The Income Tax Department vs The Registrar of Companies & Anr

(Hybrid Mode)

These are a batch of four Company Appeals preferred by the Appellant, by invocation of provisions contained under Section 421 of the Companies Act, 2013.

Primarily, the challenge given by the Appellant, in all these Company Appeals, is to the impugned order of 17.07.2025, as passed in the respective Company Appeals, which were filed before the Ld. NCLT, Amaravati by the Appellant, Income Tax Department under Section 252(3) to be read with Section 164 of the Companies Act, 2013. The consequential effect of the impugned orders had been that the Registrar of Companies (RoC) has been directed to restore Respondent No. 2 Company in the respective Company Appeals to their original status in the Register of Companies and the Appellant has been directed to remit a cost of Rs. 25,000/- to RoC in each of the cases, towards cost of the proceedings for Gazette Publication charges and the Counsel's fee.

While putting a challenge to the said orders, the Appellant in all these Company Appeals, has come up with a case that it does not intend to challenge the part of order relating to restoration of the registration of the Respondent No.2 Companies and that it only seeks to challenge the imposition of cost of Rs. 25,000/- that has been imposed by the Ld. Tribunal on it. The relief as it has been sought by the Appellants in all these Company Appeals have been collated and reproduced below:-

''' In view of the facts mentioned above, the Appellant most respectfully prays that this Hon'ble Tribunal may be pleased to: a)To Set aside the direction to pay cost of Rs.25,000/- imposed upon the Appellant vide order dated 17.07.2025 passed in C.A. No. 1/252/AMR/2025, C.A. No. 2/252/AMR/2025, C.A. No. 3/252/AMR/2025 & C.A. No. 4/252/AMR/2025; b)Waive and refund the costs already deposited by the Appellant with the RoC pursuant to the impugned order; c) Pass any other order/direction in the facts and circumstances of the present appeal and in the interest of justice.'''

These Company Appeals were preferred by filing the same on 16.09.2025. On scrutiny, the Registry has reported certain defects vide its report as submitted on 02.10.2025, which are in the nature of, (a) Non-filing of the delay condonation application, and (b) The non-payment of the Advocates Welfare Stamp and Advocates Clerk Welfare Stamp. When these Appeals were taken up for consideration, owing to the fact that the Appellant had not rectified the defects despite the time having been granted by us on 14.11.2025, we proceeded to dismiss the Appeals by invoking the provisions contained under Rule 26, to be read with Rules 3 & 4 of the NCLAT Rules, due to non-rectification of defects.

This order of dismissal of these Company Appeals under Rule 26, (3 & 4) of the NCLAT Rules, is common in all the connected Company Appeals. The same has now been sought to be restored by the Appellant by filing the Restoration Applications, being i. Restoration Application (AT) (CH) No. 06/2026, as preferred in Company Appeal (AT) (CH) No. 150/2025, ii. Restoration Application (AT) (CH) No. 07/2026, as preferred in Company Appeal (AT) (CH) No. 151/2025, iii. Restoration Application (AT) (CH) No. 08/2026, in Company Appeal (AT) (CH) No. 152/2025, and iv. Restoration Application (AT) (CH) No. 09/2026, as preferred in Company Appeal (AT) (CH) No. 153/2025,

In the said Applications for Restoration as detailed above, the Appellant has come up with the case that the defects could not be rectified in time owing to the fact that the deponent of the affidavit suffered from ailment, because of which the process of rectification of defects could not be undertaken by him. Besides that, certain documents, which were required to be filed, had to be collated, which required a clarification from the Superior Authorities, due to which the delay has chanced in preferring the Restoration Application, which were unintentional and hence may be condoned. Having considered the grounds taken in the Restoration Application and finding the same to be reasonable, the respective Restoration Applications, would stand allowed and the order of dismissal dated 23.01.2026, as respectively passed in each of the Company Appeals, would stand recalled. The Company Appeals are restored to its original number.

Heard Ld. Counsel for the Appellant on the merits of the Company Appeal. Regarding the objections raised by the Registry that an independent Delay Condonation Application has not been filed, she has submitted, that the law in itself does not contemplate the filing of an independent application for seeking condonation of delay in filing the Appeals, more particularly, when the Appellant had already explained the reasons of the said delay in the memorandum of Appeal itself. She has contended that, though the impugned orders were pronounced on 17.07.2025, the copy of the same was made available to the Appellant only on 08.08.2025 and that the Appellant has taken prompt actions thereafter and preferred, the Company Appeal by filing the same before the Registry on 16.09.2025, and that the delay of 16 days would be well within the condonable period as contemplated under Section 421(3) of the Companies Act, 2013.

Having considered the reasons given therein and the elaborate argument extended by the Ld. Counsel for the Appellant on the condonation of delay and also taking note of the fact that the number of days of delay that has been reported by the Registry is falling well within the upper limit of condonable period of 45 days, as contemplated under Section 421(3), the delay of 16 days would stand condoned.

