Registered Valuers, and Removal of a Company's Name from the Register

Note who appoints. The audit committee first, and the Board only where there is none. That is deliberate: the committee has an independent majority.

Section 247(2): four duties. The valuer shall:

• (a) make an impartial, true and fair valuation of the assets;
• (b) exercise due diligence in performing his functions;
• (c) make the valuation in accordance with such rules as may be prescribed; and
• (d) not undertake the valuation of any asset in which he has a direct or indirect interest, or becomes so interested at any time during three years prior to his appointment or three years after the valuation.

Clause (d) is the examinable one, and both halves of it should be given: three years before, three years after.

Section 247(3): the consequence. A valuer contravening the section or the rules is liable to a penalty of fifty thousand rupees. Proviso: if he contravened them with the intention to defraud the company or its members, he is punishable with imprisonment up to one year and fine of not less than one lakh rupees extending to five lakh rupees.

Section 247(4): on conviction. He is liable to (i) refund the remuneration received by him to the company, and (ii) pay damages to the company or to any other person for loss arising out of incorrect or misleading statements of particulars made in his report.

Where the valuer appears elsewhere in this book. The registered valuer's report on the value of assets in a non-cash transaction with a director (section 192(2)); the valuation of shares and all assets in a corporate debt restructuring (section 230(2)(c)(v)); the expert's valuation report in a merger (section 232(2)(d)); the price at which minority shares are bought (section 236(2)); the valuation of assets in the liquidator's first report (proviso to section 281(1)(a)); and the declaration of solvency in a voluntary liquidation under the Insolvency and Bankruptcy Code, 2016.

Removing a name: section 248(1)

Where the Registrar has reasonable cause to believe that:

• (a) a company has failed to commence its business within one year of its incorporation;
• (c) a company is not carrying on any business or operation for two immediately preceding financial years and has not applied for the status of a dormant company under section 455;
• (d) the subscribers to the memorandum have not paid the subscription they undertook to pay at incorporation and the declaration under section 10A(1) has not been filed within one hundred and eighty days of incorporation; or
• (e) the company is not carrying on any business or operations, as revealed after the physical verification under section 12(9),

he shall send a notice to the company and all its directors of his intention to remove the name, requesting representations with relevant documents within thirty days.

Clause (b) was omitted in 2015, which is why the lettering jumps; and clauses (d) and (e) are later additions aimed at shell companies that never received their capital or that cannot be found at their registered office.

The company's own application: section 248(2) and (3)

A company may, after extinguishing all its liabilities, by special resolution or the consent of seventy-five per cent of members in terms of paid-up share capital, apply to the Registrar for removal of its name on any of the grounds in sub-section (1); and the Registrar shall cause a public notice to be issued.

Proviso: where the company is regulated under a special Act, the approval of the regulatory body under that Act must be obtained and enclosed.

Section 248(3): nothing in sub-section (2) applies to a company registered under section 8, that is a company formed for charitable objects.

Publication and striking off: section 248(4) to (8)

Section 248(4). A notice under sub-section (1) or (2) shall be published in the prescribed manner and in the Official Gazette for public information.

Section 248(5). At the expiry of the time in the notice, the Registrar may, unless cause to the contrary is shown, strike the name off the register, and publish notice of it in the Official Gazette; and on that publication the company stands dissolved.

Section 248(6): the Registrar's duty first. Before passing that order he shall satisfy himself that sufficient provision has been made for the realisation of all amounts due to the company and for the payment or discharge of its liabilities and obligations within a reasonable time, and may obtain undertakings from the managing director, directors or persons in charge of the management.

Proviso: the assets remain available. Notwithstanding those undertakings, the assets of the company shall be available for the payment or discharge of all its liabilities and obligations even after the date of the order.

Section 248(7): liability survives. The liability of every director, manager or other officer exercising any power of management, and of every member, of a company dissolved under sub-section (5) shall continue and may be enforced as if the company had not been dissolved.

Section 248(8). Nothing in the section affects the Tribunal's power to wind up a company whose name has been struck off.

