Mere Preparation Of Balance Sheets Does Not Prove Business Activity: NCLT Mumbai Upholds Radiant Inn Strike-Off

The National Company Law Tribunal (NCLT) at Mumbai has held that the mere preparation of balance sheets and audited financial statements does not establish that a company was carrying on business or was in operation. Holding so, it upheld the Registrar of Companies' action in striking off the name of Radiant Inn Pvt Ltd from the register of companies.

A bench of Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati, in an order dated January 6, observed,

“Therefore, mere preparation of the balance sheets and the Audited Financial Statements neither prove that the Company was carrying on business or was in operation unless there is some revenue/expenses of operation are reflected in such financial statements. The preparation of the Balance Sheets / Audited Financial Statements in the case of the Applicant company on the contrary is an indication of the fact that the Company had no intention of carrying on business activities.”

The tribunal made the observation while dismissing an appeal filed by Deepak Ashutosh Bhardwaj and Suhani Deepak Bhardwaj, shareholders and directors of Radiant Inn Pvt Ltd, seeking restoration of the company's name after it was struck off by the Registrar of Companies, Mumbai.

Radiant Inn Pvt Ltd was incorporated on February 28, 2008. The registrar initiated action to strike off the company's name after it failed to file its statutory financial statements and annual returns, including for the immediately preceding financial years.

A notice was issued on July 19, 2018, proposing removal of the company's name on the ground that it was not carrying on any business or operations. Thereafter, a notice dated September 12, 2018, was issued, striking off the company's name from the register.

Challenging the strike-off, the appellants contended that the company was operational. In support, they relied on audited balance sheets, statements of profit and loss, income tax returns, and a lease agreement executed with the Maharashtra Industrial Development Corporation on April 21, 2008.

The tribunal examined the financial statements placed on record for the past several financial years. It found that although balance sheets and audited accounts had been prepared, there was no revenue from business operation.

The tribunal held that compliance with procedural requirements, such as preparation of accounts, audits, or filing of income tax returns, cannot by itself show that a company was carrying on business or was in operation.

It also considered the lease agreement relied upon by the appellants and noted that it was conditional in nature.

Besides that, there were no documents to demonstrate that the company, being a construction company, has undertaken any such activity in the recent past.

With this, the tribunal held that the appellants had failed to establish that the company was carrying on business or was in operation at the time its name was struck off, or that restoration was otherwise justified.

Finding no error in the action taken by the Registrar of Companies, the tribunal dismissed the appeal seeking restoration of the company's name.