ARTICLE
23 June 2025

Assets Of Struck-Off Companies: A Legal Grey Area

SO
S&A Law Offices

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Recent years have witnessed a notable rise in the number of companies struck off the Register by the Registrar of Companies (hereinafter referred to as "the ROC")...
India Corporate/Commercial Law

INTRODUCTION:

Recent years have witnessed a notable rise in the number of companies struck off the Register by the Registrar of Companies (hereinafter referred to as "the ROC") in India. This trend, largely fuelled by the government's commendable crackdown on non-compliant and shell companies to enhance corporate governance, raises a critical legal question: What would happen to the properties and assets of such defunct companies? The lack of explicit legislative or judicial clarity on this issue has created a significant grey area with serious consequences for stakeholders.

STATUTORY FRAMEWORK:

The legal framework for striking off companies is established under Sections 248 to 252 of the Companies Act, 2013 (hereinafter referred to as "the Act"). The Ministry of Corporate Affairs notified the applicability of these sections on December 26, 2016, via S.O. 4167(E). Subsequently, the procedural aspects of this strike-off process were laid out in the "Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016" (G.S.R. 1174(E)).

Section 248 of the Act empowers the ROC to strike a company's name from the Register of Companies under specific circumstances. These include failure to commence business within one year of its incorporation, not carrying out any business or operations for two consecutive financial years without obtaining dormant status under Section 455 of the Act, the subscribers to the memorandum have not paid subscription amount and have not filed a declaration under the Act, or the company is not carrying on business or operations, as revealed after physical verification.

Thus, upon the occurrence of any of the conditions detailed above, in terms of Section 248(5) of the Act, the ROC is authorized to strike the company's name from the Register, and the company shall stand dissolved.

Therefore, if any of the above-mentioned grounds are fulfilled then the ROC can strike off the name of the company as if the company never existed. Nevertheless, Section 248(6) of the Act imposes a crucial prerequisite: before issuing the strike-off order, the ROC must be satisfied that adequate provisions exist for realizing all amounts owed to the company and for the payment or discharge of its liabilities within a reasonable timeframe. Moreover, the proviso to Section 248(6) explicitly states that the company's assets remain available for settling these liabilities even after the company's name has been removed.

LACK OF LEGAL CLARITY ON ASSET DISTRIBUTION:

Although the Act established an administrative mechanism for striking off companies through Sections 248 to 252 nine years ago, a legal framework for managing the undistributed assets of these struck-off entities is conspicuously absent.

Sections 352(2) and 352(7) of the Act address comparable scenarios involving unclaimed or undistributed assets, their application is contingent upon the appointment of a liquidator in a winding-up process. Consequently, these substantive provisions do not extend to companies dissolved under Section 248, which does not involve liquidator appointment.

DOCTRINE OF BONA-VACANTIA:

In absence of an express legal heir or successor, the property of a dissolved company may be deemed ownerless. In such cases, reliance is placed on the common law doctrine of Bona-Vacantia which means 'abandoned property' or the Escheat over which no one has any claim. This principle comes into play when property lacks a rightful owner, allowing the State to assume control over such unclaimed assets. Article 296 of the Constitution of India, 1950 clearly provides that "Subject as hereinafter provided any property in the territory of India which, if this Constitution had not come into operation, would have accrued to His Majesty or, as the case may be, to the Ruler of an Indian State by escheat or lapse, or as bona vacantia for want of a rightful owner, shall, if it is property situate in a State, vest in such State, and shall, in any other case, vest in the Union".

JUDICIAL PRONOUNCEMENTS:

The Supreme Court inPierce Leslie & Co. Ltd. vs. Violet Ouchterlony Wapshare and Ors. (AIR 1969 SC 843) provided authoritative clarity on the treatment of a dissolved company's assets. Drawing upon the precedent set by the Calcutta High Court in Re: U.N. Mandal's Estate Private Estate Private Ltd. vs Unknown (AIR 1959 CAL 493), the Hon'ble Court affirmed that the assets of a dissolved company do not remain ownerless. Instead, they vest in the State by operation of the doctrine of bona vacantia, as enshrined in Article 296 of the Constitution of India, 1950. The Hon'ble Court further clarified that neither the shareholder nor the creditors of the dissolved entity can be regarded as its heirs or successors for the purpose of claiming its assets. Thus, once a company stands dissolved, its residual assets if any, are deemed to have passed to the State, and no private claim may be sustained thereto.

RESTORATION PETITION: THE ONLY REMEDY

In cases where a company has been struck off by the Registrar of Companies, the primary recourse is to file a restoration petition under Section 252 of the Act before the National Company Law Tribunal. Essentially, this provision allows aggrieved parties to challenge the striking-off order passed under Section 248 of the Act and seek restoration of the company's name in the Register of companies. As highlighted in In Re: U.N. Mandal's Estate Private Ltd., the court holds the discretion to restore the company if it is satisfied that the company was carrying on business or was in operation at the time of being struck off, or if it is otherwise just to do so. The restoration petition can be filed by the company itself, its members, creditors, or even the ROC if it believes the strike-off was made inadvertently or based on incorrect information.

CONCLUSION:

The legal status of assets held by companies that have been struck off under the Companies Act, 2013 remains a contentious and unresolved issue. In the absence of any clear statutory direction, stakeholders including creditors, legal heirs, or governmental authorities often face procedural and substantive challenges in asserting or protecting their interests in such properties. As the Calcutta High Court noted in In re U.N. Mandal's Estate, there is a need for legislation to evolve an administrative machinery for the protection and disposal of the assets of a Company, dissolved under Section 560 of the Companies Act 1956.

Therefore, it is crucial to enact comprehensive legislation that establishes clear procedures for managing assets post-strike-off and streamlines the process for restoring companies with legitimate claims. Such legislation would significantly reduce litigation and secure the rights of all parties involved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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