Can IBC be invoked against a company whose name has been struck off from the Register of Companies? NCLAT answers

Aditi Singh September 11 2019

The National Company Law Appellate Tribunal (NCLAT) has held that an application for initiation of corporate insolvency resolution process under Sections 7 and 9 of the Insolvency and Bankruptcy Code will be maintainable against a Corporate Debtor even if its name has been struck off from the Register of Companies (RoC).

The NCLAT also held that in terms of Section 248 (5) of the Companies Act, 2013 the Adjudicating Authority i.e NCLT is empowered to restore the Company's name, as well as the positions held by the officers in the Company, for the purpose of initiation of insolvency proceeding under Sections 7 and 9. However, such an application has to be filed within twenty years from the date of the removal of the Company's name from the Register.

The judgment was passed by a three-member Bench of Chairperson, Justice SJ Mukhopadhaya, Member (Judicial) Justice AIS Cheema and Member (Technical) Kanthi Narahari in an appeal from the National Company Law Tribunal, Mumbai.

One Pierre D’silva had filed an application under Section 9 IBC against M/s. Elektrans Shipping Private Limited (Corporate Debtor). The application was admitted by the Adjudicating Authority i.e. NCLT, Mumbai.

A shareholder (Appellant) of the Corporate Debtor moved the NCLAT in appeal, challenging the order of admission.

It was the Appellant's case that Section 9 application was not maintainable as the name of the Corporate Debtor was struck off by the Registrar of Companies in September 2018 in the exercise of powers conferred by Section 248 of the Companies Act, 2013.

Therefore, the NCLT had erred in admitting the application without considering the status of the ‘Corporate Debtor’ as on the date of admission, it was argued.

To decide the issue, the NCLAT adverted to Sections 248, 250, 252 of the Companies Act along with Section 60 of the IBC.

It observed that as per Section 248(6), before passing an order of removal from the Register of Companies, the Registrar has to satisfy himself that sufficient provision has been made for realization of all amount due to the company and for the payment or discharge of its liabilities and obligations within a reasonable time.

It further noted that as per proviso to Section 248(6), the assets of the Company are to be made available for payment or discharge of its liabilities and obligations even after the date of the order removing the name of the Company from the Register of Companies. Additionally, it recorded that Section 248(7) provides for the continuance and enforcement of liability of every director, manager or other officers of the management and its member under such a situation.

Lastly, the NCLAT asserted that Section 248(8) clarifies that removal of a Company from the Register will, in no manner, affect the power of the NCLT to wind up the company.

It then relied upon Section 250 of the Companies Act to state that after the removal, the right of realization of all amount due to the Company for the purpose of payment or discharge of its liabilities or obligations of Company continues.

It also relied upon Section 2(94A) of the Companies Act, 2013 which deals with the definition of “winding up” to state that a Company, whose name has been removed from the Register of the Companies can be liquidated under the IBC.

Explaining the provisions of appeal against the removal and the subsequent powers granted to NCLT, the NCLAT stated that a Company or any of its members, creditors or workmen may move an application under Section 252(3) before NCLT before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248 if they feel aggrieved by the removal.

On being satisfied, the NCLT can pass an order restoring the name of the Company in the Register, it observed.

The NCLAT then went on to hold that such order of restoration can be exercised by the Adjudicating Authority established under Section 60 IBC as well.

On one side the NCLT plays the role of ‘Adjudicating Authority’ and on the other, it acts as ‘Tribunal’ under the Companies Act, the NCLAT said.

In view of the above, it thus held that if an application is filed by a creditor before the expiry of twenty years from the publication in the Official Gazette of the Notice under sub-section (5) of Section 248, it would be open to the Adjudicating Authority to give directions to restore the name of the Company in the Register.

Observing that the assets of the Corporate Debtor may continue even after its name is struck-off, the NCLAT observed that whether there are assets of the Corporate Debtor or not could be looked into only by the Resolution Professional.

The Appellate Tribunal has nonetheless clarified that such an order of restoration cannot be in case of Voluntary Liquidation of Corporate Persons under Section 59 of IBC.

The Appellant was represented by Advocates Prachi Wazalwar and Anandh K. 

The Respondents were represented by Advocates Mayank Kashirsagar, Darryl Periera, Parth Sarthy Bose, Tushar Singh, Pankhuri, Mohd. Arif, Akhilesh Yadav. 

[Read Judgement]

Elektrans Shipping vs P Dsilva_watermark