Sub-sections (6), (7) and (8) together are the answer to the obvious objection, that striking off is a cheap way to escape debts. It is not: the assets remain available, personal liability survives, and the Tribunal may still wind the company up.

When the company may not apply: section 249

An application under section 248(2) shall not be made if, at any time in the previous three months, the company:

• (a) has changed its name or shifted its registered office from one State to another;
• (b) has made a disposal for value of property or rights held by it immediately before it ceased to trade, for the purpose of disposal for gain in the normal course of business;
• (c) has engaged in any activity except one necessary or expedient for making the application, deciding whether to make it, concluding the company's affairs, or complying with a statutory requirement;
• (d) has applied to the Tribunal for the sanctioning of a compromise or arrangement and the matter is not finally concluded; or
• (e) is being wound up under Chapter XX of this Act or under the Insolvency and Bankruptcy Code, 2016.

Section 249(2) and (3). An application in violation is punishable with fine up to one lakh rupees; and the application shall be withdrawn by the company or rejected by the Registrar as soon as those conditions are brought to his notice.

The theme of the section is that the route is for a company that has genuinely stopped, not for one that is still trading, still restructuring, or already in a formal process.

The effect of dissolution: section 250

Where a company stands dissolved under section 248, it shall from the date mentioned in the notice under sub-section (5) cease to operate as a company, and its Certificate of Incorporation shall be deemed to have been cancelled from that date, except for the purpose of realising the amount due to the company and for the payment or discharge of its liabilities or obligations.

So the certificate survives for exactly two purposes, collecting what is owed to the company and paying what it owes.

A fraudulent application: section 251

Where an application under section 248(2) has been made with the object of evading the company's liabilities, or with the intention to deceive the creditors or to defraud any other persons, the persons in charge of the management shall, notwithstanding that the company has been notified as dissolved:

• (a) be jointly and severally liable to any person who incurred loss or damage as a result of the company being notified as dissolved; and
• (b) be punishable for fraud in the manner provided in section 447.

Section 251(2). The Registrar may also recommend prosecution of the persons responsible for filing the application.

Restoration: section 252

Section 252(1): the appeal. Any person aggrieved by an order of the Registrar notifying a company as dissolved may appeal to the Tribunal within three years of the order; and if the Tribunal is of opinion that the removal was not justified in view of the absence of any of the grounds on which the order was passed, it may order restoration of the name.

First proviso: before any order the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all persons concerned.

Second proviso: the Registrar's own application. If the Registrar is satisfied that the name was struck off inadvertently or on the basis of incorrect information furnished by the company or its directors, he may within three years of the order apply to the Tribunal for restoration.

Section 252(2). A copy of the Tribunal's order shall be filed with the Registrar within thirty days, and on receipt the Registrar shall restore the name and issue a fresh certificate of incorporation.

Section 252(3): the twenty year route. Where a company, or any member, creditor or workman feels aggrieved by the striking off, the Tribunal may, on an application made before the expiry of twenty years from the publication of the notice under section 248(5) in the Official Gazette, order restoration if satisfied that the company was, at the time of the striking off, carrying on business or in operation, or that it is otherwise just that the name be restored; and it may give such directions and make such provisions as are just for placing the company and all other persons, as nearly as may be, in the same position as if the name had not been struck off.

Three points distinguish sub-section (3) from sub-section (1). The time is twenty years, not three; the applicants are named, and they include a workman; and the ground is wider, being either that the company was in fact operating or that restoration is otherwise just.

A worked example

Bhiwandi Weaving Private Limited was incorporated four years ago. It traded for a year, stopped, and has filed nothing since. Its subscribers did pay their subscription.

The Registrar's route. It has not carried on any business or operation for the two immediately preceding financial years and has not applied for dormant status under section 455, so section 248(1)(c) applies. He sends notice to the company and all its directors of his intention to remove the name, asking for representations within thirty days, and publishes it in the Official Gazette.

