Mohan Sugar Mills Ltd. Vs. Registrar of Companies and Others - Court Judgment

1. This petition is filed under Section 560(6) of Companies Act, 1956 (the Act) for restoration of company Shree Mohan Sugar Mills Limited .

2. Facts as narrated in the petition are that the company was doing its business as per the object clause but it could not get profitable business. The repeated efforts to fetch good profit could not succeed. Since Company was not profit making company, it could not file the annual return and balance sheet with the Registrar of Companies ( ROC). In 2011, company intended to file some documents on the website of Ministry of Corporate Affairs. On perusal of the site, it appeared that name of company is struck off from the statutory register. It is pleaded that in response to the enquiry made by the petitioner-company, it is learnt that in the year 2007 suo motu action for struck off the name was taken by the ROC. Name of company was finally struck of on 28.01.2008. The ROC informed the petitioner that if petitioner wants to restore the name of company, it should approach this court under section 560(6) of the Act. The company obtained the copy of letter of ROC which is Annexure P/2. The company has filed the balance sheet to show the assets and liabilities as on 31.02.2011 (Annexure P/3). It is also stated that company is trying to setup project to start the activity as per main object of Memorandum of Association (M of A) of the company. It is believed that income of company would be started very soon. It is prayed that company be exempted from filing annual returns and balance sheets of past years.

3. The ROC has filed its return. In turn, the parties filed rejoinder, application for taking additional facts and documents, reply to application for filing additional facts and document and additional return etc. On 13.05.2015 learned counsel for the parties prayed for reserving this matter for order with the request that matter may be decided on the basis of written submissions. Written submission and additional written submission are filed by the parties. written submissions on behalf of the company :-

4. The petitioner has relied on language of sub-section 6 of Section 560 of the Act to contend that this Court may direct restoration of company if it thinks that it is just that company be restored to the relevant register. It is contended that petitioner company is carrying on business which is reflected from the balance sheet dated 31.03.1999 (Annexure P-5) and rejoinder to reply filed by the respondent No.1 (ROC). The balance sheet dated 31.03.2011 (Annexure P/3) and 31.03.2010 (Annexure P-11) show that company was not only in operation but also carrying out business and was not the defunct company at relevant point of time. By placing reliance on Annexure P/3, it is urged that company was making sale of agriculture product . Balance sheet shows the cost of goods sold. The expenses are also shown in the balance sheet. This demonstrates that company was functional and in operation at the relevant time. For the same purpose, reliance is placed on Annexure P-11 annexed with reply to application for filing additional facts and documents and rejoinder to reply filed by the respondent No.2.

5. The petitioner has relied on judgment passed by District Judge, Hoshangabad dated 30.01.1990. It is contended that said judgment of District Judge was put to test in FA No. 112/1991 which was dismissed on 16.08.2013. The finding given by this Court in said FA (para 43) is heavily relied upon to contend that prolong litigation under the Ceiling Act prevented the company to invest sufficient fund. This reason is germane for the purpose of present litigation also. It is contended that the intervener / private respondent herein was a party to the said judgment decided by the District Judge. It is argued that Mr. Kailash Dadhia was duly appointed as director of the Company w.e.f. 02.07.1984. The statutory form 32 was filed with Registrar of Companies which was taken on record by the ROC (Annexure P/6) filed with rejoinder to reply filed by respondent No.1 ROC dated 21.11.2012. The reliance is also placed on Annexure P/7 which is certified copy of annual return filed and registered by the Registrar of Companies for the period 30.09.1999 wherein Mr. Kailash Dadhia is shown as one of the Director of petitioner company. As per section 291 of the Act, the Board of Directors of the company shall be entitled for exercise all such powers and to do all such acts and things, as the company is authorized to exercise and do. It is contended that Mr. Kailash Dadhia was authorized to sign and file the present petition under Article of Association (A of A). Article of Association is relied upon to submit that directors are authorized to institute, defend, compound or abandon any legal proceedings by or against the company. Heavy reliance is placed on the additional return of ROC wherein it is accepted by him that Mr. Kailash Dadhia is one of the director of the present company.

6. The petitioner has raised serious objection about the locus of respondents No. 2 and 3. It is contended that they are neither director, share holder nor creditors of petitioner company. They are even otherwise not person aggrieved . Hence they have no right to oppose this petition. In page 6 and 7 of the written submission petitioner has pleaded following facts :-

Late Shri Rai Saheb Seth Harishankar and Late Smt. Nanibai alias Vishakha Devi are the grandparents of respondent No.2 and both were shareholders in the petitioner company.

