M/S ARASOR CORPORATION vs. M/S XALTED INFORMATION SYSTEMS PVT LTD

1 ® IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 28TH DAY OF JULY 2015 BEFORE:

THE HON’BLE MR. JUSTICE ANAND BYRAREDDY

COMPANY PETITION No.66 OF 2010

BETWEEN:

M/s. Arasor Corporation, A Company incorporated and Registered under the Laws of United States of America and Having its registered office at 411, Clyde Avenue, Mountain View, CA-94043-2009, United States of America. Represented by its’ Authorised Representative Sri. Ashwani Sharma. …PETITIONER (By Shri/Smt. E. Massilamani, Shri B.K. Nandakumar and Shri Suraj Govindaraj, Advocates)

AND:

M/s. Xalted Information Systems Private Limited, A Company incorporated under The Companies Act, 1956, having its Registered office at: C/o. Silver Software Private Limited 1st Floor, Plot No-23/24, EPIP I Phase, Whitefiled,

2 Bangalore, Karnataka 560 066. India. Represented by its Managing Director.

…RESPONDENT

(By Shri Dhyan Chinnappa, Senior Advocate for Shri Arunkumar, Advocate for M/s. Crest Law Partners)

***** This Company Petition filed under Section 433(e) and (f) read with Section 434 (1)(a) and (c) red with Section 439 of the Companies Act, 1956, praying to wind up the respondent company under the provisions of Section 433 and 434 of the Companies Act, 1956 and etc;

This Company Petition having been heard and reserved on 24.07.2015 and coming on for Pronouncement of Orders this day, the Court delivered the following:-

3 ORDER The petitioner is a company incorporated and registered under the laws of the United States of America and is said to have its registered office in California, United States of America. It was said to have been incorporated in the year 2001. 2. The petitioner is said to be engaged in the business of manufacture of integrated circuits, components and sub-systems - used in various applications including wired and wireless communications. The respondent is a company incorporated under the Companies Act,1956 (Hereinafter referred to as the ‘Act’, for brevity). It is said to have its registered office at Bangalore. It is stated that M/s Bharat Sanchar Nigam Limited, (Hereinafter referred to as the ‘BSNL’, for brevity), a Government of India undertaking , had placed a purchase order , dated 27.1.2006 for the supply of equipment described as FWTs and IFWTs , upon the Indian Telephone Industries (Hereinafter referred to as the ‘ITI’, for brevity ), also a Government of India undertaking. ITI, in turn,

4 is said to have placed a purchase order on the respondent for the same goods. The respondent is said to have sought to source the same from the petitioner and is said to have placed a purchase order on the petitioner, dated 28.4.2006. It is stated that ITI had paid 75% of the total value in advance, to the respondent. The petitioner claims to have supplied the goods to the respondent in terms of the purchase order during the period June 2006 to March 2007. The petitioner is said to have raised invoices on the respondent for the said supplies made. The aggregate amount of the invoices so raised was said to be in a total sum of US $ 180,476,670.40. The petitioner has acknowledged payments made by the respondent in a sum of US $ 9,738,733.29. It is stated that in the year 2007, an Asset Purchase Agreement was said to have been entered into between M/s Xalted Networks Inc. and M/s Xalted Information Systems Private Limited, i.e., the respondent, who were together described as the 'Sellers', M/s Arasor Cayman Acquisition Limited Company, was described as the 'Purchaser' and which was said to be a subsidiary of

5 the petitioner. Under the said agreement, it was indicated that the Sellers had entered into several contracts with third parties, which formed the assets transferred under the agreement. It was said to have been agreed that for the purpose of fulfilling the obligations under those contracts, the parties would enter into back to back purchase orders, under which the Purchaser would undertake the duties and responsibilities of the Sellers to obtain all rights, obligations and benefits of those contracts. And further that the contract which the respondent had with ITI, was part of those contracts. It is stated that under the said agreement, the following obligations were cast on the respondent , namely : a. That the “Sellers”, transferred all their rights in the purchase orders with ITI Limited to the aforementioned subsidiary of the petitioner. In consideration of which, US $ 2,311,642.00 (Two Million Three Hundred Eleven Thousand Six Hundred and Forty Two) shares in Arasor International Limited (i.e. the Parent

6 Company of the Petitioner) were transferred in the favour of the “Sellers” on 30.1.2007.

b. Further, a joint bank account was to be opened, wherein all the receivables under the Purchase Orders including those from ITI Limited were to be deposited. The “Sellers” had to provide a Special Power of Attorney authorising the “Purchaser” i.e., the aforementioned subsidiary of the petitioner, to unilaterally operate the bank account.

It is stated that the respondent had failed to comply with the above obligations. And further it is alleged that the respondent had failed to make further payments against the supplies made by the petitioner as aforesaid. The petitioner is said to have particularly addressed a letter dated 10.7.2008 seeking confirmation of the outstanding debt payable by the respondent. It is claimed that the respondent had duly acknowledged a liability of US$ 4,565,162.16 . Notwithstanding the same, the respondent had failed to make any further payments.

7 It is stated when repeated demands for payment were not met, the petitioner is said to have issued a notice dated 7.10.2009, invoking Section 433(e) and Section 434 of the Act. The same was said to have been served at the registered office of the respondent. The respondent is said to have denied the liability and is said to have raised irrelevant issues by way of a reply dated 1.12.2009. And hence the present petition.

