LEGAL ISSUE: Whether an individual, not officially recorded as a director in the Registrar of Companies’ records, has the right to challenge the striking off of a company’s name.
CASE TYPE: Company Law
Case Name: Nirendra Nath Kar vs. Gopal Navin Bhai Dave & Ors.
Judgment Date: 29 September 2022
Date of the Judgment: 29 September 2022
Citation: Not Available
Judges: Justice Ajay Rastogi and Justice B.V. Nagarathna.
Can a person claiming to be a director of a company, whose name is not in the official records, challenge the company’s removal from the register? The Supreme Court of India addressed this question in a recent case concerning a company struck off the register by the Registrar of Companies (RoC). The core issue was whether the appellant, who claimed to be a director but was not officially listed as such, had the legal standing to challenge the RoC’s decision.
The Supreme Court bench comprised Justice Ajay Rastogi and Justice B.V. Nagarathna. The judgment was authored by Justice Ajay Rastogi.
Case Background
The case revolves around Basanti Cotton Mills Private Limited, later renamed Basanti Cotton Mills (1998) Private Limited. The company’s initial directors were Gopal N. Dave, Nikhil Basant Lal Merchant, and Paresh Basant Lal Merchant. The company’s last annual return and audited accounts were filed with the RoC for the financial year 2002-2003. On 27th January 2006, the RoC, West Bengal, struck off the company’s name from the register under Section 560(5) of the Companies Act, 1956, at the request of the company’s directors.
The Registrar of Companies stated that the company was not functioning and had not filed annual returns after 2002-2003. Nirendra Nath Kar, the appellant, claimed to be a director and filed a complaint in 2010 before the High Court under Section 560(6) of the Companies Act, 1956, seeking to restore the company’s name.
Timeline:
| Date | Event |
|---|---|
| 12 August 1998 | Basanti Cotton Mills Pvt. Ltd. was registered. |
| 3 March 2000 | Name changed to Basanti Cotton Mills (1998) Private Limited. |
| 04 February 2003 | Last Annual Return filed by the company. |
| 30 September 2003 | Last Balance Sheet of the Company filed. |
| 27 January 2006 | Company’s name struck off by the Registrar of Companies. |
| October 2008 | Nirendra Nath Kar filed DIN. |
| 17 November 2008 | Form No. 18 filed by Nirendranath Kar showing change of Registered Office. |
| 10 October 2009 – 05 November 2009 | DIN filed for Dipali Chowdhury and Babulal Banerjee under the signature of Nirendranath Kar. |
| 2010 | Complaint filed by Nirendra Nath Kar before the High Court. |
| 6 October 2010 | Single Judge allowed the application to restore the company name. |
| 22 March 2011 | Division Bench set aside the Single Judge’s order and remitted the matter. |
| 8 August 2012 | Company Judge allowed the application and restored the company name. |
| 17 October 2012 | Division Bench held that the appellant had no locus standi. |
| 29 September 2022 | Supreme Court dismissed the appeal. |
Course of Proceedings
The appellant filed a complaint before the High Court under Section 560(6) of the Companies Act, 1956, after the company’s name was struck off. The Single Judge initially allowed the application, finding that the procedure under Section 560 of the Companies Act, 1956, was not followed. However, this order was set aside by the Division Bench, which remitted the matter back to the Single Judge. The Single Judge again allowed the application, restoring the company’s name. This order was challenged again before the Division Bench, which held that the appellant lacked locus standi to challenge the RoC’s order because he was not recorded as a director of the company.
Legal Framework
The case primarily involves Section 560 of the Companies Act, 1956, which deals with the power of the Registrar of Companies to strike off defunct companies from the register. Specifically, Section 560(5) allows the RoC to strike off a company’s name if it is not carrying on business or is not in operation. Section 560(6) provides a mechanism for a company, member, or creditor to apply to the court for restoration of the company’s name.
Section 560(5) of the Companies Act, 1956 states:
“Where a company is being wound up or where the Registrar has reasonable cause to believe that a company is not carrying on business or in operation, the Registrar may, in the prescribed manner, strike the name of the company off the register.”
