MADRAS TECHNO MARINE ENTERPRISES LTD. v. REGIONAL DIRECTOR, DEPARTMENT OF COMPANY AFFAIRS, SHASTRI BHAVAN, HADDOWS ROAD, CHENNAI – 600 006 & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED :06.08.2010CORAM:THE HON'BLE MR. JUSTICE T.S.SIVAGNANAMW.P.Nos.2964 & 17120 of 20031.Madras Techno Marine Enterprises Ltd., Rep. by its Director, Y.Radhakrishna, No.25, I Main Road, Indira Nagar, Chennai – 600 020. 2.Y.Radhakrishna ...Petitioners in both W.Ps. Vs.1.Regional Director, Department of Company Affairs, Shastri Bhavan, Haddows Road, Chennai – 600 006.2.Registrar of Companies, Shastri Bhavan, Haddows Road, Chennai – 600 006. ...Respondents in W.P.No.2964 of2003 1.Government of India, Rep. by its Secretary, Ministry of Finance and Company Affairs, Shastri Bhavan, New Delhi – 1.2.Regional Director, Department of Company Affairs, Shastri Bhavan, Haddows Road, Chennai – 600 006.3.Registrar of Companies, Shastri Bhavan, Haddows Road, Chennai – 600 006. ...Respondents in W.P.No.17120 of2003 Prayer in W.P.No.2964 of 2003 : This writ petition is filed underArticle 226 of the Constitution of India to issue a writ of Mandamusto direct the second respondent herein (Registrar of Companies, Chennai) to strike off the first petitioner company bearingregistration No.6168 of 1972 from the register of companies in terms https://hcservices.ecourts.gov.in/hcservices/ of Section 3(5) of the Companies Act, 1956.Prayer in W.P.No.17120 of 2003 : This writ petition is filed underArticle 226 of the Constitution of India to issue a writ ofDeclaration to declare the general circular No.13/2003 dated25.03.2003 (from File No.17/78/2001-CLV) issued by the firstrespondent herein as ultra vires provisions of articles underArticle 14, 19(1)(g), 265 of the Constitution of India and Section 3(5), 560, 642 and Regulation 75 of Table-A to Schedule-I of theCompanies Act, 1956 in so far as the petitioner is concerned. For Petitioner : Mr.Aravind P.Datar Sr. Counsel Mr.K.Ramasamy and Mr.Muizz Ali For Respondents: Mr.Haja Mohideen Gisthi (SCGSC) for R1 Mr.Haja Mohideen Gisthi (ACGSC) for RR1-3& Mr.A.KalaiselvanCOMMON ORDERSince the issue involved in both these writ petitions arecommon and both writ petitions have been filed by the same writpetitioners they are taken up together and disposed of by a commonorder.2. The prayer in W.P.No.2464 of 2003 is for issuance of writ ofmandamus to direct the second respondent, the Registrar of Companiesto strike off the name of the first petitioner company bearingregistration No.6168 of 1972 from the register of companies in termsof 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 writof issue a writ of Declaration to declare the general circularNo.13/2003 dated 25.03.2003, issued by the first respondent hereinas ultra vires the provisions of Article 14, 19(1)(g), 265 of theConstitution of India and Section 3(5), 560, 642 and Regulations 75of Table-A to Schedule-I of the Companies Act, 1956 in so far as thepetitioner is concerned. 4. Heard Mr.Aravind.P.Datar, Senior Counsel appearing for thepetitioners and Mr.Haja Mohideen Gisthi Senior Central GovernmentStanding Counsel for the respondents.5. The learned Senior counsel appearing for the petitionerwould submit that the impugned circular was issued by the Governmentof India for simplification of procedure for removal of name ofdefunct companies and that the scheme itself was in operation onlyupto 31.12.2003 and therefore, the circular is no longer in forceand no further adjudication is required in the said writ petition. https://hcservices.ecourts.gov.in/hcservices/ There is no record placed before this Court to show that the schemecontinues to be in vogue or the period of its validity stoodextended beyond 31.12.2003. In that view of the matter, the writpetition No.17120 of 2003 is dismissed as infructuous.6. The facts which are necessary for the disposal of the writpetition No.2964 of 2003 are as follows:-The first petitioner is a company, registered under the IndianCompanies Act on the file of the second respondent and the secondpetitioner is one of its Director. The company was incorporated in1972 and granted registration No.6160 and due to various reasons, the company closed its operation in 1979 and despite their being noactivity, the company filed all the returns and statutory records ason 31.12.1999. During 2000, the Companies Act, 1956, was amendedand minimum capital was stipulated for private limited companies andpublic limited companies. In terms of Section 3(3) a privatelimited company must have a minimum paid-up share capital ofRs.1,00,000/- and two years time was given to all private limitedcompanies to raise their share capital. The paid-up capital of thefirst petitioner was Rs.80,000/- and it is stated that since therewas no business carried on, it became pointless to infuse furthermoney to raise the minimum share capital of the company. In termsof Section 3(5) if a private limited company does not raise itscapital to Rs.1,00,000/- within the two years period, it shall bedeemed to be a defunct company within the meaning of Section 560 ofthe Act and its name shall be struck off by the second respondent. The petitioner company passed resolution on 03.05.2001 to get theirname struck off from the files of the second respondent and