Late Shri Rai Saheb Seth Harishankar and Late Smt. Nanibai alias Vishakha Devi died on 18.01.1962and 09.02.1991. Copy of death certificate of Late Shri Rai Saheb Seth Harishankar is enclosed at Page 8 as Annexure A-4 with Application for taking additional facts and documents on record by respondent No.2 dated 09.08.2012. Copy of death certificate of Late Smt. Nanibai alias Vishakha Devi is enclosed at page 30 as Annexure P/9 with reply to application for filing additional facts and documents and rejoinder to reply file by respondent No.2 dated 26.11.2012.

Father of respondent No.2 Late Shri Vallabhdas (adopted child of Late Shri Rai Saheb Seth Harishankar and Late Smt. Nanibai alias Vishakha Devi) had disputes with Late Shri Rai Saheb Seth Harishankar and Late Smt. Nanibai alias Vishakha Devi after the death of her husband Late Shri Rai Saheb Seth Harishankar became owner of shares of the petitioner company in name of her husband and executed a Will (Enclosed at page 22 as Annexure P/9 Colly page 14-33 with Reply to application for filing additional facts and documents and rejoinder to reply filed by respondent No.2 dated 26.11.2012 ) in favour of Late Shri Jamana Prasad Jaisani S/o. Moolchand Jaisaniand wherein she bequeathed all her shares in the petitioner company in name of Late Shri Jamana Prasad Jaisani. Relevant paras / portions of said Will are unnumbered para 2 and para 3 at page 22 and unnumbered para 3 at page 26.

These facts can also be gathered from legal notice (Enclosed at page 14 as Annexure P/9 Colly page 14-33 with Reply to application for filing additional facts and documents and rejoinder to reply filed by respondent No.2dated 26.11.2012 ) sent by counsel of legal heirs of Late Shri Jamana Prasad Jaisani to the petitioner company, respondent No.1 (Registrar of Companies) and respondent No.2 (Shri Brijesh). Relevant paras of above said legal notice are para 2 at page 16 and para 3 at page 17.

7. It is also urged that name of respondent No.2 is not reflected in the Register of Members of the petitioner company. The last annual report Annnexure P/7 is relied upon for this purpose. In nutshell, it is contended that respondent No.2 is a stranger and has no right to raise any objection whatsoever. Alternative argument advanced is that if for the sake of argument it is accepted that respondent No.2 is share holder then also it would be in the interest of every share holder to restore the company. Non-restoration will cause prejudice to the share holders and therefore, for this reason also the objection must fail.

8. It is further urged that respondent No.3 is competitor of petitioner company. Reliance is place on Annexure P/14 filed with the the list of additional documents dated 25.07.2013. Being a competitor, respondents No. 2 and 3 are trying to make unnecessary hindrance in restoration of the company. It is contended that in the present matter, it cannot be decided whether respondent No.2 is a share holder or not. Remedy for this purpose lies under section 111 of the Act before the Company Law Board (CLB). As per section 621 of the Act, it is submitted that offences against the Act are cognizable only on complaint by Registrar, share holder or Government. Respondents No. 2 and 3 have no locus standi to intervene and object the restoration of the petitioner company. It is further argued that Section 433 of the Act deals with winding up of the company. The said question of winding up cannot be decided in a proceeding of present nature.

9. In written submissions, it is contended that petitioner company is in valid possession and carrying out business of cultivation. At the cost of repetition, reliance is placed on issue No.1A, 1B and 1C which were decided by the District Court on 26.11.2012. The finding of issue No. 1A and 1B is in negative whereas finding of issue No. 1C is in affirmative. Para 39 of the judgment of this Court in FA. 112/1991 is relied upon to bolster the submission that the lease deed was actually executed. Prolong litigation deprived the petitioner to establish the factory by investing hard earned money. It is further submitted that order of first appeal was sought to be reviewed in review petition No. 736/2013 which was dismissed on 08.09.2014. The SLP No. 13323/2014 filed against this order was dismissed by the Apex Court on 25.08.2014. It is urged that question of dispute relating to possession on land cannot be adjudicated in this petition.