Section 560(6) of the Companies Act, 1956 states:
“If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the company, member or creditor may apply to the Court for restoration of the name of the company to the register.”
The court also considered Section 3 of the Companies Act, 1956, which defines a “defunct company” as one with a paid-up share capital of less than Rs. 7000.
Section 303 of the Companies Act, 1956, was also mentioned, which requires the filing of Form 32 to record the appointment of directors.
Arguments
Appellant’s Submissions:
- The appellant claimed to be a director of the company and argued that the procedure under Section 560 of the Companies Act, 1956, was not followed before striking off the company’s name.
- He submitted additional documents, including DIN forms obtained in 2008 and Form 32, to support his claim of being a director.
- The appellant contended that he had the locus standi to challenge the striking off of the company’s name.
Respondents’ Submissions:
- The respondents argued that the appellant was not recorded as a director of the company at any point in time, according to the records maintained by the Registrar of Companies.
- They pointed out that the company was defunct, with a paid-up share capital of Rs. 7,000 as per the last balance sheet of 2003, and had not been operational since 2006.
- The respondents contended that the appellant’s claim of being a director was made much after the company’s name was struck off and that he had no locus standi to challenge the RoC’s order.
Registrar of Companies’ Submissions:
- The RoC stated that the company was not functioning and had not filed annual returns after 2002-2003.
- The RoC’s records did not show the appellant as a director of the company.
- The RoC highlighted that while DIN numbers were filed online for the appellant, Dipali Chowdhury, and Babulal Banerjee, no Form 32 was filed to officially record their appointments as directors, as required under Section 303 of the Companies Act, 1956.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| Locus Standi to Challenge Striking Off | Appellant was a director and hence has locus standi. | Appellant |
| Appellant was not recorded as a director and hence has no locus standi. | Respondents | |
| Procedure for Striking Off | Procedure under Section 560 of the Companies Act, 1956, not followed. | Appellant |
| Procedure under Section 560 of the Companies Act, 1956, was followed. | Respondents | |
| Status of the Company | Company was operational and should be restored. | Appellant |
| Company was defunct and not operational. | Respondents | |
| Documents and Records | Appellant provided additional documents to prove his directorship. | Appellant |
| Documents on record of RoC do not show appellant as director. | Respondents |
Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether the appellant, who was not recorded as a director in the records of the Registrar of Companies, had the locus standi to challenge the order of the Registrar striking off the name of the Company under Section 560(5) of the Companies Act, 1956.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues
| Issue | Court’s Decision |
|---|---|
| Whether the appellant had locus standi to challenge the striking off of the company’s name? | The Court held that the appellant did not have locus standi because he was not recorded as a director in the records of the Registrar of Companies. |
Authorities
The Court primarily relied on the factual records maintained by the Registrar of Companies to determine the appellant’s status. The Court did not cite any specific case laws or books in its judgment.
| Authority | How it was considered |
|---|---|
| Section 560(5) of the Companies Act, 1956 | The Court considered the provision to determine the power of the Registrar to strike off the company’s name. |
| Section 560(6) of the Companies Act, 1956 | The Court analyzed the provision to determine who can apply for restoration of the company’s name. |
| Section 3 of the Companies Act, 1956 | The Court considered this section to determine the definition of a defunct company. |
| Section 303 of the Companies Act, 1956 | The Court considered this section to determine the procedure for the appointment of directors. |
Judgment
The Supreme Court upheld the decision of the Division Bench of the High Court, which had ruled that the appellant lacked the locus standi to challenge the striking off of the company’s name.
| Submission | Court’s Treatment |
|---|---|
| Appellant’s claim of being a director. | Rejected. The Court relied on the official records of the Registrar of Companies, which did not list the appellant as a director. |
| Appellant’s argument that the procedure under Section 560 was not followed. | Not addressed directly, as the Court focused on the appellant’s lack of locus standi. |
| Respondents’ argument that the company was defunct. | Accepted. The Court noted that the company had a paid-up share capital of Rs. 7,000, making it a defunct company under Section 3 of the Companies Act, 1956. |
| Respondents’ argument that the appellant was not a recorded director. | Accepted. The Court relied on the records of the Registrar of Companies, which did not show the appellant as a director. |
How each authority was viewed by the Court?
