Notice under IT Act against a struck-off company valid after NCLT's restoring order: Delhi High Court

Notice under IT Act against a struck-off company valid after NCLT's restoring order: Delhi High Court

Dismissing the petition, the bench imposed a cost of Rs.50,000 on the petitioner

The Delhi High Court has ruled that the order passed by the National Company Law Tribunal (NCLT) under the Companies Act, 2013, directing restoration of a struck-off company, will mean that the name of the company was not struck-off from the Registrar of Companies (ROC).

The bench comprising Justice Manmohan and Justice Manmeet Pritam Singh Arora held that the notice under the Income Tax Act, 1961, issued against a company on the date it stood dissolved as a consequence of being struck-off, was valid on the subsequent order passed by the tribunal.

The bench noted that the continuing liability of a struck-off company envisaged under Sections of the Companies Act provided that the liability of every director or manager of a dissolved company, would continue and be enforced as if the company was not dissolved.

The assessee-petitioner, Ravinder Kumar Aggarwal, is the director of RKA International Pvt. Ltd. Due to the defaults committed by the company, certain proceedings were initiated against the company by the Ministry of Corporate Affairs. Thereafter, the company was struck-off by the ROC. A notice was issued against which the assessee filed a writ petition before the court.

The assessee submitted that the notice was null and void since it was issued to the struck-off company. Whereas, the revenue department averred that the company was active during the relevant assessment year in which it had failed to file its Income Tax Return (ITR). Thus, an amount had escaped assessment and it was a fit case for the issuance of a notice.

The department added that after the notice was issued, NCLT passed an order allowing the petition filed by the IT department under the Companies Act, thereby restoring the name of the company in the ROC.

The assessee responded that on the date on which the notice was issued, the company was struck-off from the ROC. He argued that NCLT's subsequent order restoring the name of the company did not cure the defect of the issuance of the notice to a non-existent company.

However, the department stated that it had filed an appeal for the restoration of the company prior to the notice.

The bench noted that the company had neither challenged the notice nor filed an appeal against the NCLT order. Therefore, it had attained finality.

Referring to the Companies Act, the court observed that the order passed by the tribunal, directing restoration of the company, would mean placing it in the same position as if the name was never struck-off from the ROC. It ruled that it meant the company existed.

Justice Manmohan and Justice Arora further held that the Companies Act recognized the continuing liability of a struck-off company. Even if a company was dissolved, it would be deemed to continue to be in existence for the purpose of discharging its liabilities.

While noting the repealed Sections of the Companies Act, the court referred to the decision of the Supreme Court in the Commissioner of Income Tax, Jaipur vs Gopal Shri Scrips Private Limited case. The top court had held that the high court was wrong in dismissing the appeal filed by the IT department against a struck-off company on the ground that the appeal was not maintainable since the company stood dissolved.

The court observed that despite the fact that no order was passed about restoring the company and it remained non-existent, the apex court had held that the high court was wrong in dismissing the appeal. The Supreme Court had thus, remanded the matter back to the high court to decide the appeal on merits.

The bench also took into account the ruling of the Andhra Pradesh High Court in the Shrikishen Dhoot & Ors vs SD Kamlapurkur & Ors case, wherein it was reiterated that the existing liability of any director or member prior to the dissolution of the company, would continue in spite of the dissolution.

Thus, the bench ruled that even after the company was restored, by filing the writ petition, the petitioner was abusing the process of law to avoid the legal process.

The two-judge bench ruled, "It is relevant to note that the company was initially struck-off by the Corporate Affairs ministry due to default in filing its ITR with the ROC. Thus, its name was struck-off due to its own default. The NCLT upon realizing the detriment caused to the IT department due to the striking off, restored it to enable the department to recover its dues.

While imposing a fine of Rs.50,000 on the petitioner, the bench added, "The conduct of the petitioner in persisting with the present petition even after the company was restored and his action in opposing the appeal before the NCLT for restoration, evidences that he is abusing the process of law to obstruct the assessment proceedings. Accordingly, we dismiss the petition with costs and vacate the stay/interim order."