anapplication to the said effect was made to the second respondent on08.05.2001, the application was not considered and was pending. Subsequently, the petitioner received a notice dated 09.09.2002 fromthe office of the second respondent stating that the petitionerought to have held the Annual General Meeting in respect of thefinancial year ended 30.06.2000 and 30.06.2001 on or before31.12.2000 and 31.12.2001, in terms of Section 166 read with Section210 of Companies Act and the Directors ought to have laid thebalance sheet and profit and loss account for the said financialyears in the Annual General Meeting. Since, the annual returns andbalance sheet have not been filed in the office of the secondrespondent, the petitioner was called upon to show cause whyprosecution should not be launched against them. The petitionersubmitted their reply dated 26.09.2002, stating that they havealready sent a letter on 08.05.2001 requesting to treat thecompanies as the defunct company and delete its name and that thecompany is not functioning since 1979 and the second petitionerherein has no contact with any of the erstwhile Directors andtherefore requested to treat the company as the defunct companyunder Section 560 of the Companies Act. The petitioner did not https://hcservices.ecourts.gov.in/hcservices/ receive any further communication thereafter. At that stage of thematter, the circular dated 25.03.2003 came to be issued introducinga scheme for removal of name of defunct companies. Thisscheme/circular was challenged by the petitioner by a separate writpetition in W.P.No.17120 of 2003, which has been disposed of asstated above. In the above factual background, the petitioner hasfiled this writ petition to strike of the first petitioner companyfrom the register of the second respondent in terms of Section 3(5)of the Act.4. The learned Senior Counsel appearing for the petitionerwould contend that the petitioner has been unnecessarily harassedand the provisions of Section 3(5) are very clear and if thepetitioner has not increased their share capital the company isdeemed to have become defunct and therefore, the action of thesecond respondent in refusing to treat the petitioner company as adefunct company is not tenable and contrary to the statutoryprovision.5. The learned Senior Central Government Standing counselappearing for the Department by relying upon the Counter affidavitfiled by the second respondent submits that the company has beenadvised to file the balance sheet and annual returns for the year2000-01 which they have not complied and in terms of the generalcircular No.13/03 a simplified procedure for removal of defunctcompany has been introduced and the petitioner ought to have availedthe said procedure and not resorted to filing the writ petition. Further, it is contended that if the petitioner company applies tothe second respondent under the simplified exist scheme the samewould be dealt with on merits. Therefore, the learned Seniorstanding Counsel for the department would submit that the writpetition is liable to be dismissed.6. The only question to be decided in the writ petition is asto whether by operation of law, the company has become a defunctcompany and whether it has to be struck off from the register of thesecond respondent. 7. Substantial changes were made to the Companies Act by theCompanies (Amendment Act), 2000 with effect from 13.12.2000. Clause3 of Section 3(1) was modified to provide that a private companyshall have a paid-up capital of Rs.1,00,000/- or such higher sharecapital as may be prescribed. Sub-section 3,4 & 5 to Section 3 havebeen inserted to provide that the existing public and privatecompanies shall increase their paid-up capital up to the requiredminimum amount prescribed in either clause iii or clause iv within aperiod of two years from the date of commencing of Amendment Act2000. The period of two years came to an end on 12.12.2002 and theAmending Act, further, provided under Sub-Section (5) of Section 3 https://hcservices.ecourts.gov.in/hcservices/ that if the companies fails to effect increase, it shall be deemedto be a defunct company under Section 560 and its name shall bestruck off from the register maintained by the Registrar ofCompanies. Thus in terms of the amended provision an existingcompany having less than the required minimum paid-up capital mustincrease their paid-up capital atleast to the level prescribed i.e.,for a private company to Rs.1,00,000/- and the period was stipulatedas two years. If the private company fails to do so within the timeprescribed i.e., 12.12.2002, the deeming provision under Sub-section5 Section 3 takes effect and the company shall be deemed to be adefunct company under Section 560 of the Companies Act.8. In my view by operation of law, the company is declared tobecome a defunct company and the Registrar is not required to gothrough the procedures contemplated under Sub-Section 2 to 5 ofSection 560 of the Act. The Hon'ble Full Bench of the Allahabad HighCourt in Darbari Lal and Others Vs. Smt. Dharam Wati, AIR 1957Allahabad 541, while interpreting the term "is deemed to be"observed as under:-30.... When a thing is "deemed to be" something, theonly meaning possible is that whereas it is not in realitythat something, the Act directs that it should be treated asif it were that thing." 