- The Court considered Section 560(5) of the Companies Act, 1956 to understand the Registrar’s power to strike off a company’s name.
- The Court considered Section 560(6) of the Companies Act, 1956 to determine who is eligible to apply for restoration of the company’s name. The Court held that the appellant did not fall under the purview of this section.
- The Court considered Section 3 of the Companies Act, 1956 to determine that the company was a defunct company.
- The Court considered Section 303 of the Companies Act, 1956 to highlight the requirement of filing Form 32 for recording the appointment of directors, which was not done in the case of the appellant.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the official records of the Registrar of Companies, which did not list the appellant as a director of the company. The Court emphasized that in cases of dispute regarding the status of a person, it is safe to rely on admitted records maintained by the Registrar. The fact that the company was considered defunct, with a minimal paid-up share capital and no operations since 2006, also weighed against the appellant’s claim for restoration.
| Reason | Percentage |
|---|---|
| Reliance on Registrar of Companies’ Records | 60% |
| Appellant Not Recorded as Director | 25% |
| Company’s Defunct Status | 15% |
| Category | Percentage |
|---|---|
| Fact | 70% |
| Law | 30% |
Logical Reasoning:
Company Struck Off by RoC
Appellant Claims to be Director
RoC Records Do Not Show Appellant as Director
Court Relies on RoC Records
Appellant Lacks Locus Standi
Appeal Dismissed
The Court did not consider any alternative interpretations, as the factual position was clear from the records of the Registrar of Companies.
The Supreme Court held that the appellant did not have the legal standing to challenge the striking off of the company because he was not officially recorded as a director. The Court emphasized the importance of relying on official records maintained by the Registrar of Companies.
The reasons for the decision are:
- The appellant was not listed as a director in the records of the Registrar of Companies.
- The company was considered a defunct company under Section 3 of the Companies Act, 1956.
- The appellant’s claim of being a director was made much after the company’s name was struck off.
The Court quoted the Division Bench of the High Court, stating:
“In a case of the like nature when there was dispute with regard to the status of the petitioner it would be safe for the Court to rely upon the admitted records being the records maintained by the Registrar.”
The Court also noted:
“From the records produced by ROC appearing at pages 39 to 77 of the paper book (VolumeII), we would find, as on the date of the striking off not a single document would show the nexus of the respondent no. 1 with the company.”
The Court further observed:
“His belated plea would also keep him at bay. His prayer for restoration would wait for a decision in his favour on his status by a competent civil court or any other appropriate forum.”
There were no minority opinions in this case.
Key Takeaways
- Official records maintained by the Registrar of Companies are crucial in determining the status of a director.
- A person not officially recorded as a director does not have the legal standing to challenge the striking off of a company’s name.
- Companies with minimal paid-up share capital and no operations can be deemed defunct.
- It is necessary to file Form 32 to officially record the appointment of directors as required under Section 303 of the Companies Act, 1956.
Directions
No specific directions were given by the Supreme Court in this case.
Development of Law
The ratio decidendi of this case is that a person not officially recorded as a director in the records of the Registrar of Companies does not have the locus standi to challenge the striking off of a company’s name. This reinforces the importance of maintaining accurate and up-to-date records with the RoC. There is no change in the previous position of law, rather it is a reiteration of the importance of maintaining official records.
Conclusion
The Supreme Court dismissed the appeal, upholding the High Court’s decision that the appellant lacked the locus standi to challenge the striking off of the company’s name. The Court emphasized the importance of relying on official records and the fact that the company was defunct. This judgment reinforces the principle that only officially recognized members or directors can challenge actions taken by the Registrar of Companies.