The Ld. Counsel for the Appellant submits that her grievance as against the impugned order, is restricted to the imposition of cost, of Rs. 25,000/- towards expenses to be incurred for Gazette Publication and Counsel's fees. Powers to impose cost to meet expenditures, is contemplated under Rule 87A(4)(c) of NCLT Rules, 2016, when an appeal under Section 252(1) or an application under Section 252(3) is filed before NCLT in Form No. NCLT – 9 and in the said provision, it has been left open to the discretion of the Tribunal to pass an order on cost to be paid to RoC while restoring the name of the Company in the Register of Companies. Rule 87A(4) is extracted hereunder:-

'''87A. Appeal or application under sub-section (1) and sub-section (3) of section 252. -(4) Where the Tribunal makes an order restoring the name of a company in the register of companies, the order shall direct that-

The facts which could be culled out from the records are that the Ld. Tribunal, while passing the impugned order directing the restoration of registration of respective Companies in the Register of Companies in the proceedings, that were held under Section 252(3) of the Companies Act, 2013, has exclusively taken into consideration, the submissions made by the Registrar of Companies (RoC) and has come to the conclusion that the imposition of cost of Rs. 25,000/- on the Appellant becomes necessary for the purposes of meeting the expenditure to be incurred by RoC in the process of the restoration of the registration of the Respondent Companies which includes cost of carrying out Gazette notification and cost of Counsel fees.

Ld. NCLT observed in the impugned order that, the restoration of registration of Respondent No.2 Company is being permitted in order to provide an opportunity to the Income Tax Department, to take steps for the recovery of the legitimate government dues payable to Income Tax Department by Respondent No.2 Companies under the provisions of the Income Tax Act and since the process of restoration of registration will entail certain costs to be incurred by RoC in carrying out Gazette Publication and meeting the fees of its Counsels and as RoC has prayed for payment of a cost of Rs. 25,000/- by the Income Tax Department, the same is being directed to be paid by the Appellant.

The Appellant has contended in his Appeals that it is a statutory authority and the petitions under Section 252(3) have been filed strictly in discharge of its statutory duty, that no mala fide or frivolous litigation can be ascribed to it, that costs to be imposed are essentially penal in nature whereas in the present case, no breach of a legal provisions can be ascribed to it, that no other NCLT has imposed costs on it in similar proceedings, that it should not be penalized for carrying out its sovereign & statutory duties and hence, though it has complied by paying the costs, the order of imposition of cost may be set aside and the amount already paid may be refunded back.

It is to be noted that the power to impose the cost for restoration of registration of a Company has been provided for under the provisions of Rule 87(A)(4)(c) of NCLT Rules of 2016. Imposition of cost to meet the expenditure has got a penal consequence and hence it is to be read along with the provisions contained under Section 35 of the Code of Civil Procedure. Before a cost is imposed, the said cost needs quantification and a justification as to why it is being imposed. In the instant case, the process of Appeal under Section 252(3) was initiated by the Income Tax Department and not by the defaulting companies whose names were struck off. Being a statutory body it was carrying out its statutory duties, seeking restoration of the Respondent Companies so that it can carry out and complete pending income-tax assessment proceedings. In that view, it ought not to have been harnessed with the cost of meeting expenditure of Gazette Notification and fees of Counsel, which otherwise forms part of normal expenditure of Respondent No.1, to be met in the normal course of business.

Rule 87A(4)(c) confers an authority on the Tribunal, to issue any such direction to pay the cost of expenditure, which might have to be incurred by the Register of Companies, in the process of contesting the proceedings under Section 252(3) of the Companies Act, 2013, and in carrying out the orders, if any, pronounced by Ld. NCLT. A reading of the said Sub-Rule will make it clear that it requires a detailed analysis to deal with the determination of cost for expenditure, as the language therein used is the word "and occasioned by", which would entail a determination to be made based upon the consideration of the facts and circumstances of the case, under which the Tribunal will come to a conclusion that it would be apt to impose a particular amount of cost to meet out the expenditures that, might have occasioned in carrying out the proceedings by the Registrar of Companies. However, we notice that in all these Appeals, the said determination has been made by the Ld. Tribunal based on a passing observation that the RoC has prayed that the Tribunal may award a cost of at least of Rs. 25,000/- in favour of RoC. In fact, the impugned orders do not disclose that, the Tribunal had ever justified the quantification of cost, which under law, is required as per Sub Rule (c) of Rule 4 of Rule 87A. Hence, in the absence of there being a determination of the cost, the directions to impose cost of Rs. 25,000/- in the instant proceedings cannot be sustained.

This could be looked into from yet another perspective. In clause(c) of Rule 87A(4), while the Legislature has used the word "occasioned", it simultaneously uses the word "unless the Tribunal directs otherwise", which means that as per this provision, it is not mandatory for the Tribunal to invariably impose cost, in all the circumstances or cases. Therefore, it has to be construed that Ld. Tribunal has to get the 'cost to be imposed' determined after judicious application of mind, failing which the order of imposition of cost in itself would be bad and not sustainable. Therefore, in the instant Company Appeals, since the cost to be imposed has not been determined, the order will be bad in law, calling for an interference by this Appellate Tribunal.

Being paid with the cost of, and occasioned by, the Appeal/Application under Section 252 is not an inherent right of the Registrar of Companies, he can only claim the same which has to be ordered by the Tribunal. The Tribunal will also have to determine the necessity of imposition of the said cost to the Registrar of Companies. In the instant cases, the Applicant is the Income Tax Department, which is only carrying out its statutory functions. Any costs that may have to be borne by RoC will be towards the statutory functions of another arm of Government of India. Since one statutory body is incurring costs during the process of facilitating another statutory body in discharge of its functions, payment of costs is unnecessary and rather superfluous.

Owing to the aforesaid reasons, the instant Appeals will stand allowed and the impugned orders dated 17.07.2025 as respectively passed in each of the Company Applications to the extent of imposition of cost of Rs. 25,000/- on the Appellant will stand quashed, and the amount already remitted by the Appellant to RoC under protest will be refunded back to the Appellant within 4 weeks.

All the pending Interlocutory Applications would stand closed.