Financial distress caused by mounting non-performing assets (NPAs), stressed assets, and extended litigation afflicted India’s banking sector prior to the introduction of the Insolvency and Bankruptcy Code, 2016 (IBC). The Reserve Bank of India (RBI) tried numerous policies to help defaulting enterprises get out of trouble. The Sick Industrial Companies Act (SICA), the Companies Act, 1956/2013 (Companies Act), and other RBI-sponsored revival plans, on the other hand, were ineffective.
The lack of a reasonable insolvency law relating to firms, as well as the time-consuming process of winding up companies under the Companies Act, contributed significantly to this anguish. Many creditors filed winding up petitions under the Firms Act due to the borrower companies’ failure to pay their debts, which resulted in the borrower companies being wound up in many cases. If secured, creditors could either enforce their securities outside of the winding-up process and proceed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”), or give up their securities and participate in the liquidation process.
Even though it was always preferred for banks and other financial institutions to try to resurrect or restructure a distraught debtor company rather than have it wound up, which effectively meant the company’s death, the capacity to do so was severely limited.
SICA, an attempt aimed at helping distressed enterprises to be restructured and revived, likewise fell short of its goals. Rather, the borrowers took advantage of it, and legal actions were put on hold. With this in mind, the IBC enacted long-overdue reforms relating to the revival/restructuring, and, if required, winding up, of businesses. SICA was repealed, and the sections of the Firms Act, 2013, relating to the winding up of companies due to incapacity to pay debts, were also amended or removed.
Following that, all cases relating to winding up under the Companies Act before the High Court that were not filed on the borrower were moved to the National Company Law Tribunal through a Central Government announcement dated December 7, 2016. (“NCLT”). This announcement effectively divided petitions into two categories: those that remained in the High Court and those that were transferred to the NCLT.
As a result of SICA was repealed, banks and financial institutions whose petitions were heard in the High Court concluded that they could no longer take advantage of the IBC’s quick and favorable provisions, nor of SICA’s remedies for the revival or restructuring of borrower companies. The resurrection of the borrower firm could have been a more financially smart alternative for many of these banks and financial institutions than (i) seeking liquidation of the company, (ii) liquidating the secured assets at distressed levels, or (iii) winding up the company.
When following the provision given under section 248 of the Companies Act, 2013, the Registrar of Company is empowered to strike off the names of companies that aren’t carrying on any business or aren’t operational. Once approved, the ROC will strike the company’s name from the Register and publish notice in the Official Gazette, and the company will be dissolved.
The ROC can strike-off a company on the following grounds:
Section 252 of the Companies Act, 2013 read with Rule 87A of the National Company Law (Amendment) Rules, 2017provides for regulations of revival of companies.
Section 252(1) reads that an appeal can be filed in the National Company Law Tribunal for the revival of a company. If the Registrar is satisfied with the striking of the company’s name from the register of companies inadvertently or due to incorrect information provided by the company or directors, an individual can file an application before the Tribunal for restoring the name of the company within three years from the date of passing of the order dissolving the company under Section 248.
Section 252(2) reads that the company must file a photocopy of the Tribunal’s order with the Registrar within thirty days after the date of the order, and upon receipt of the order, the Registrar restores the company’s name to the register of companies. A fresh incorporation certificate is issued when it has been registered.
Section 252(3) reads that if a company/member/creditor/workman is dissatisfied with the company for striking off its name from the register of companies, the Tribunal, on an application made by the company, creditor, member, or workman before the expiry of twenty years from the publication in the Official Gazette of a notice made under Sub-section (5) of Section 248, states that the company has been carrying on a business or operation the firm’s name would be reinstated in the register of companies as a result, and the Tribunal would issue further directives and provisions to the company.
The limitation period for voluntary striking off is twenty years, and for compulsory striking off by ROC, the appeal must be submitted within three years after the date of the ROC’s order.
The following are the grounds on which the NCLT revives companies:
Other papers may be required based on the circumstances and on a case-by-case basis.
The essential premise is that there should be some documentation establishing that it is in the public interest to revive the Company and that the Company is still active.
Section 87A of the National Company Law Tribunal (Amendment) Rules, 2017 enumerates the process of revival of struck-off companies by the Tribunal.
The petition under Section 252(3) for the restoration of the name of the stricken company must be submitted with the Tribunal (NCLT).The petition must be filed in Form No.NCLT-9.
A copy of the application must be served on the Registrar of Companies and any other individuals designated by the Tribunal at least 14 days before the date set for hearing the application.
The list of documents required to be filed with NCLT for filing an application in different-2 sections is provided in Annexure B of the NCLT Rules, 2016. The stated Annexure does not include a separate list of papers for filing an application with the NCLT under Section 252. As a result, if stated in Annexure B, “Wherever no document is required to be attached with the application or petition, the papers listed below may be added, as applicable.”
The Petitioner and Respondent will be heard before the Tribunal . It will also take note of any observations/objections received.
If it is satisfied after hearing both parties, it can order the reinstatement of the company’s name in the ROC’s record. Directions by Tribunal
When the Tribunal makes an order restoring a company’s name to the register of companies, the order should direct that-
The Company must file a copy of the order in e-Form INC-28 with the Registrar of Companies within 30 days of the order’s date.
The order is published in the Official Gazette by the Registrar of Companies under his official name and seal. Filing of pending financial statements
The company is required to file pending financial statements and annual reports with the Registrar and comply with provisions of the Companies Act of 2013.
The new Company Fresh Start Scheme (CFSS-2020) provides an excellent alternative to revive your company without incurring any exorbitant penalties or costs.
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