8 Pursuant to this arrangement, the petitioner is said to have supplied only 27,000 units and had received full payment in a sum of Rs.4.30 crore. And that in so far as the supplies made by Abakus Communications of the major portion, a sum of Rs.40.92 crore is said to have been paid by the respondent . Hence, it was contended that there is no payment whatsoever due to the petitioner. That the claim is made on the basis of false and fraudulent documents. Insofar as the alleged acknowledgment of debt said to have been made as per letter dated 10.7.2008 is concerned, it is contended that in the first place, the said letter is not endorsed or signed by the respondent or any of its authorized representatives. The said letter has been signed by one Mr.Ajay Jalan, an independent consultant, who was engaged by the respondent to provide financial and accounting advice. The respondent has entered into a Consultation and Project Services Agreement with the said Mr.Ajay Jalan. The said consultant is paid consultancy fees and as per the provisions of Rule 31(1)(b) of the Income Tax Rules, tax is deducted at source vide Form No.16A. It is stated that had the said Mr.Ajay Jalan been

9 an employee of the respondent, he would have been issued Form No.16, and not Form No.16A. That as could be seen from the said agreement, Mr.Ajay Jalan was an independent consultant, who had been engaged as a consultant with a defined scope of work. The said consultant was neither authorized to sign on behalf of the respondent nor did his signature bind the respondent. Therefore, it is contended that the endorsement by the said consultant on the said letter dated 10.7.2008 was not an acknowledgement of debt by the respondent. Moreover, the consultant had endorsed the said letter dated 10.7.2008 without knowing the various disputes concerning the supply of goods by the petitioner and also without knowing the imposition of liquidated damages on the respondent. As such, the said letter dated 10.7.2008 could not by any means, be treated as an acknowledgement of debt by the respondent and was only an auditing response and not confirmation of debt.

10 It is emphasized that the respondents finances are in a sound state and that the petitioner had not alleged or demonstrated prima facie that the respondent was heading towards insolvency.

11 . That the respondent had come across some shocking news which goes to the root of the filing of the company petition itself, in that, the respondent itself had ceased to exist under the laws of its incorporation in the United States of America (USA). Consequently, the company petition itself could never have been initiated and hence the company petition requires to be rejected in limine. Under California, Delaware and U.S.Federal Law, at the time of its suspension by the States of California and Delaware, the respondent ceased to be a corporation and unable, inter alia, to operate as a corporation and lost its corporate powers including without limitation, the power to file a lawsuit, to defend a lawsuit or to appeal a lawsuit. The respondent is a company incorporated under the laws of State of Delaware, USA. The respondent was incorporated on November, 15, 2000 in the State of Delaware. The respondent’s corporation status has been “void” as of March 1, 2010. The respondent has also filed as a foreign corporation to do business in the State of California on April 9,2001 and the corporation status in

12 the State of California is “forfeited” as of date of the filing of the application before the Division Bench. It is contended that the respondent did not make any annual filing nor paid the franchise taxes in Delaware between October 14, 2005 and the date of its filing of the petition. It is contended that the appellant had obtained a certificate of Mr.Christopher L. Rasmussen, Attorney, licensed to practice in the State of California who confirms that as of the date of the certificate, the respondent had forfeited its right to initiate or continue any legal proceedings. A copy of the certificate is produced as Annexure –A. The appellant states that under Section 510 of the Delaware Code, the charter of a company which does not pay the State of Delaware the state franchise taxes or does not make the annual filing, void and all powers conferred by law including the power to sue under Section 122(2) are declared inoperative. Since the respondent has been declared to be “void” in the State of Delaware, the respondent does not have power to initiate or continue any proceedings in India. Similarly, under California Statutory (Section 23301 of the California

13 Revenue and Taxation) and case law, a corporation, which is declared forfeited, as is the case with the respondent, whose headquarters was in California and where it operated its business, loses its rights, powers and privileges to conduct its business in California, and cannot use its name, and cannot initiate, defend or appeal lawsuits. Additionally, U.S.federal law recognized that a void or forfeited corporation (as is the case with the respondent) cannot file, defend or appeal a lawsuit during the period of forfeiture or suspension. It is contended that the company petition itself is barred and could not have been initiated by the respondent. The company petition was filed on April 3, 2010 when the respondent had forfeited its right under the laws of Delaware and California as of March 1, 2010 itself . The respondent has contended in OSA 44/2010 that subsequent to the filing of the application in OSA No.44/2010, the respondent has taken steps to revive the corporation and that the corporation has been revived under the laws of Delaware. The

14 respondent contends that upon such revival, the respondent’s status stands revived from the day it was declared void and therefore the company petition was maintainable. Even if one were to assume this to be correct, in Indian law, the position that would require to be examined is from the point of view of the date on which the petition was filed. Indian law would govern proceedings in India and if a person did not exist on the date of filing of the petition such petition suffers from being void ab initio and hence not maintainable. It is contended that the conduct of the respondent in not disclosing these fundamental facts have to be taken into account. In that, the respondent had deliberately failed to place before this court the fact that it does not have the power under the laws of its incorporation to prosecute any proceedings. When the respondent has a status of “void”, the respondent does not have any right to continue the company petition and the very filing of the company petition is illegal and irregular. Such conduct in a winding up petition is completely unacceptable and on this ground, the petition merits rejection.

15 It is contended that in the initiation of any proceeding, the person who initiates the proceeding must have the right to do so. When the respondent did not have the right to initiate the company petition before the court, the petition deserved to be rejected at the threshold.

