Striking Off Co's Name By ROC Post-Commencement Of Arbitration Not A Ground To Set Aside Award, Delhi H.C. Dismisses S. 34 Application
The Delhi High Court bench comprising of Justice Vibhu Bakhru and Justice Tara Vitasta Ganju dismissed a Section 34 application filed by Exotic Buildcon Pvt. Ltd. against M/s Medors Biotech Pvt. Ltd. The bench held that an arbitral award cannot be set aside merely because the respondent company's name was struck off from the Register of Companies post-commencement of arbitral proceedings....
The Delhi High Court bench comprising of Justice Vibhu Bakhru and Justice Tara Vitasta Ganju dismissed a Section 34 application filed by Exotic Buildcon Pvt. Ltd. against M/s Medors Biotech Pvt. Ltd. The bench held that an arbitral award cannot be set aside merely because the respondent company's name was struck off from the Register of Companies post-commencement of arbitral proceedings. It upheld the principle that the cancellation of a company's incorporation doesn't affect the realization of amounts due to the company or the discharge of its obligations.
Brief Facts:
Exotic Buildcon Pvt Ltd. (“Appellant”) filed an application under Section 34 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) in a Commercial Court challenging an arbitral award in favour of M/S Medors Biotech Pvt Ltd. (“Respondent”). The Appellant challenged the arbitral award primarily on two aspects. Firstly, it argued that the Respondent's name has been struck off from the Register of Companies in 2017 under Section 248(5) of the Companies Act, 2013 (“Companies Act”) when the arbitral proceedings were ongoing, and secondly, it argued that there was a calculation error in the awarded amount.
The Commercial Court dismissed the Appellant's contention regarding the striking off of the Respondent's name from the Register of Companies. The Commercial Court referred to Section 250 of the Companies Act which specifies that the cancellation of a company's incorporation doesn't affect the realization of amounts due to the company or the discharge of its obligations. Consequently, the Commercial Court held that the proceedings for realizing the amounts due to the Respondent would remain unaffected.
Aggrieved by the decision of the Commercial Court, the Appellant filed an appeal before the Delhi High Court (“High Court”). The Appellant contended that it was the Respondent's responsibility to undertake steps for the restoration of its name on the Register of Companies before proceeding with the arbitral proceedings.
Decision of the High Court:
While acknowledging the necessity for a struck-off company to take steps for restoration of its name on the Register of Companies to pursue its claims, the High Court held that setting aside the arbitral award on this ground wasn't justified. The High Court noted that the parties were referred to arbitration before the striking off of the Respondent's name, with the Statement of Claims filed even earlier in September 2015.
Moreover, the High Court observed that in 2015, a substantial number of companies were struck off for non-compliance with the Companies Act. The High Court referred to its decision in Value Advisory Services v. ZTE Corporation [AIRONLINE 2018 Del 3345], wherein it rejected objections to the enforcement of an arbitral award based on a company's name being struck off the Register of Companies post-commencement of arbitral proceedings.
Considering these factors, the High Court concluded that interference with the arbitral award based on the Respondent's name being struck off wasn't warranted at this stage. Consequently, it dismissed the appeal.
Case Title: M/s Exotic Buildcon Pvt. Ltd. vs M/s Medors Biotech Pvt. Ltd.
Citation: 2024 LiveLaw (Del) 143
Case Number: FAO (COMM) 40/2023 and CM Nos.7329/2023, 7330/2023 and 7331/2023
Advocate for the Appellant: Mr Nityanand Singh and Ms Aachal
Advocate for the Respondent: None.