No cause is shown. At the expiry of the period he strikes the name off and publishes notice in the Official Gazette, and on that publication the company stands dissolved: section 248(5). Before doing so he must have satisfied himself that sufficient provision exists for realising what is owed to the company and for discharging its liabilities, taking undertakings from those in charge if necessary.

A creditor appears. The company owed a yarn supplier four lakh rupees. Three things answer him. The assets remain available for discharge of the liabilities even after the order: proviso to section 248(6). The liability of every director, manager or officer exercising management, and of every member, continues and may be enforced as if the company had not been dissolved: section 248(7). And the Certificate of Incorporation survives for the purpose of realising amounts due to the company and of paying its liabilities: section 250.

And he may go further. He is a creditor, so under section 252(3) he may apply to the Tribunal, at any time within twenty years of the Gazette publication, for restoration, if the company was in fact carrying on business at the time or if it is otherwise just; and the Tribunal may make such provisions as will place him as nearly as may be in the position he would have been in. Alternatively, being a person aggrieved, he may appeal under section 252(1) within three years.

A voluntary application. Suppose instead the members wanted the name removed. The company must first have extinguished all its liabilities, and must pass a special resolution or obtain the consent of seventy-five per cent of members in terms of paid-up share capital, and the Registrar issues a public notice: section 248(2).

But it cannot apply if, in the previous three months, it has changed its name or shifted its registered office to another State, disposed of property for value in the normal course, engaged in any activity beyond winding its own affairs up, applied to the Tribunal for a compromise or arrangement not finally concluded, or is being wound up under Chapter XX or under the Insolvency and Bankruptcy Code, 2016: section 249(1). An application in breach costs up to one lakh rupees and must be withdrawn or rejected.

A dishonest application. If the directors applied to evade the company's liabilities and deceive the yarn supplier, then notwithstanding the dissolution they are jointly and severally liable to anyone who suffered loss and are punishable for fraud under section 447, and the Registrar may recommend their prosecution: section 251.

And the Registrar's own mistake. If he struck the name off inadvertently or on incorrect information furnished by the company or its directors, he may himself apply to the Tribunal within three years for restoration: second proviso to section 252(1). On restoration a fresh certificate of incorporation issues, the Tribunal's order having been filed with the Registrar within thirty days.

A valuation on the way out. Before all this the company had transferred a loom to a director in exchange for shares in his firm. That was a non-cash transaction under section 192, and the notice of the members' resolution had to carry the value of the assets calculated by a registered valuer. Had the valuer held an interest in the loom at any time in the three years before his appointment, or acquired one within three years after the valuation, he would have contravened section 247(2)(d) and been liable to a penalty of fifty thousand rupees, or, had he acted with intent to defraud, to imprisonment up to one year and fine of one to five lakh rupees, with a duty on conviction to refund his remuneration and pay damages.

Distinctions that carry marks

What this does NOT mean

It does not mean the Board appoints the valuer. The audit committee does, and the Board only in its absence.

It does not mean the valuer's disqualification is about the past alone. It covers an interest acquired at any time during three years after the valuation.

It does not mean striking off extinguishes liability. The assets remain available, the liability of directors, officers and members continues as if the company had not been dissolved, and the Tribunal may still wind the company up.

It does not mean a company may apply whenever it likes. Section 249 bars an application where, in the previous three months, it has done any of five things, and a section 8 company may not apply at all.

It does not mean the certificate of incorporation is wholly cancelled. It survives for realising amounts due to the company and discharging its liabilities and obligations.

It does not mean restoration is limited to three years. A company, member, creditor or workman has twenty years from the Gazette publication under section 252(3).