The petitioner - Company had applied for renewal of its charter, upon which the State of Delaware issued a certificate of revival. On the issuance of the said certificate of renewal, the Petitioner - Company was renewed and revived vide certificate of revival dated 2.8.2011.

That Mr. Jeffrey W. Bullock, Secretary of States, State of Delaware, USA has also certified that the Petitioner - Company is in good standing and has its legal corporate existence.

Further, upon revival, the Petitioner - Company gets revived from the date of its incorporation and all the acts done become valid, retrospectively.

Pursuant to Section 312 of the Delaware Corporation Code, any corporation whose certificate of incorporation has been forfeited or becomes void, may procure a restoration, renewal and revival of its certificate of incorporation, together with all rights, franchisees, privileges and immunities and subject to all of its duties, debts and liabilities which had been secured or imposed by its original certificate of incorporation and all amendments thereto by filing a certificate of revival. Upon filing of the certificate of revival, the corporation shall be renewed and revived with the same force and effect as if its certificate of incorporation had not been forfeited

17 or void. The effective portion of Section 312 of the Delaware Corporation Code is reproduced herein below:

“(e) Upon the filing of the certificate in accordance with § 103 of this title the corporation shall be renewed and revived with the same force and effect as if its certificate of incorporation had not been forfeited or void pursuant to this title, or had not expired by limitation. Such reinstatement shall validate all contracts, acts, matters and things made, done and performed within the scope of its certificate of incorporation by the corporation, its officers and agents during the time when its certificate of incorporation was forfeited or void pursuant to this title, or after its expiration by limitation, with the same force and effect and to all intents and purposes as if the certificate of incorporation had at all times remained in full force and effect….”

That once the corporation is renewed, the effect is that the corporation is never extinguished. The Corporation is revived as if the certificate was never suspended. Further, in an opinion given by one Mr. Patty Cheng, licenced to practice law in State of California, has stated that according to Section 23301 of California Revenue and Taxation Code, it only forfeits powers, rights and privileges in the State of California and not in courts in other jurisdictions.

That the Petitioner Company is incorporated in the State of Delaware and not in State of California. Further, the Petitioner Company does not carry any business in the State of California. Therefore, its existence or non-existence in the State of California is totally irrelevant.

Sufficient material is placed on record along with the application to substantiate the applicant’s stand that the Petitioner could not have initiated proceedings at the relevant point of time.

It is contended that in suppressing the fact that the very basis for instituting the proceedings, i.e, the status and the capability of initiating the present proceedings before this Court, the petitioner has not approached this court with clean hands. It is the cardinal law of the land that “No one is entitled to the aid of a court of equity when that aid has become necessary through his or her own fault”. It is therefore contended that on the principle of equity and natural justice also, the present petition deserves to be dismissed.

Even assuming, though not acceding to the fact that the status of the petitioner is revived retrospectively, the petitioner cannot be permitted to take advantage of its own mistake, willful suppression and inability to initiate proceedings. The petitioner by such act has completely undermined the authority and sanctity of this Court.

20 7. The learned counsel for the petitioner while refuting the preliminary objection as regards the maintainability of the petition on the ground that the certificate of incorporation of the petitioner had become void or forfeited, on account of non-payment of taxes, as on the date of presentation of the petition, would draw attention to certain provisions of the General Corporation Law, contained in the Delaware Code, applicable in the home State of the petitioner in the US, to contend that notwithstanding the admitted circumstance that the certificate of incorporation stood forfeited as on the date of presentation of the petition before this court, the subsequent revival of the same , even during the pendency of these proceedings would not affect the maintainability of the petition. In this regard, he places reliance on the following provisions of the Delaware Code : “278. Continuation of corporation after dissolution for purposes of suit and winding up affairs. All corporations, whether they expire by their own limitation or are otherwise dissolved, shall nevertheless be continued, for the term of 3 years from such expiration or dissolution or for such longer period as the Court of Chancery shall in its discretion directs, bodies corporate for the purpose of prosecuting and defending suits, whether civil,

21 criminal or administrative, by or against them, and of enabling them gradually to settle and close their business, to dispose of and convey their property, to discharge their liabilities and to distribute to their stockholders any remaining assets, but not for the purpose of continuing the business for which the corporation was organized. With respect to any action, suit or proceeding begun by or against the corporation either prior to or within 3 years after the date of its expiration or dissolution, the action shall not abate by reason of the dissolution of the corporation; the corporation shall, solely for the purpose of such action, suit or proceeding be continued as a body corporate beyond the 3 years period and until any judgments, orders or decrees therein shall be fully executed, without the necessity for any special direction to that effect by the Court of Chancery. Sections 279 through 282 of this title shall apply to any corporation that has expired by its own limitation, and when so applied, all references in those sections to a dissolved corporation or dissolution shall include a corporation that has expired by its own limitation and to such expiration, respectively.”

xxx

22 Ҥ312 Renewal, revival, extension and restoration of certificate of incorporation.

(a) As used in this section, the term “certificate of incorporation” includes the charter of a corporation organized under any special act or any law of this State.

(b) Any corporation may, at any time before the expiration of the time limited for its existence and any corporation whose certificate of incorporation has become forfeited or void pursuant to this title and any corporation whose certificate of incorporation has expired by reason of failure to renew it or whose certificate of incorporation has been renewed, but, through failure to comply strictly with the provisions of this chapter, the validity of whose renewal has been brought into question, may at any time procure an extension, restoration, renewal or revival of its certificate of incorporation, together with all the rights, franchises, privileges and immunities and subject to all of its duties, debts and liabilities which had been secured or imposed by its original certificate of incorporation and all amendments thereto, by complying with the requirements of this section.