10. It is the case of the petitioner that if petitioner company is not a private company, Section 3(3) of the Act is not applicable to the present proceeding and on the petitioner. As per sub section 5 of section 3 if the company fails to enhance its paid up capital then it shall be deemed to be defunct company within the meaning of Section 560 and its name may be struck off from the register of Registrar of Companies . It is argued that as per law there is no difference between striking off company under section 560 or under sub-section 5 of section 3. It is submitted that in both the cases, the proper procedure was required to be followed. The name of petitioner company was struck off as per letter dated 29.06.2012 for the reason of non-filing of balance sheet and annual report and not because of non-increase in paid-up capital. It is submitted that conduct of ROC was not in accordance with law. Three notices were required to be sent by him as per sub-section (1), (2) and (3) of section 560 respectively. The final notice was required to be served under Section 560 (5) of the Act. This notice was required to be published in official Gazette. The petitioner has specifically stated that no such notice was ever issued and received by the company. The ROC has not chosen to file any document to show the proof of sending such notice. Heavy reliance is placed on the return and additional return to submit that ROC has not taken any objection about restoration of the company.

11. In support of aforesaid contention, reliance is placed on following judgments:-

(Purushottamdass and another (Bulakidas Mohta Co. P. Ltd. Vs. Registrar of Companies, Maharashtra and others) reported in [1986]60 Comp Cas154 (Bom).

(Siddhant Garg and Anr. Vs. Registrar of Companies and Ors.) reported in 2012 II AD (Delhi) 574, [2012] 107 CLA 506 (Delhi).

(Bhogilal Chimanlal Vs. Registrar Joint Stock Companies and Ors.) reported in AIR 1954 MP 70.

(Indian Gasohol Ltd. Vs. The Registrar of Companies) reported in 2009 (IV) MPJR 151

(Sitaram Singh Construction P. Ltd. Vs. Union of India and another) reported in [2010] 156 Comp Cas 127 (Patna)

(Siddhant Garg and Anr. Vs. Registrar of Companies and Ors.) reported in (2012) 171 Comp Cas 326 (Delhi)

(Animesh Poly Industries P. Limited Vs. Registrar of Companies) reported in (2010) 157 Comp Cas 198 (M.P.).

(Gautam Buddha Children's Hospital P. Ltd. Vs. Union of India) reported in [2010] 156 Comp Cas 591 (Patna)

(Ramrameshwari Devi and Ors. Vs. Nirmala Devi and Ors.) Judgment of Apex Court in Civil Appeal No. 4912-4913 of 2011.

Arguments of respondent No.1 (ROC)

12. The ROC contends that two replies are filed in the present case. In the earlier reply it was mentioned that the relief No.2 cannot be granted and Mr. Kailash Dadhia is not the Director. However, it is admitted that Shri Dadhia is a Director as per the record available with the ROC. The second ground taken by ROC is that as per paid-up capital company had only Rs.1,94,255/- and company did not have requisite share capital in terms of Section 3(3) of Companies Amendment Act, 2000 which requires the minimum paid-up share capital upto Rs.5,00,000/-. It is urged that as per sub section 3 and subsection 4 of Section 3 the company must be deemed to be a defunct company and therefore, its name was rightly struck off from statutory register. The company was admittedly having only Rs.1,94,255/- as paid-up capital. Arguments of respondents No. 2 and 3.

13. It is stated that respondent No.2 is the son of Late Seth Vallabh Das and grand son of Late Rai Saheb Seth Harishankar. The said persons leased out their land for 30 years to Central Trading Company which floated a public company and transfer the lease to it for a limited period of 23 years (Annexure P/2). The period of said lease has expired on 31.05.1982 and the land is still recorded in the name of Vallabhdas (son) and Nanhi bai (wife) (Annexure A/3). It is urged that the said lease was not renewed . Late Rai Saheb was the promoter and first director of the petitioner company which is reflected from Memorandum of Article and Association. Clause 58 , 59 of the Articles of Association provides that the executor or administrator of a deceased share holder shall be the only person recognized by the company as having any title to his share. Respondent No.2 being the legal heir of a deceased member has inherited these shares and thus having a right to intervene. Reliance is placed on Bayswater Trading Co. Ltd. [1970] 40 COMP. CAS. 1196 (CD). The relevant portion quoted which reads as The word any 'member' in section 353(6) of English Act, 1948 [corresponding to section 560 of 1956 Act] must be construed as to extend the personal representative of the deceased member, although not on the register of shareholders. Copy of PAN card of respondent No.2, death certificate of Seth Raishankar and Seth Vallabhdas are annexed as Annexure A/4.

