Company Revival Mechanisms through the National Company Law Tribunal

This article discussed how companies could be revived through applications to the NCLT. Revival scenarios occur when a company’s name gets struck off from the Registrar of Companies or when a company is declared sick. It’s known that the Companies Act, 1956, was replaced by the Companies Act, 2013, both empowering the Registrar of Companies to strike off names of companies and providing provisions for their revival. These provisions evolved to adapt to the contemporary business landscape.

When could a company’s name be struck off?

Under Section 248 of the Companies Act, 2013, a company’s name could be struck off by the Registrar of Companies in several cases, including failure to commence business within a year of incorporation, non-operation for two consecutive financial years without obtaining dormant status, or non-operation as verified through registered office inspections. Additionally, failure of subscribers to pay subscription within 180 days of incorporation without filing a declaration could lead to striking off. A company could also apply for striking off under certain conditions, provided it settled all liabilities and obtained consent from shareholders.

Effect of striking off a Company:

When a company’s name is struck off, it ceases to operate as a company, and its certificate of incorporation is deemed canceled, though its liabilities remain unaffected. The government introduced the Companies Fresh Start Scheme, 2020, to prevent such striking off by allowing companies to opt for dormant status.

What if the company is declared sick?

Section 253 of the Companies Act, 2013, outlines procedures if a company fails to repay at least 50% of its secured creditors’ outstanding debt within 30 days of a demand note. Creditors can apply to the NCLT for declaring the company as sick. The tribunal assesses the company’s financial condition and may declare it sick, with the order initially applicable for 120 days.

Who can apply for revival through NCLT?

In cases of striking off, representatives of the company, the Registrar, members, creditors, or workmen could apply for revival within specific periods. In cases of declaration as a sick company, secured creditors or the company itself could apply for revival within 60 days.

Points considered for revival:

While the law doesn’t specify criteria, tribunals typically consider factors like the company’s ongoing business, compliance with other laws, license renewals, and operational bank accounts.

Procedure at NCLT:

The procedure involves filing a petition with the NCLT, providing necessary documents, attending hearings, and complying with tribunal decisions.

Conclusion:

Reviving companies through the NCLT offers a second chance to companies and stakeholders. While procedural hurdles exist, the Companies Act, 2013, provides avenues for revival, ensuring stakeholders’ interests are addressed.