(c) The extension, restoration, renewal or revival of the certificate of incorporation may be procured by executing, acknowledging and filing a certificate in accordance with §103 of this title.

(d) The certificate required by subsection (c) of this section shall state:

(1) The name of the corporation, which shall be the existing name of the corporation or the name it bore when its certificate of incorporation expired, except as provided in subsection (f) of this section, and the date of filing of its original certificate of the incorporation with the Secretary of State;

(2) The address (which shall be stated in accordance with § 131(c) of this title) of the corporation’s registered office in this State and the name of its registered agent at such address;

(3) Whether or not the renewal, restoration or revival is to be perpetual and if not perpetual the time for which the renewal, restoration or revival is to continue and, in case of renewal before the expiration of the time limited for its existence, the date when the renewal is to commence, which shall be prior to the date of the expiration of the old certificate of incorporation which it is desired to renew;

(4) That the corporation desiring to be renewed or revived and so renewing or reviving its certificate of incorporation was organized under the laws of this State;

(5) The date when the certificate of incorporation would expire, if such is the case, or such other facts as may show that the certificate of incorporation has become forfeited or void pursuant to this title, or that the validity of any renewal has been brought into question;

(6) That the certificate for renewal or revival is filed by authority of those who were directors or members of the governing body of the corporation at the time its certificate of incorporation expired or who were elected directors or members of the governing body of the corporation as provided in subsection (h) of this section.

(e) Upon the filing of the certificate in accordance with § 103 of this title the corporation shall be renewed and revived with the same force and effect as if its certificate of incorporation had not been forfeited or void pursuant to this title, or had not expired by limitation. Such reinstatement shall validate all contracts, acts, matters and things made, done and performed within the scope of its certificate of incorporation by the corporation, its officers and agents during the time when its certificate of incorporation was forfeited or void pursuant to this title, or after its expiration by limitation, with the same force and effect and to all intents and purposes as if the certificate of incorporation had at all times remained in full force and effect. All real and personal property, rights and credits,

25 which belonged to the corporation at the time its certificate of incorporation became forfeited or void pursuance to this title, or expired by limitation and which were not disposed of prior to the time of its revival or renewal shall be vested in the corporation, after its revival and renewal, as fully and amply as they were held by the corporation at and before the time its certificate of incorporation became forfeited or void pursuant to this title, or expired by limitation, and the corporation after its renewal and revival shall be as exclusively liable for all contracts, acts, matters and things made, done or performed in its name and on its behalf by its officers and agents prior to its reinstatement, as if its certificate of incorporation had at all times remained in full force and effect. (emphasis supplied)

(f) If, since the certificate of incorporation became forfeited or void pursuant to this title, or expired by limitation, any other corporation organized under the laws of this State shall have adopted the same name as the corporation sought to be renewed or revived or shall have adopted a name so nearly similar thereto as not to distinguish it from the corporation to be renewed or revived or any foreign corporation qualified in accordance with § 371 of this title shall have adopted the same name as the corporation sought to be renewed or revived or shall have adopted a name so nearly similar thereto as not to distinguish it from the corporation to be renewed or revived, then in such case

26 the corporation to be renewed or revived shall not be renewed under the same name which it bore when its certificate of incorporation became forfeited or void pursuant to this title, or expired but shall adopt or be renewed under some other name and in such case the certificate to be filed under the provisions of this section shall set forth the name borne by the corporation at the time its certificate of incorporation became forfeited or void pursuant to this title, or expired and the new name under which the corporation is to be renewed or revived.

(g) Any corporation that renews or revives its certificate of incorporation under this chapter shall pay to this State a sum equal to all franchise taxes, penalties and interest thereon due at the time its certificate of incorporation became forfeited or void pursuant to this title, or expired by limitation or otherwise; provided, however, that any corporation that renews or revives its certificate of incorporation under this chapter whose certificate of incorporation has been forfeited, void or expired for more than 5 years shall, in lieu of the payment of the franchise taxes and penalties otherwise required by this subsection, pay a sum equal to 3 times the amount of the annual franchise tax that would be due and payable by such corporation for the year in which the renewal or revival is effected, computed at the then current rate of taxation. No payment made pursuant to this subsection shall reduce the amount of franchise tax due under Chapter 5 of

27 this title for the year in which the renewal or revival is effected.

(h) If a sufficient number of the last acting officers of any corporation desiring to renew or revive its certificate of incorporation are not available by reason of death, unknown address or refusal or neglect to act, the directors of the corporation or those remaining on the board, even if only 1, may elect successors to such officers. In any case where there shall be no directors of the corporation available for the purposes aforesaid, the stockholders may elect a full board of directors, as provided by the bylaws of the corporation, and the board shall then elect such officers as are provided by law, by the certificate of incorporation or by the bylaws to carry on the business and affairs of the corporation. A special meeting of the stockholders for the purposes of electing directors may be called by any officer, director or stockholder upon notice given in accordance with § 222 of this title.

(i) After a renewal or revival of the certificate of incorporation of the corporation shall have been effected, the provisions of §211(c) of this title shall govern and the period of time the certificate of incorporation of the corporation was forfeited pursuant to this title, or after its expiration by limitation, shall be included within the calculation of the 30- day and 13-month periods to which § 211(c) of this title refers. A special meeting of stockholders held in accordance

28 with subsection (h) of this section shall be deemed an annual meeting of stockholders for purposes of § 211(c) of this title.