14. It is stated that respondent No.3 is Managing Director of company Nikhil Sugar Ltd., who has taken 900 acres of land on lease from the legal heirs of Late Rai Saheb Seth Harishanker and his son Late Seth Ballabhdas. The said respondent is cultivating the land for growing sugar cane and other crops for its factories. It is contended that petitioner is trying to encroach the said land illegally. It is stated that the trial court by order dated 17.05.2012 directed the parties to maintain status quo .

15. The respondents No. 2 and 3 have contended that power under section 560(6) of the Act is discretionary power and unless it is established that company was carrying on business or in operation or it is just that the company be restored, no restoration can be directed. The balance sheet (Annexure P/5) makes it clear that in the year 1999 the company had no internal audit system and there was absence of account books and other records. Balance sheet and P and L account did not give true and fair view of the state of affairs of the Company. Moreover, the company was a sick company under the provisions of the Sick Industrial Undertakings (Special Provisions) Act, 1985. The paid up share capital of the petitioner was less than the statutory requirement of section 3(4) of the Act. As per deeming provision petitioner company has become defunct company and its name was rightly struck of by the ROC. As per Section 3(5) the result is automatic and Registrar was not required to follow the procedure as prescribed under section 560 of the Act. Hence, no indulgence is required from this court. Reliance is placed on (2011) 105 SCL 754 (Mad). Madras Techno Marine Enterprises Ltd. Vs. Regional Director Company Arrairs and (2011) 2015 SCL 153 (Del), Value Advisory Services (P) Ltd. Vs. ROC.

16. It is also stated that substratum of the company is lost and therefore, question of restoration does not arise. It is submitted that petitioner is playing fraud with the Court and ROC is hand in glove with the petitioner. Lastly, it is contended that petition filed by Shri Kailash Dadhia is not maintainable. There is no resolution in support of the petition. The Directors retire every year by rotation. Shri Dadhia is not a director for life time as reflected from Annexure P/1. No statutory defunct company can hold the board meeting and therefore, authorization letter does not give any strength to the petitioner.

17. I have perused the pleadings and written submissions filed by the learned counsel for the parties.

18. Before dealing with the rival contentions, I deem it apposite to reproduce sections 3(4) and 3(5) of the Act, which read as under :-

"Section 3(4) :- Every public company, existing on the commencement of the Companies (Amendment) Act, 2000 with a paid-up capital of less than five lakh rupees shall, within a period of two years from such commencement, enhance its paid-up capital to five lakh rupees.

Section 3(5) :- Where a private company or a public company fails to enhance its paid-up capital in the manner specified in sub-section (3) or subsection (4), such company shall be deemed to be a defunct company within the meaning of section 560 and its name shall be struck off from the register by the Registrar."

19. This is admitted fact that these amended provisions became part of statute by way of insertion by Companies amendment Act, 2000 ( Act 53 of 2000) w.e.f. 13.12.2000. Section 560 (6) of the Act reads as under :-.

" If a company, or any member or creditor thereof, feels aggrieved by the company having been struck off the register, the Tribunal on an application made 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 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 Tribunal may, by the order, give such directions and make such provision 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."

20. This is not in dispute that the petitioner is a public company. Certificate of registration of petitioner company is Annexure P/1. Section 3(4) has made it clear obligatory for every public company existing on the date of amendment with a paid-up capital of less than five lakh to enhance it within a period of two years from such commencement to five lakh rupees. Sub-section (5) of Section 3 provides the consequence of failure of company to enhance its paid-up capital in the manner specified in Sub-section 4. This Sub-section, in no uncertain terms makes it clear that if paid-up capital is not enhanced up to five lakh Rupees within two years, company shall be deemed to be a defunct company within the meaning of Section 560 of the Act. Thus, the deeming provision was employed by the law makers to ensure that only such company can continue beyond two years from insertion of amendment who have fulfilled the requirement of Section 3(3) and 3(4) of the Act. Admittedly, the petitioner has not fulfilled the said requirement. In other words, admittedly, the petitioner's paid-up capital during the relevant year was Rs. 1,94,255/-. Thus, in my view, the deeming provision became applicable automatically.

