The National Companies Law Appellate Tribunal (“NCLAT”), in the case of Elektrans Shipping Pte Ltd v. Pierre D’Silva has ruled that an insolvency proceeding under the Insolvency and Bankruptcy Code, 2016 (“IBC”) can be initiated against an entity even after the entity’s name has been struck off from the Register of Companies under Section 248 of the Companies Act, 2013 (“Act”).
In the current case, Elektrans Shipping Pte Ltd (“Elektran”) approached the NCLAT against an insolvency application filed by Pierre D’Silva (“Pierre”) under the IBC. Elektran contended that as its name has been removed from the Register of Companies under Section 248 of the Act, an insolvency proceeding cannot be initiated by Pierre. However, the NCLAT, on reviewing Section 248 of that, observed that:
(a) Section 248(6) of the Act stipulates that the assets of the company should be made available to discharge the liabilities of the company even after the date of the order removing the name of the company from the Register of Companies;
(b) Section 248(7) of the Act provides for the continuing liability of every director and manager even after the name of the company has been struck off from the Register of Companies; and
(c) Section 248(8) of the Act clarifies that the removal of a company from the Register of Companies will, in no manner, affect the power of the National Companies Law Tribunal to wind up the company.
On the basis of the above observations, the NCLAT permitted the insolvency proceedings initiated by Pierre.
Section 248 of the Act stipulates that the Registrar of Companies (“RoC”) can strike off the name of a company in the following cases:
(a) If the company fails to commence business operations within one year of incorporation;
(b) If a company fails to make any filing with the RoC for a period of two consecutive financial years; and
(c) If the subscribers to the company’s memorandum of association have not paid the subscription they had undertaken to pay at the time of the company’s incorporation within one hundred and eighty days of incorporation.
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The NCLAT, by reiterating the position of law outlined in Section 248 of the Act, has removed a potential loophole companies could have use in order to ensure that no insolvency proceedings could be initiated against them (this could have been done if companies did not make any filings with the RoC for 2 consecutive financial years. The RoC would have then struck their names off the Register of Companies and therefore, no insolvency proceedings could be initiated under the IBC).
Through this judgement, the NCLAT made a distinction between winding up and striking off. The NCLAT, while interpreting Section 248, has held that even if the name of the company is struck off, it does mean that the company has cleared out all its debts and that no insolvency proceedings can be initiated against the company.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.