(j) Excepts as otherwise provided in § 313 of this title, whenever it shall be desired to renew or revive the certificate of incorporation of any nonstick corporation, the governing body shall perform all the acts necessary for the renewal or revival of the charter of the corporation which are performed by the board of directors in the case of a corporation having capital stock, and the members of any nonstick corporation who are entitled to vote for the election of members of its governing body and any other members entitled to vote for dissolution under the certificate of incorporation or the bylaws of such corporation, shall perform all the acts necessary for the renewal or revival of the certificate of incorporation of the corporation which are performed by the stockholders in the case of a corporation having capital stock. Except as otherwise provided in § 313 of this title, in all other respects, the procedure for the renewal or revival of the certificate of incorporation of nonstock corporation shall conform, as nearly as may be applicable, to the procedure prescribed in this section for the renewal or revival of the certificate of incorporation of a corporation having capital stock; provided, however, that subsection (i) of this section shall not apply to nonstock corporations.

29 8 Del. C. 1953, § 312; 56 Del. Laws, c.50; 59 Del. Laws, c. 106, § 16; 64 Del. Laws, c. 112, § 56; 66 Del. Laws, c. 352, §11; 68 Del. Laws, c. 163, § 2; 70 Del. Laws, c. 587, § 29, 30; 73 Del. Laws, c. 82, §35; 73 Del. Laws, c. 298, §12; 75 Del. Laws, c. 306, §§11-16; 77 Del. Laws, c. 253, § 64; 78 Del. Laws, c. 273, § 6; 79 Del. Laws, c. 72, §14.;

To further support the above contention, reliance is placed on the following authorities : 1. Frederic G, Grapf & Son Inc. v Sigmund Gorson, reported in 243A.2d 713 (Del.1968)(Quorum Wolcott, C.J. And Carey and Hermann, J.J.), wherein it is laid down thus :-

“It is true that 8 Del S 510 provides that, upon forfeiture of a charter for failure to pay franchise taxes, all of the corporation’s powers become inoperative, but this provision must be read in light of *715 8 Del. C. S 312 which provides for a method of reinstating corporate charters which have been forfeited. Sub-section (e) provides that upon reinstatement of a charter all contracts and other matters done and performed by the corporate offices during the time the charter was inoperative shall be validated, and be the exclusive liability of the corporation.”

30 2. Re Boxco Ltd. reported in [1970]2 WLR 959 (Quorum Pennyquick.,J),wherein it is laid down as follows:-

“The company, which was struck off the register for failure to file its annual returns, purported to create a legal charge certain property during the period when legally it was no longer in existence and its directors were in ignorance of that fact. The company petitioned the court for the restoration of its name to the register under section 353(6) of the Companies Act, 1948, and for an order that the legal charge had been duly created and the particulars duly registered under Section 98 of the Act.

Bearing in mind the evidence that the company is solvent, and no further legal charges had been created, and as an order to restore the company’s name to the register would prejudice no one, the order sought should be made, and the company put retrospectively in the same position as if the legal charge had been duly created and the particulars duly delivered for registration. “

“It is not disputed that section 560 of the Companies Act, 1956 is in pari materia with the corresponding provisions of the English Companies Act and the effect of an order of restoration is to place the company whose name was struck off by the Registrar in the same position as if the name of the company had never been struck off during the interregnum. If a court of competent jurisdiction directs

31 restoration of the name of the company to the register, it follows that the company shall be deemed to have continued throughout. It is so provided in the statutory provisions contained in the English Companies Act, 1985 as well as Companies Act, 1956. No reference to decide cases or case-law is, therefore, necessary on this aspect of the case.”

“in the case of East End Dwellings Company Limited vs. Finsbury Borough Council [1952 AC 109] Lord Asquith observed as follows:

“IF you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it …. The Statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.”

These observations were quoted with approval by this court in the case of Boucher Pierre Andre vs, Superintendent,

32 Central Jail, Tihar, New Delhi AIR 1975 SC 164, where Bhagwati, J speaking for the court has observed as follows:-

“It is now well settled law that where a legal fiction is created, full effect must be given to it and it should be carried to its logical conclusion.”

In the light of the above, the learned counsel for the petitioner would contend that the objection as regards the maintainability of the petition is untenable and ought to be rejected, on the face of it. And would on the other hand, seek that the petition be admitted and the so called dispute, as regards the admitted debt, be considered in due course.

33 status of the Corporation is voided and its certificate of incorporation is forfeited. The relevant Section, it is pointed out, is Section 510, which reads as follows: Ҥ510 Failure to pay tax or file a complete annual report for 1 year; charter void; extension of time. If any corporation, accepting the Constitution of this State and coming under Chapter 1 of this title, or any corporation which has heretofore filed or may hereafter file a certificate of incorporation under said chapter, neglects or refuses for 1 year to pay the State any franchise tax or taxes, which has or have been, or shall be assessed against it, or which it is required to pay under this chapter, or shall neglect or refuse to file a complete annual franchise tax report, the charter of the corporation shall be void, and all powers conferred by law upon the corporation are declared inoperative, unless the Secretary of State, for good cause shown, shall have given further time for payment of the tax or taxes or the completion of an annual franchise tax report, in which case a certificate thereof shall be filed in the office of the Secretary of State stating the reason therefor. On or before November 30 in each year, the Secretary of State shall notify each corporation which has neglected or refused to pay the franchise tax or taxes assessed against it or becoming due during the year or has refused or neglected to file a complete annual franchise tax report, that the charter of the

