THE HON’BLE SRI JUSTICE A.V.SESHA SAI WRIT PETITION No.23890 of 2004 Date :11-06-2014 Between:
M/s.Sethurama Builders & Engineers Pvt. Ltd., represented by its Director, Registered office: 6-1-117, Padmarao Nagar, Secunderabad – 500 025 and two others.
… Petitioners and Union of India, represented by its Secretary, Ministry of Law, Justice & Company Affairs, Room No.502, A Wing, Shastri Bhavan, Rajendera Prasad Road, New Delhi and another.
… Respondents THE HON’BLE SRI JUSTICE A.V.SESHA SAI WRIT PETITION No.23890 of 2004
O R D E R:
This writ petition, filed under Article 226 of the Constitution of India, challenges the action of the second respondent/The Registrar of Companies, Andhra Pradesh, Hyderabad, in not striking off the first petitioner’s name from the Register of companies and launching criminal prosecution as being illegal, arbitrary and in excess of the powers and contrary to the provisions of the Companies Act, 1956 (hereinafter called ‘the Act’) and for a consequential direction to the second respondent/The Registrar of Companies, to strike off the first petitioner’s name from the Registrar of Companies.
2. Heard Sri R.V.Nagabhushana Rao, learned counsel for the petitioners and the learned Assistant Solicitor General for the respondents apart from perusing the material available on record.
3. First petitioner is a company, incorporated in the year 1992, bearing Certificate of Incorporation No.01-15011/1992-93. According to the petitioners, even though the authorised share capital was shown as Rs.5.00 lakhs divided into 50,000 shares of Rs.10/- each in the Memorandum of Articles of Association, petitioners 2 and 3 have subscribed for 10 shares each originally and as such the paid up capital was only Rs.200/-. As per the petitioners, subsequent to the incorporation, no transaction took place in the first petitioner’s company and no further allotment of shares had taken place, as such, no return of allotment was filed as required under Section 79 of the Act and that the same would establish that the paid up capital was only Rs.200/-.
4. The grievance precisely in the present writ petition is that even though the first petitioner company became defunct by virtue of Section 3 (5) of the Act, the second respondent/The Registrar of Companies, instead of striking off the name of the first petitioner company from the Register of Companies, had chosen to initiate criminal proceedings against the petitioners under Section 162, 168 and 220 of the Act alleging non-compliance of the provisions of Section 169 and 161 of the Act for non-filing of annual returns and for not holding Annual General Body Meeting and for not filing balance sheet.
5. This Court, while ordering Rule Nisi on 23.12.2004, refused to grant interim stay of criminal prosecution in WPMP.No.31317/2004. As against the said order in refusing to grant interim stay, the petitioners herein preferred W.A.No.241/2005 and a Division Bench of this Court on 23.02.2005, while allowing the said writ appeal, granted stay of all further proceedings in criminal prosecution pending on the file of the Court of Special Judge for Economic Offences, Hyderabad.
6. Responding to the Rule Nisi issued by this Court a counter affidavit is filed by the second respondent/the Registrar of Companies, denying the averments made in the affidavit filed in support of the writ petition and in the direction of justifying the impugned action.
7. It is contended by the learned counsel for the petitioners that the impugned action on the part of the second respondent herein is highly illegal, arbitrary and opposed to the very spirit and object of the provisions of the Act and it is further contended that the second respondent is not entitled to launch any prosecution against the defunct company and the impugned action is in contravention with the provisions of sub-sections (3) and (5) of Section 3 of the Act. It is further contended that the second respondent herein, having failed to take action as per the provisions of sub-section (3) of Section 3 of the Act is not justified in launching the prosecution against the petitioners herein.
8. Per contra, it is contended by the learned Assistant Solicitor General for the Union of India that the impugned action is perfectly justified and is in accordance with law and that in view of the facts and circumstances of the case, the petitioners herein are not entitled for any relief from this Court under Article 226 of the Constitution of India.
9. In the light of the pleadings, averments and contentions, now the question which falls for consideration of this Court is whether the impugned action on the part of the respondents herein is sustainable or not?
10. In the instant case, the first petitioner company came into being in the year 1992 and its paid-up capital as per the un-controverted pleadings is Rs.200/- and as per sub-section (3) of Section 3 of the Act, a private company is a company which has a minimum paid-up capital of Rs.1,00,000/- or such higher paid up capital as may be prescribed and as per sub-Section (3) of Section 3 of the Act any private company having paid-up capital less than Rs.1,00,000/- shall within two years enhance its paid-up capital to Rs.1,00,000/-. The Companies Amendment Act, 2000 came into force with effect from 14.12.2000 and as per Section 3 (5) of the Act it is obligatory on the part of the Registrar of Companies to strike off the name of the private company which fails to enhance its paid up capital as mentioned in Section 3 (3) of the Act. Section 3 (5) of the Act also stipulates that if a private company fails to enhance its paid-up capital as mentioned in sub-Section (3) of Section 3 of the Act such company deems to be a defunct company. At this juncture, it may be appropriate to refer to sub-Section (5) of Section 3 of the Act, which reads as under:
“(3) (5) Where a private company or a public company fails to enhance its paid-up capital in the manner specified in subsection(3) or sub-section (4), such company shall be deemed to be a defunct company within the meaning of section560 and its name shall be struck off from the register by the Registrar.”
11. A reading of the said provision of law makes it abundantly clear that it is obligatory on the part of the Registrar of Companies/the second respondent herein to strike off the name of the company in the event of failure to enhance the paid up capital as per sub-Section (3) of Section 3 of the Act. The material available on record manifestly shows that the first petitioner herein failed to enhance the paid-up capital as per Section 3 (3) of the Act. Instead of discharging the said statutory obligation as stipulated under sub-Section (5) of Section 3 of the Act, the second respondent herein has chosen to initiate criminal prosecution in the year 2004. In the considered opinion of this Court the reasons assigned by the second respondent herein in the counter affidavit filed in the present writ petition are not sustainable. There is absolutely no justification on the part of the second respondent herein in not taking action in accordance with the provisions of sub-Sections (3) and (5) of Section 3 of the Act which is a mandatory duty cast upon the second respondent/Registrar of Companies.
12. For the aforesaid reasons, the writ petition is disposed of, directing the second respondent/The Registrar of Companies herein to take appropriate action in accordance with the provisions of sub-section (5) of Section 3 of the Companies Act, 1956 within a period of two months from the date of receipt of a copy of this order. It is made clear that the case of the petitioner for a declaration as a defunct company will have to be considered from the date on which the same deserves to be struck off. It is also made clear that the Registrar of the Companies/second respondent herein shall also take into consideration the period prescribed in the Amended Companies Act, 2000. Pending such decision, the interim stay granted by this Court vide order dated 23.02.2005 in W.A.No.241/2005 shall continue. As a sequel, the miscellaneous petitions pending, if any, shall stand closed. There shall be no order as to costs.
A.V.SESHA SAI, J Date: 11-06-2014 grk THE HON’BLE SRI JUSTICE A.V.SESHA SAI WRIT PETITION No.23890 of 2004 Date : 11th June, 2014 grk