9. If in terms of Section 3(5) of the Act if the company isdeemed to be a defunct company, the only meaning possible is thatwhereas it is not in reality to be a defunct company, but the Actdirects that the company which has not increased its share capitalto be defunct company. 10. In Hindustan Co-operative Housing Building Society LimitedVs. Registrar of Co-operative Societies and Another dated12.02.2009, in Civil Appeal No.957/2009, the Hon'ble Supreme courtconsidered a deeming provision and held as follows:-"9. It is as noted above, a deeming provision. Such aprovision 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 deemedto have been done, which in fact and in truth was not done, the court is entitled and bound to ascertain for whatpurposes and between what persons the statutory fiction isto be resorted to. After ascertaining the purpose fulleffect must be given to the statutory fiction and it shouldbe carried to its logical conclusion and to that end itwould be proper and even necessary to assume all thosefacts on which alone the fiction can operate.(See Hill V. East and West India Dock Co. 1884 (9) AC https://hcservices.ecourts.gov.in/hcservices/ 448; State of Travancore Cochin V. Shanmugha VilasCashewnut Factory MANU/SC/0096/1953: [1954]1SCR53 ;American Home Products Corporation Vs. Mac Laboratories (P)Ltd. MANU/SC/0204/1985 : AIR 1986SC137 and ParayankandiyalEravath Kanapravan Kalliani Amma V. K.DeviMANU/SC/0487/1996: AIR 1996SC1963. In an oft-quotedpassage, Lord Asquith stated; (All ER p.599 B-D).If you are bidden to treat an imaginary state ofaffairs as real you must surely, unless prohibited fromdoing so, also imagine as real the consequence andincidents which, if the putative state of affairs had, infact, existed must inevitably have flowed from oraccompanied it.... The statute states that you must imaginea certain state of affairs, it does not say that havingdone so, you must cause or permit your imagination toboggle when it comes to the inevitable corollaries of thatstate of affairs.(See East End Dwellings Co.Ltd. Vs. Finsbury BoroughCouncil 1951 (2) All ER 587 (HL)10. "The word deemed' is used a great deal in modernlegislation. Sometimes it is used to impose for thepurposes of a statute an artificial construction of a wordor phrase that would not otherwise prevail. Sometimes itis used to put beyond doubt a particular construction thatmight otherwise be uncertain. Sometimes it is used to givea 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 ismeant "to extend the denotation of the defined term tothings it would not in ordinary parlance denote, is often aconvenient devise for reducing the verbiage of anenactment, but that does not mean that wherever it is usedit has that effect; to deem means simply to judge or reacha conclusion about something, and the words 'deem' and'deemed' when used in a statute thus simply state theeffect or meaning which some matter or thing has – the wayin which it is to be adjudged; this need not importartificiality or fiction; it may simply be the statement ofan undisputable conclusion. "Per Windener, J. in HunterDouglas Australia Pty. V. Perma Blinds 1970 (44) ALJ 257.12. When a thing is to be "deemed" something else, itis to be treated as that something else with the attendantconsequences, 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 thatcertain things shall be 'deemed' to be covered by the https://hcservices.ecourts.gov.in/hcservices/ definition, it matters not whether without that additionthe definition would have covered them or not. Per Lord President Cooper in Ferguson V. McMillan 1954SLT 10913. Whether the word "deemed" when used in a statuteestablished a conclusive or a rebuttable presumptiondepended upon the context see St. Leon Village ConsolidatedSchool Distt. V. Ronceray 1960 (23) DLR 32.I ...... regard its primary function as to bring insomething which would otherwise be excluded. Per Viscount Simonds in Barclays Bank V. IRC 1961 AC509 (HL)14. "Deems" means "is of opinion" or "considers" or"decides" and there is no implication of steps to be takenbefore the opinion is formed or the decision is taken." 11. The above decision renders full support to the case onhand. In the instant case, admittedly, the petitioner company didnot increase its paid-up capital to Rs.1,00,000/- with the timeprescribed. In response to a notice issued by the second respondentdated 09.09.2002, the petitioner company requested the secondrespondent to refer to their earlier letter, which was received bythe second respondent on 08.05.2001. In the said letter, copy ofwhich is filed in the typed set of papers, it is seen that theletter was typed on non-judicial stamp paper and it was stated thatsince 1979, the company has not carried on any business and thepromoters of company do not visualise any possibility to resume anybusiness in future, therefore requested the Registrar to strike outthe name of the company. Along with the letter dated 03.05.2001 anaffidavit signed by two Directors of the company stating that theCompany has no assets or liabilities on date and the company has notbeing carrying on any business from 1979 was enclosed. That apartan indemnity bond from the two Directors to the