34 corporation shall become void unless such taxes are paid and such complete annual franchise tax report is filed on or before March 1 of the following year. (emphasis supplied) 21 Del.Laws, c.166, § 10; 22 Del. Laws, c.15, § 9; 27 Del. Laws, c. 21, § 2; Code 1915, § 111; 36 Del. Laws, c.6, §10; Code 1935, § 105; 44 Del. Laws, c. 3, §2; 8 Del. C. 1953, §510; 55 Del. Laws, c. 90, § 1; 57 Del. Laws, c. 712, §§ 3-5; 58 Del. Laws, c. 450, § 6; 71 Del. Laws, c. 339, § 104; 75 Del. Laws, c. 306, §23.;

Having regard to the unconditional language and tenor of the above provision, Shri Chinnappa would contend that there is no sustenance that could be drawn from Section 278, by the petitioner. It is further pointed out that even reference to Section 312 is out of context, as it falls under the Chapter dealing with a revival of the certificate of incorporation pursuant to a revocation of voluntary dissolution. Reliance is placed on a decision of the Supreme Court of Delaware in Transpolymer Industries Inc. v. Chapel Main Corp, 582 A 2d (Table) Del.,1990, a three judge bench has held thus :

35 “ ORDER

HORSEY, Justice.

*1 This 18th day of September, 1990, a notice having been issued to Wm.Jess Barrentine to show cause why the within appeal of Transpolymer Industries, Inc. should not be dismissed under Supreme Court Rule 29(b) for failure of the corporation to appear and be represented by an attorney who sir admitted to practice law in Delaware as well as for failure of the Notice of Appeal to comply with the requirements of Supreme Court Rule 6; and an answer to the notice having been filed by Wm.Jess Barrentine purporting to appear “per se” (sic), and on behalf of the corporation as its “President & Majority Shareholder”; and the matter having been duly considered, it appears to the Court that;

(1) A corporation, though a legally recognized entity, is regarded as an artificial or fictional entity, and not a natural person, Robert Charles Clark, Corporate Law, 1987 § 1.2(1986). While a natural person may represent himself or herself in court even though he or she may not be an attorney licensed to practice, a corporation, being an artificial entity, can only act through its agents and, before a court only through an agent duly licensed to practice law. Annotation, “propriety and effect of Corporation’s Appearance Pro Se, through Agent who is not Attorney,” 19 A.L.R.3d 1073 (1968). See James v. Daley & Lewis, D.Del., 406 F.Supp. 645 (1976); MacNeil v. Hearst Corp., D.Del. 160 F.Supp. 157 (1958); 9A Fletcher Cyc. On Corporations § 4463(1985); 19Am.Jur.2d Corporations §2172.

(2) According to the records of the Department of State, Division of Corporations, Transpolymer Industries, Inc., became “inactive” and was “voided” on

36 March 1, 1989 for failure to pay the required franchise taxes for the years 1987, 1988 and 1989. As a consequence, the charter or certification of incorporation of the corporation has, pursuant to 8 Del.C. § 510 become void and revoked and all powers heretofore conferred upon the corporation have become, “inoperative.” The corporation has thereby ceased to exist and has lost any standing to appeal and be heard, even if represented by counsel. (3) The legal authorities relied upon by the respondent are inapposite and irrelevant and demonstrate the underlying purpose of the rule prohibiting the appearance of a corporation by anyone other than a member of the Bar of this Court. NOW, THEREFORE, IT IS ORDERED that the within appeal be and the same is hereby DISMISSED by the Court acting sua sponte. (emphasis supplied)

Shri Chinnappa would further contend that in examining as to the validity of the institution of the proceedings by the petitioner at a point of time when the incorporation of the petitioner stood "voided", in the context of the legal principle as applicable in India, he would place reliance on the decision in Rameshwar v. Jot Ram, (1976) 1 SCC 194, where in the appellants before the apex court,

37 were said to be the descendants of a "large " land owner, whose lands had been purchased by his tenants on their being found eligible and by their deposit of the first instalment. The statutory consequence of such deposit was that title to the property vested in the tenants on that date. The death of the land owner occurred pending the appeal. The descendants of the land owner became entitled to shares and in the process of fragmentation became "small" land owners. Since the tenants of a small land owner had no right to purchase the land, the appellants - who were the descendants, pleaded that the tenants became disentitled to purchase the land. The apex court has laid down as follows, while referring to and relying upon the following authorities : “The philosophy of the approach which commends itself to us is that a litigant who seeks justice in a perfect legal system gets it when he asks for it. But because human institutions of legal justice function slowly, and in quest of perfection, appeals and reviews at higher levels are provided for, the end product comes considerably late. But these higher

38 Courts pronounce upon the rights of parties as the facts stood when the first Court was first approached. The delay of years flows from the infirmity of the judicial institution and this protraction of the Court machinery shall prejudice no one. (See: ”Bhajanlal vs. State of Punjab, (1971)1 SCC 34)

With reference to the decision in Patterson vs. State of Alabama, (1934)294 US 600, 607), it is further held as follows: “The impact of subsequent happenings is: first, its bearing on the right of action, second, on the nature of the relief and third, on its impotence to create or destroy substantive rights. Where the nature of the relief as originally sought, has become obsolete or unserviceable or a new form of relief will be more efficacious on account of developments subsequent to the suit or even during the appellate stage, it is but fair that the relief is moulded, varied or re- shaped in the light of dated facts.“

Relying upon the decision in Lachmeshwar Prasad Shukul v. Keswar Lal Chaudhuri, AIR 1941 FC 5, it is observed as follows:-

“It is important that the party claiming the relief or change of relief must have the same right from which either the first or the modified remedy may flow.

