NCLT Kochi Allows Tax Department to Restore Struck-Off Company for Assessment

Background of the dispute

The Registrar of Companies had removed the company name from the register. At the same time, income tax proceedings concerning the company remained to be completed.

The Income Tax Officer approached NCLT under Section 252(3), seeking restoration of the company name so that assessment and consequential proceedings could lawfully continue against an existing corporate entity.

The central question was whether the Income Tax Department could be regarded as a creditor even when the final tax liability had not yet crystallised through a completed assessment.

Issue before NCLT Kochi

Section 252(3) permits a company, its member, creditor or workman to apply for restoration within the statutory period. The Tribunal may restore the name if the company was carrying on business or was in operation when struck off, or if restoration is otherwise just.

The issue was whether a contingent or prospective tax claim was sufficient to give the Income Tax Department the status of a creditor for filing the restoration appeal.

Income Tax Department treated as a creditor

NCLT Kochi accepted that the expression creditor in Section 252(3) is not confined only to a person holding a finally quantified and immediately payable debt.

A pending statutory assessment may result in a legally enforceable tax demand. The Department therefore has a real and direct interest in the continued legal existence of the company until the assessment process is completed.

Treating the Department as a creditor prevents striking off from frustrating statutory proceedings or making lawful recovery impossible before the liability is formally determined.

Why restoration was considered just

Restoration under Section 252 does not decide the tax liability itself. It restores the corporate name so the competent tax authority can complete proceedings in accordance with the Income-tax Act.

The company retains its right to participate in the assessment, produce records, raise objections and use the remedies available under tax law. Restoration therefore preserves the procedural rights of both the Revenue and the company.

The Tribunal found that permitting the company to remain struck off while assessment proceedings were pending could defeat the proper administration of tax law. Restoration was consequently treated as just and necessary.

Effect of a Section 252 restoration order

When a company name is restored, the company is generally placed in the same position as if its name had not been removed from the register, subject to the conditions imposed by the Tribunal.

Restoration revives the corporate entity for legal and regulatory purposes. It may enable pending assessments, recovery proceedings, litigation, statutory filings and other necessary actions to continue.

The order does not automatically establish that tax is payable. The amount, if any, must still be determined by the tax authority after following the applicable procedure.

Important compliance lessons for companies

• Striking off does not necessarily extinguish unresolved tax, regulatory or creditor claims.
• Directors should verify pending assessments, notices, demands and litigation before applying for voluntary strike off.
• Books of account, returns, bank statements and supporting records should be preserved for the periods required under applicable law.
• A creditor may seek restoration even where its claim is contingent or awaits formal determination, depending on the facts.
• After restoration, the company should promptly complete overdue corporate and tax compliances and comply with every condition in the NCLT order.
• Restoration proceedings and tax assessment proceedings serve different purposes and must be defended separately.

Practical impact for tax authorities and companies

The ruling strengthens the principle that removal of a company name cannot be used to prevent a statutory authority from completing a legitimate assessment.

For companies and directors, the decision is a reminder that strike off is not a substitute for resolving pending tax proceedings. Proper closure requires review of income tax, GST, employee dues, creditor balances and corporate filings before the company name is removed.

For the Revenue, the ruling confirms that Section 252(3) can be used to restore a company when its existence is necessary for assessment or recovery, provided the statutory conditions and limitation requirements are satisfied.

Conclusion

NCLT Kochi held that the Income Tax Department qualified as a creditor under Section 252(3) and could seek restoration of a struck-off company for completion of tax assessment proceedings.

The decision does not predetermine the company tax liability. It ensures that the assessment can be completed against a legally existing entity while preserving the company opportunity to contest the proceedings under tax law.