21. This is settled in law that whenever the deeming provision or legal fiction is created, it has to be given its full effect otherwise the very purpose of insertion of such deeming provision will be meaningless. It is a legal and statutory fiction which must be carried out to its logical conclusion. The pivotal contention of the petitioner is that even assuming that petitioner company is deemed to be a defunct company under section 3 of the Act, even then the company can be restored because there are justifiable reasons because of which petitioner company could not enhance the paid-up capital to statutory limit. Heavy reliance is placed on the finding given by the District Judge Hoshangabad and by this Court in FA No. 112/1991.

22. The core issue is whether the company which has become defunct under a deemed provision and by operation of statute automatically, can be restored by invoking Section 560 (6) of the Act. A plain reading of section 3(4) of the Act makes it clear that it is drafted in a plain and simple language. It does not provide any eventuality under which either period of two years in enhancing the paid-up capital can be extended or the amount of paid-up capital up to Rs. five lakh can be reduced. I have no scintilla of doubt in my mind that by operation of section 3(4) petitioner company became defunct company because, admittedly, it could not enhance its paid-up capital within two years.

23. No doubt, the District Court and this Court has given a finding in a different kind of litigation that there were disputes and prolong litigation under the Ceiling Act. Naturally, company could not establish the factory by investing hard money and for this reason factory could not be established.

24. Section 560 makes it clear that registration of the company can be restored if on the date of striking off the name from the register, the company was doing business and it would be just to restore its name. The petitioner has placed heavy reliance on various judgments ( reproduced in para 11 of this order). In Puroshottamdass (supra) the court was dealing with a case wherein the lease expired in 1974 and company prayed for restoration. This case was decided much before insertion of section 3(4) of the Act and therefore, is of no assistance to the petitioner.

25. In Siddhant Garg (supra) the Delhi High Court dealt with section 560 (6) of the Act and opined that normally restoration of company can be allowed unless there are special circumstances against restoration it should be the endeavour of the courts to support reform of company rather than doing otherwise. Same view is taken in Indian Gasohol Ltd. (supra). In Sitaram Singh Construction (supra) also the court opined that normally the company should be restored. In Animesh Poly Industries and in Gautam Buddha Children's Hospital (supra) the court dealt with scope of Section 560. However, in none of the cases cited by the petitioner, the effect of sections 3(3) and 3(4) was dealt with on the anvil of power under Section 560(6) of the Act.

26. At the cost of repetition, in my view the petitioner company became automatically defunct after two years from the insertion of section 3(4) of the Act. Section 3 does not provide any scope for any reason whatsoever for not enhancing the paid-up capital to statutory limit within statutory time. Putting it differently, as per section 3(4) if requirement of enhancement of paid-up capital within time is not fulfilled, as an inevitable consequence the company becomes defunct automatically. This provision will come into play as a fiction automatically irrespective of any reason whatsoever. The statute has not provided any scope to examine any justifiability of not fulfilling the requirement of Section 3(4) of the Act. Thus any observation or finding given by the District Court and by this Court in FA does not provide any assistance to the petitioner.

27. The ancillary question is whether such company which stood defunct by operation of section 3(4) can be restored under the Act. This point is no more res integra. The High Court of Delhi in Value Advisory Services (supra) dealt with this aspect. I support in my view from the said judgment wherein Delhi High Court opined that there can be no equitable consideration which files in the face of statute which creates an express bar for incorporation or continuance of company with a paid-up share capital below the minimum prescribed limit by the statute nor it would be " otherwise just" that the company be restored. In my view also, if petitioner company is directed to be restored regardless of the fact that it did not have even minimum paid-up share capital required under the Act, it will be against the object, purpose and mandate of the Amendment Act, 2000. I also agree with the view taken by the Delhi High Court in Value Advisory Services (supra) that it is always open to the contributors to float a new company as per law. Any direction of restoration of company will be against the legislative mandate of section 3 of the Act.

28. In view of the aforesaid analysis, in my view, it will not be "just" to direct restoration of the petitioner company despite operation of section 3(4) of the Act. In the considered opinion of this Court, since the petitioner has failed to fulfill the requirement of Section 3 of the Act, it is a special reason which deprives the petitioner from restoration of company. Since the petitioner failed on this core issue, the other points raised by the parties are not required to be decided. They pale into insignificance. Resultantly, petition fails and is hereby dismissed. No costs.