39 Subsequent events in the course of the case cannot be constitutive of substantive rights enforceable in that very litigation except in a narrow category but may influence the equitable jurisdiction to mould reliefs. Conversely, where rights have already vested in a party, they cannot be nullified or negated by subsequent events save where there is a change in the law and it is made applicable at any stage.”

Relying on the decision in P.VEnkateswarlu vs. Motor and General Traders, (1975)1 SCC 770)], it has been held thus:

“Courts of justice may, when the compelling equities of a case oblige them, shape reliefs cannot deny rights- to make them justly relevant in the updated circumstances. Where the relief is discretionary, courts may exercise this jurisdiction to avoid injustice. Likewise, where the right to the remedy depends, under the statute itself, on the presence or absence of certain basic facts at the time the relief is to be ultimately granted, the Court, even in appeal, can take note of such supervening facts with fundamental impact.”

Further, relying on Chockalinga Chetty vs. Seethai Achi, [1921] 54 Mad.LJ 88 PC, it has been held thus:-

“Where a cause of action is deficient but later events have made up the deficiency, the Court may, in order to avoid multiplicity of litigation, permit amendment and continue the proceeding, provided no prejudice is caused to the other side. All these are done only in exceptional situations and just cannot be done if the statute, on which the legal proceeding is based, inhibits, by its scheme or otherwise, such change in cause of action or relief. The primary concern of the court is to implement the justice of the legislation. Rights vested by virtue of a statute cannot be divested by this equitable doctrine.”

The apex court while approving the decision in Ramji Lal v. State of Punjab, AIR 1966 Punj 374) and referring to the decision in Steward vs. North Metropolitan Tramways Co., [1885] 16 QBD 178, has held thus :-

“Again Courts do very often take notice of events that happen. subsequent to the filing of suits and at times even those that have occurred during the appellate stage and permit pleadings to be amended for including a prayer for relief on the basis of such events but this is ordinarily done to avoid multiplicity of proceedings or when the original relief claimed has, by reason of change in the circumstances, become inappropriate and not when the plaintiff's suit would be wholly displaced by the proposed amendment and a fresh suit by him would be so barred by limitation.”

It is contended that if viewed in the light of the principles laid down as above, the institution of the petition before this court by a nonexistent entity, in the eye of law , being invalid and infirm, could not gain currency - no matter if the certificate of incorporation was subsequently revived. It is contended that though it may be possible in a situation to claim that the proceedings were validly instituted but the subsequent revocation of the incorporation and revival thereafter, may enable a suitor to claim that the proceedings abated temporarily, during the hiatus brought about in a such a situation, the same cannot be said of proceedings invalidly instituted in the first instance. The rights of the parties if viewed as on the date the petitioner first approached this court, it is clear that the petition was not maintainable. The learned Senior Advocate , Shri Chinnappa would hence seek dismissal of the petition.

42 9. By way of reply, the learned counsel for the petitioner would insist that Section 312 of the Delaware Code would enable the petitioner to claim all rights, franchises, privileges and immunities which had been secured by its original certificate of incorporation, when once the forfeited certificate of incorporation is revived.

43 Delaware in Transpolymer Industries Inc. (supra) , on a corporation becoming "inactive" and "voided", for failure to pay the required franchise taxes, the charter or certificate of incorporation of the corporation would become void and revoked and all powers conferred upon the corporation become "inoperative". The corporation ceases to exist and loses its right to sue and be heard, even if represented by counsel. The following commentary in the American Jurisprudence 2d, Volume 19, Sections: 2171, 2788, 2802 and 2826 is relevant : “§2171. – Effect of statute suspending corporation or restricting right to sue – The capacity of a corporation to sue or be sued while under suspension or to maintain a suit brought while under suspension depends largely on the wording of the state statute involved. It has been held that the suspension of a corporation’s charter for failure to pay a franchise tax is a temporary restriction, something less than the termination of corporate life brought about by dissolution, and therefore a suspended corporation may sue or defend in order to protect its assets.1 Similarly a

1 Bratonn vs. Slininger , 93 Idaho 248; 460 P2d 383

44 corporation suspended for failure to pay taxes was allowed to bring suit a month after its suspension under a state statute providing for corporate dissolution only if the taxes were not paid within five years of the suspension.2 On the other hand, many states restrict the capacity of suspended corporations to sue or be sued.3, often by specifically forbidding a corporation from maintaining an action while under suspension for failure to pay franchise taxes,4 or corporate fees,5 or while in default under a statute requiring the filing of an annual report.6 (emphasis supplied)

xxx § 2788. Generally Corporate privileges may be withdrawn by a state if they are abused or misemployed.7 Forfeiture of a corporation’s privileges 8 or dissolution of a corporation by the sovereign body that created it,9 is a

