HC Rejects Writ Plea as RoC Rightly Rejected Conversion Due to Negative Net Worth & Non-Compliance With Amended Rules

Case Details: Reebok India Co. v. Union of India [2024] 163 taxmann.com 239 (HC - Delhi)

Judiciary and Counsel Details

• Subramonium Prasad, J.
• Raj Shekhar Rao, Sr. Adv. Shantanu Tyagi, Aayush Kevlani, Ms Purnima Mathru & Yamini Mookherjee, Advs. for the Petitioner.
• Ravi Prakash, Varun Aggarwal, Farman Ali, Ms Astu Khandelwal, Aman Rewaria, Yasharth Shukla, Ms Usha Jamnal & Abhishek Khanna, Advs. for the Respondent.

Facts of the Case

In the instant case, the petitioner company filed an application for conversion into a limited liability company u/s 18 of the Companies Act, 2013. The Companies (Incorporation) Third Amendment Rules, 2016, were brought out, wherein the rules were made more stringent as the RoC had additional criteria to satisfy himself regarding the company’s net worth and whether any investigation/inspection was pending against it.

The petitioner’s application was rejected on the ground that various prosecutions were filed by the SFIO against the petitioner for offences under the Companies Act and IPC. The e-Form was not in compliance with Rule 37 of the 2016 Rules. The petitioner suffered substantial financial losses, the net worth of the company was negative, the petitioner failed to provide a NOC or undertaking from all shareholders to support the conversion application, and the petitioner did not issue a public advertisement inviting objections from various creditors or stakeholders on the issue of conversion.

Subsequently, the petitioner filed an instant appeal against the said rejection and contended that if the ingredients of registration of companies were complied with on the day of application, the registrar ought to have issued a certificate of registration in the same manner as it was under the earlier regime as per section 18(2) of the Act.

It was noted that since the amended rules were only curative in nature and intended to protect the interests of creditors, the same would apply to applications that were pending with the RoC, including the petitioner’s application.

High Court Held

The High Court held that since the reasons given by the RoC for rejecting the application could not be said to be perverse or unjustified, and keeping in mind the interests of shareholders and creditors, the petitioner had no vested right to be granted a certification of conversion to a limited liability company. Thus, the instant writ petition was to be dismissed.