effect that theliabilities of the company if any will be met by them, even if thecompany is struck off from the register was also enclosed. Further, the balance sheet as at 30.04.2001 and Board resolution dated03.05.2001 were also enclosed. The copy of the affidavit and theindemnity bond and balance sheet have also been filed in the typedset of papers.12. Thus, it is to be noted that the petitioners company hasplaced all the materials before the second respondent and alsoexecuted an indemnity bond against any future claims against thecompany. Admittedly, the second respondent neither accepted norrejected the request made by the company. In the counter affidavit, it has been stated that in the balance sheet produced for the yearending 31.03.1998 that the company has written back the loan fromState Bank of India amounting to Rs.1,37,294/- based on legalopinion that it is barred by limitation and all amount due to and https://hcservices.ecourts.gov.in/hcservices/ due by the company have also been written off or written back as thesame are barred by law of limitation, but it does not explain howthe cash and Bank balances appearing in the books have also beenbrought to Nil. Therefore, it appears that as on date, there are noother assets or liabilities of the company and it is not the case ofthe second respondent that during the pendency of the writ petitionany claims/ complaints were received against the first petitionercompany. Admittedly, the period of validity of the simplified existscheme has come to an end.13. Thus as on date, the case of the first petitioner companyhas to be decided on the available facts and taking note of thedeclaration made and the effect of Section 3(5). It is not the caseof the second respondent that the period of two years stipulatedunder the statute for increasing paid-up capital could be extended. The period having come to end in 2002 cannot be extended, unless thestatute is appropriately amended. The procedural formalities nowpointed out in the counter is under the scheme, which is no longerin vogue. The object behind such simplified procedure is tosafeguard the interest of investors, depositors and others frombeing cheated by unscrupulous companies if their names are struckoff. However, the facts of the present case reveals that it is notone such case where the second respondent has received anycomplaints/claims, against/from the petitioner company. Apart fromwhat was pointed out in the counter relating to a loan transactionwith State Bank of India during 1998, it has been stated that thesame has been written off based on legal opinion. There is norecord before the second respondent that there is any claim in thisregard from the Bank.14. Therefore, in my view the peculiar facts of this case, calls for an extraordinary remedy. The letter dated 03.05.2001written on non-judicial stamp papers, the affidavit filed by two ofits Directors signed and notarized, the indemnity bond executed bytwo of its Director in favour of the second respondent as well asthe balance sheet as at 30.04.2001 would all cumulatively, satisfiesthe requirements to safeguard the interest of the department fromany claims against the company in future. As already pointed outeven during the pendency of the writ petition no claims have beenreceived and there is no other issue pointed out in the recentcounter affidavit filed by the second respondent which is dated23.07.2010. That apart the company is also stated to have notcarried on any business from the year 1979. Thus taking intoconsideration all these facts and the documents submitted to thesecond respondent and in view of the fact that the petitionercompany has not increased its paid-up capital to Rs.1,00,000/-before 12.12.2002, the company shall be deemed to be a defunctcompany within the meaning of Section 560 of the Companies Act andits name shall required to be struck of from the register of the https://hcservices.ecourts.gov.in/hcservices/ second respondent.15. In view of the above reasons, the second respondent shalltake into consideration, the petitioners letter dated 03.05.2001received in the office of the second respondent on 08.05.2001, thenotarized affidavit signed by two Directors, the indemnity bondexecuted by the two Directors in favour of the second respondentdated 03.05.2001 and the balance sheet at 30.04.2001 and also takinginto consideration that no claims/complaints have been receivedagainst the company during the pendency of the present writ petitionmay pass appropriate orders in accordance with law striking out thename of the first petitioner company from the register maintained bythe second respondent within a period of eight weeks from the dateof receipt of a copy of this order. 16. In the result, the writ petition is disposed of on theabove directions. No costs. Sd/Asst. Registrar/true copy/Sub Asst. Registrarpbn To1.The Secretary, Government of India, Ministry of Finance and Company Affairs, Shastri Bhavan, New Delhi – 1.2.Regional Director, Department of Company Affairs, Shastri Bhavan, Haddows Road, Chennai – 600 006.3.Registrar of Companies, Shastri Bhavan, Haddows Road, Chennai – 600 006. +1cc to M/s. Muizz Ali, Advocate Sr 58001+1cc to Mr.S.Haja Mohideen Gisthi, Advocate Sr 57385AKR(CO)km/13.8.W.P.Nos.2964 & 17120 of 2003