Quick revision

• 247: a valuation of property, stocks, shares, debentures, securities, goodwill, other assets, net worth or liabilities required under the Act shall be made by a registered valuer who is a member of a recognised organisation, appointed by the audit committee or, in its absence, the Board; his duties are an impartial, true and fair valuation, due diligence, compliance with the rules, and no direct or indirect interest in the asset three years before appointment or three years after the valuation; contravention is a penalty of fifty thousand rupees, and with intent to defraud, imprisonment up to one year and fine of one to five lakh rupees; on conviction he must refund his remuneration and pay damages for incorrect or misleading particulars.
• 248(1): the Registrar may act where a company has failed to commence business within one year, has carried on no business or operation for two immediately preceding financial years without applying for dormant status, has unpaid subscription with no section 10A(1) declaration within one hundred and eighty days, or is found not to be carrying on business on physical verification under section 12(9); he gives thirty days' notice to the company and all directors.
• 248(2) to (8): a company may apply after extinguishing all liabilities, by special resolution or the consent of seventy-five per cent of members in paid-up capital, with a regulator's approval where it is under a special Act, but not a section 8 company; notices are published in the Official Gazette; the Registrar strikes off unless cause is shown and the company stands dissolved on the Gazette publication; he must first be satisfied that provision exists for realising dues and discharging liabilities, taking undertakings; the assets remain available and the liability of officers and members continues; and the Tribunal's winding up power is unaffected.
• 249: no application where, in the previous three months, the company changed its name or shifted its registered office between States, disposed of property for value in the normal course, engaged in activity beyond concluding its affairs, applied for a compromise or arrangement not finally concluded, or is being wound up under Chapter XX or the Insolvency and Bankruptcy Code, 2016; breach costs up to one lakh rupees, and the application must be withdrawn or rejected.
• 250 and 251: on dissolution the company ceases to operate and the certificate is deemed cancelled, save for realising dues and discharging liabilities; and an application made to evade liabilities, deceive creditors or defraud makes those in charge jointly and severally liable for loss and punishable for fraud under section 447, with the Registrar able to recommend prosecution.
• 252: any person aggrieved may appeal within three years, and the Tribunal may restore the name if the removal was not justified, after hearing the Registrar, the company and all persons concerned; the Registrar may himself apply within three years where the striking off was inadvertent or on incorrect information; the order is filed within thirty days and a fresh certificate of incorporation issues; and the company, a member, creditor or workman may apply within twenty years of the Gazette publication where the company was carrying on business or in operation or restoration is otherwise just, the Tribunal placing everyone as nearly as may be in the same position as if the name had not been struck off.

Test yourself

1. Who may make a valuation required under the Act, and who appoints him? A person having the prescribed qualifications and experience, registered as a valuer and being a member of a recognised organisation, appointed by the audit committee or, in its absence, by the Board of Directors: section 247(1).

2. State the valuer's duties. To make an impartial, true and fair valuation; to exercise due diligence; to value in accordance with the prescribed rules; and not to undertake the valuation of any asset in which he has a direct or indirect interest, or becomes so interested at any time during three years prior to his appointment or three years after the valuation: section 247(2).

3. On what grounds may the Registrar strike a company's name off? Failure to commence business within one year of incorporation; carrying on no business or operation for two immediately preceding financial years without applying for dormant company status under section 455; non-payment of subscription by the subscribers with no declaration filed under section 10A(1) within one hundred and eighty days; or that the company is not carrying on business or operations as revealed on physical verification under section 12(9): section 248(1).

4. Does dissolution under section 248 end the liability of the directors? No. The liability of every director, manager or other officer exercising any power of management, and of every member, continues and may be enforced as if the company had not been dissolved: section 248(7). The assets remain available for the discharge of liabilities even after the order, and the Tribunal may still wind the company up.

5. When may a company not apply for removal of its name? Where, at any time in the previous three months, it has changed its name or shifted its registered office from one State to another, disposed of property or rights for value in the normal course of business, engaged in any activity other than one necessary for the application or for concluding its affairs or complying with a statutory requirement, applied to the Tribunal for a compromise or arrangement not finally concluded, or is being wound up under Chapter XX of the Act or under the Insolvency and Bankruptcy Code, 2016: section 249(1).

6. Within what time may a struck-off company be restored? Three years from the Registrar's order, on the appeal of any person aggrieved, or on the Registrar's own application where the striking off was inadvertent or on incorrect information; and twenty years from the publication of the notice in the Official Gazette, on the application of the company or any member, creditor or workman, where the company was carrying on business or in operation at the time or it is otherwise just: section 252.