2 Raleigh Swimmig Pool Co vs. Wake Forest Counry Club, 11 NC App 715; 182 SW2 3 Rimco Enterprises Inc. v. Texas Electric Service Co. (Tex Civ App Fort Worth) 599 SW2d 362 4 Mather Constr. Co. v. United States, 201 Ct Cl 219; 475 F2d 1152, 17 FR Serv 2d 458; Graceland v. Peebler, 50 Cal App 2d 545; 123 P2d 527 5 York & York Constr. Co. v. Alexander (dist Col App)296 A2d 710 6 Babe, Inc. v. Baby’s Formula Service, Inc. (Fla App D3) 165 So 2d 795, 6 ALR3d 320; Adams v. Edward M.Burke Homes, Inc., 14 Mich App 578, 166 NW2d 34. 7. Eagle Ins. Co. v. Ohio, 153 US 446, 38 L Ed 778, 14 S ct 868. 8 Central Nat. Bank v. Dallas Bank and Trust Co. (Tex Civ App) 66 SW2d 474. 9 People ex rel. Cerner v Blue Rose Oil Co., 360 I11 397, 196 NE 456, cert den 296 US 605, 80 L Ed 429, 56 S ct 121,

45 penalty exacted by the state against corporations created by it for disobeying the law.10 It is said that a corporation has forfeited its corporate rights when it has lost its charter and all rights thereunder due to the doing of something prohibited by law or the omission to do something required to be done by law, if forfeiture is the penalty assessed by law for that act of omission or commission.11 § 2802 Failure to pay its taxes may, in certain cases, result in the forfeiture of the charter of the corporation. The forfeiture of a corporate charter may be decreed because of its failure to pay license or franchise taxes; this is frequently expressly declared by the corporate charter or by statute.12 § 2826 Assertion of forfeiture or dissolution in collateral proceeding. In accordance with the general rule that a forfeiture of a corporate charter can only take effect upon a direct adjudication in a judicial proceeding instituted for such purpose13. It has been held that the existence of a corporation cannot be attacked collaterally on the ground

10 People ex rel. Kerner v Blue Rose Oil Co., 360 I11 397, 196 NE 456, cert den 296 US 605, 80 L Ed 429, 56 S Ct 121. 11 Central Nat. Bank v Dallas Bank and Trust Co. (Tex Civ App) 66 SW2d 474.

12 Dickey v. Southwestern Surety Ins.Com, 119 Ark 12 173 SW 398

13 § 2822.

46 of its dissolution or forfeiture of franchise until such dissolution or forfeiture has been judicially pronounced in a proceeding brought for that purpose. The forfeiture or the dissolution of the corporation cannot be claimed in a collateral proceeding merely because a ground of forfeiture may exist. A plea that a corporation has forfeited its charter by misuse or nonuse of its franchise is not good unless it alleges that such forfeiture has been judicially declared at the instance of the government; and generally if an action against stockholders is based upon the fact of dissolution, such a dissolution must be shown rather than a cause for dissolution.14 But while a court has no power to decree the nonexistence of corporation in a suit between private parties, this rule only applies if the party wants to test the legality of a corporation’s existence, if a state has already acted to terminate the corporation’s existence, a private party may raise the lack of corporate existence as a defense to an action involving purely private rights.15 (emphasis supplied)

In the light of the above , the decisions relied on behalf of the petitioner in the case of Fredric G, Grapf & Son Inc. (supra) and In re

14 Valley Bank & Sav. Institution v Ladies’ Congregational Sewing Soc., 28 Kan 423. 15 Hearth Corp. v C.B.R.Dev. Co. (Iowa) 210 NW2d 632 (ovrld on other grounds Miller v Register & Tribune Syndicate, Inc. (Iowa) 336 NW2d 709)

47 Boxco Ltd (supra) do not support the case of the petitioner. In so far as the decision in the Bombay Gas Co.’s Case (supra) is concerned, the effect and consequence of the striking off the name of a company by the Registrar of Companies under the English Companies Act, 1985 and under Section 560 of the Companies Act, 1956, being in pari materia, as found by the court in that decision, was material. The tenor of those provisions does not render a company as being non- existent. And the said decision which turned on the interpretation of such a provision cannot be said to be relevant to the case of the petitioner, having regard to the language and the interpretation of Section 510 of Title 8 of the Delaware Code. And further applying the principle as laid down and reiterated in Rameshwar's case ( supra) by the apex court, that the right of a party is determined by the facts as they exist on the date the action is instituted would aptly apply in considering the validity of the petition instituted as on 3.4.2010. The petitioner was not in existence as on the date of institution. The petition was hence not maintainable. It is not a case where the petition had been instituted before the

48 certificate of incorporation was forfeited, whereby it could be claimed that the petition could be revived immediately after the certificate of incorporation was revived, though by a deeming fiction the corporation ceased to exist, temporarily. It was also possible for the petitioner to have instituted fresh proceedings on a revival, after the initial forfeiture of the certificate of incorporation. The petition which was infirm on the date of filing cannot be resuscitated on the basis of a subsequent event, to the prejudice of the respondent. The petitioner would also be disentitled to claim that any such relief be moulded in its favour, to avoid multiplicity of proceedings or such other hardship, on account of the petitioner not having stated the actual state of affairs as on the date of filing of the petition, which the respondent has brought to light subsequently. The petitioner seeking to take this impropriety in its stride and to glibly seek to defend its position is hardly appreciable.

49 The application in CA 118/2012 is allowed. The petition is rejected as not maintainable. In view of the disposal of the company petition, the applications in CA 204/2010, CA 722/2010, CA 1455/2014 and CA 369/2015 do not survive for consideration.

Sd/-

JUDGE nv*