No power can be exercised by NCLT for initiation of CIRP under IBC, 2016 against a Corporate Debtor, the name of which has been struck off by RoC, the power of the Tribunal to restore the name of a struck off company under Section 252 of the Companies Act, 2013 is not a suo motu power – Mr. Satyabrata Mitra & Ors. Vs. Earth Towne Infrastructure Pvt. Ltd. – NCLT New Delhi Bench Court-IV

In this IBC Sec. 7 application, the name of the Corporate Debtor has been struck off by RoC. NCLT New Delhi Bench Court-IV holds that: (i) Due to the action of striking off, taken against the Corporate Debtor by the Registrar of Companies, the legal existence of the Corporate Debtor itself has ceased and the certificate of incorporation also stands cancelled. (ii) Any assets of the Company shall have to be vested in the state on the principle of "Bona Vacantia‟ which can be made available for discharge of its liability. The Liability, if any is to be discharged under Section 248(7) of the Companies Act, 2013 by the Directors, Members, Managers but not by the Company. (iii) The Tribunal may order winding up of a Company, the name of which has been struck off, but no power can be exercised by the Tribunal for Insolvency Resolution under the Insolvency and Bankruptcy Code, 2016, unless the name of the Company is restored to the Register of Company in terms of procedure laid down under Section 252 of the Companies Act, 2013. (iv) The power of the Tribunal to restore the name of a struck off company under Section 252 of the Companies Act, 2013 is not a suo motu power, but is to be exercised either on the basis of an appeal filed by any aggrieved person under Section 252(1) or to be exercised on an application filed under Section 252(3) of the Companies Act, 2013.

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I. Case Reference

Case Citation : (2023) ibclaw.in 899 NCLT
Case Name : Mr. Satyabrata Mitra & Ors. Vs. Earth Towne Infrastructure Pvt. Ltd.
Financial Creditor : Mr. Satyabrata Mitra & Ors.
Corporate Debtor : Earth Towne Infrastructure Pvt. Ltd.
Application/Appeal No. : Company Petition No. (IB) 196 of 2023
Judgment Date : 31-Oct-23
Court/Bench : NCLT New Delhi Bench Court-IV
Member (Judicial) : Mr. Manni Sankariah Shanmuga Sundaram
Member (Technical) : Dr. Binod Kumar Sinha

II. Brief about the decision

Facts of the case

  • The instant application is jointly filed by Mr. Satyabrata Mitra & 145 other home buyers (Applicants) under Section 7 of the Insolvency and Bankruptcy Code, 2016 with a prayer to initiate CIRP in respect of M/s Earth Towne Infrastructure Ltd. (Corporate Debtor) for defaulting in payment of financial debt amounting Rs. 28,64,48,786/- .
  • The name of the Corporate Debtor has been struck off from the register of Company by the Registrar of Companies.

Decision of the Adjudicating Authority

  • The term “Striking off” means an act by which the name of the company is removed or struck off from the register of companies which is maintained by the Registrar of Companies. The consequences of Stricking off the “name of company‟ is that the business entity has been removed from the official Register of Companies and is no longer legally recognized as a valid business or capable to hold any asset in its name. The legal recognition of the Company pursuant to strike off is lost, the certificate of incorporation is deemed to be cancelled and the Company stands dissolved under Section 248(5) of the Companies Act, 2013 subject to the discharge of liability towards its outstanding debt by its members, directors, managers in terms of Section 248(7) of the Companies Act, 2013.(p10)
  • The term “Corporate Debtor” is defined under Section 3(8) of IBC, 2016 and the term “Corporate Person” is defined under Section 3(7) of IBC, 2016. The term “Company” is defined under Section 2(20) of the Companies Act, 2013.(p11-12)
  • On a co-joint reading of the above referred provisions, it is clear that the CIRP can be initiated against a Company incorporated and registered under the provisions of the Companies Act, 2013, (Corporate Person) owing a debt to any person (Corporate Debtor). However, in the case before us, due to the action of striking off, taken against the Respondent Company by the Registrar of Companies, having jurisdiction under the provisions of the Companies Act, 2013, the legal existence of the Respondent Company itself has ceased and the certificate of incorporation also stands cancelled. Any assets of the Company shall have to be vested in the state on the principle of “Bona Vacantia‟ which can be made available for discharge of its liability. The Liability, if any is to be discharged under Section 248(7) of the Companies Act, 2013 by the Directors, Members, Managers but not by the Company.(p13)
  • Further, according to the provisions of Section 248(8) of the Companies Act, 2013, the Tribunal may order winding up of a Company, the name of which has been struck off, but no power can be exercised by the Tribunal for Insolvency Resolution under the Insolvency and Bankruptcy Code, 2016, unless the name of the Company is restored to the Register of Company in terms of procedure laid down under Section 252 of the Companies Act, 2013.(p14)
  • The power of the Tribunal to restore the name of a struck off company under Section 252 of the Companies Act, 2013 is not a suo motu power, but is to be exercised either on the basis of an appeal filed by any aggrieved person under Section 252 (1) or to be exercised on an application filed by the Companies, its members or creditors or workmen aggrieved by the order of striking off under Section 252(3) of the Companies Act, 2013. Secondly, such power of restoration is to be exercised under the powers confined to this Tribunal under the Companies Act, 2013 whereas the instant proceedings are initiated under the provisions of the I&B Code, 2016 before us being the Adjudicating Authority under the Code, 2016.(p14)
  • Having regard to the above finding and discussion, the applicants are directed to take appropriate steps to seek the restoration of the name of the Corporate Debtor in the Register of Companies, so as to proceed with the present application filed under Section 7 of the Code, 2016.(p15)

 

III. Full text of the judgment

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