 were also enclosed. The copy of the affidavit and the indemnity bond and balance sheet have also been filed in the typed set of papers.
12. Thus, it is to be noted that the petitioners company has placed all the materials before the second respondent and also executed an indemnity bond against any future claims against the company. Admittedly, the second respondent neither accepted nor rejected the request made by the company. In the counter affidavit, it has been stated that in the balance sheet produced for the year ending 31.03.1998 that the company has written back the loan from State Bank of India amounting to Rs.1,37,294/- based on legal opinion that it is barred by limitation and all amount due to and due by the company have also been written off or written back as the same are barred by law of limitation, but it does not explain how the cash and Bank balances appearing in the books have also been brought to Nil. Therefore, it appears that as on date, there are no other assets or liabilities of the company and it is not the case of the second respondent that during the pendency of the writ petition any claims/ complaints were received against the first petitioner company. Admittedly, the period of validity of the simplified exist scheme has come to an end.
13. Thus as on date, the case of the first petitioner company has to be decided on the available facts and taking note of the declaration made and the effect of Section 3(5). It is not the case of the second respondent that the period of two years stipulated under the statute for increasing paid-up capital could be extended. The period having come to end in 2002 cannot be extended, unless the statute is appropriately amended. The procedural formalities now pointed out in the counter is under the scheme, which is no longer in vogue. The object behind such simplified procedure is to safeguard the interest of investors, depositors and others from being cheated by unscrupulous companies if their names are struck off. However, the facts of the present case reveals that it is not one such case where the second respondent has received any complaints/claims, against/from the petitioner company. Apart from what was pointed out in the counter relating to a loan transaction with State Bank of India during 1998, it has been stated that the same has been written off based on legal opinion. There is no record before the second respondent that there is any claim in this regard from the Bank.
14. Therefore, in my view the peculiar facts of this case, calls for an extraordinary remedy. The letter dated 03.05.2001 written on non-judicial stamp papers, the affidavit filed by two of its Directors signed and notarized, the indemnity bond executed by two of its Director in favour of the second respondent as well as the balance sheet as at 30.04.2001 would all cumulatively, satisfies the requirements to safeguard the interest of the department from any claims against the company in future. As already pointed out even during the pendency of the writ petition no claims have been received and there is no other issue pointed out in the recent counter affidavit filed by the second respondent which is dated 23.07.2010. That apart the company is also stated to have not carried on any business from the year 1979. Thus taking into consideration all these facts and the documents submitted to the second respondent and in view of the fact that the petitioner company has not increased its paid-up capital to Rs.1,00,000/- before 12.12.2002, the company shall be deemed to be a defunct company within the meaning of Section 560 of the Companies Act and its name shall required to be struck of from the register of the second respondent.
15. In view of the above reasons, the second respondent shall take into consideration, the petitioners letter dated 03.05.2001 received in the office of the second respondent on 08.05.2001, the notarized affidavit signed by two Directors, the indemnity bond executed by the two Directors in favour of the second respondent dated 03.05.2001 and the balance sheet at 30.04.2001 and also taking into consideration that no claims/complaints have been received against the company during the pendency of the present writ petition may pass appropriate orders in accordance with law striking out the name of the first petitioner company from the register maintained by the second respondent within a period of eight weeks from the date of receipt of a copy of this order.
16. In the result, the writ petition is disposed of on the above directions. No costs.