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M/s Arasor Corporation Versus M/s Xalted Information Systems (P.) Ltd.

2015 (9) TMI 1131 - KARNATAKA HIGH COURT

Maintainability of petition for recovery suit by the company who was not exiting at the time of filing of suit - That the present petition was filed as on 3.4.2010. That the petitioner's status as a corporation stood voided, on account of non payment of taxes, under the Delaware Code applicable in the State of its incorporation, in the United States of America, as on 1.3.2010. And that it stood renewed and revived by a certificate of revival dated 2.8.2011. The point that would arise for conside .....

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e 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 suc .....

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s. For The Respondent : Dhyan Chinnappa, Sr. Adv. and Arunkumar, Adv. ORDER 1. 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 wirele .....

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after referred to as the 'ITI', for brevity), also a Government of India undertaking. ITI, in turn, 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 te .....

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lted 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 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 fulfillin .....

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ed 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 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 tho .....

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ticularly 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. 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 serv .....

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itioner on the same terms and conditions. The petitioner is said to have indicated that it was in a position to supply only 27,000 units and the remaining would be outsourced from a Hong Kong based company, M/s. Abakus Communications Company (HK) Limited. It is claimed that the petitioner had also instructed the respondent to make direct payments to the said company, on any supplies to be made. Pursuant to this arrangement, the petitioner is said to have supplied only 27,000 units and had receiv .....

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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, .....

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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 onl .....

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e said order was challenged by the respondent in appeal before a division bench in appeals Nos. OSA 44/2010 and OSA 43/2010. The division bench had allowed the appeals by its judgment dated 15.10.2011 and had remanded the matter for a fresh consideration, while granting leave to the respondent to either, amend the statement of objections or to file a separate application as regards a contention as to the maintainability of the petition. On such remand, the respondent has filed Company Applicatio .....

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pension 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& .....

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nt 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 .....

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s 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 .....

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nds 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 .....

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etition is completely unacceptable and on this ground, the petition merits rejection. 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. 5. In response to the said application, the petitioner has filed a reply to contend that the petitioner - Company's charter temporari .....

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ffrey 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 a .....

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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 th .....

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ration 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 .....

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of incorporation i.e., Delaware law, under Section 122(2) and under Section 23301 of the California Revenue and Taxation, the petitioner loses all rights, powers and privileges to initiate or defend lawsuit. It is therefore contended that the application deserves to be allowed on the basis of this categorical admission of the Petitioner. Sufficient material is placed on record along with the application to substantiate the applicant's stand that the Petitioner could not have initiated proce .....

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inciple 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. 7. The learned counsel for the petitioner while refuting the preliminary .....

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n 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 ne .....

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, 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, .....

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nsion 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 .....

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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 sub-section (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 .....

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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 .....

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of the governing body of the corporation as provided in sub-section (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 c .....

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me 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, .....

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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 the corporation to be renewed or revived shall not b .....

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ved. (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, vo .....

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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 stockholder .....

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ificate 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 with sub-section (h) of this section shall be d .....

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tick 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 othe .....

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, 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 243 A.2d 713 (Delhi) 1968 .....

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s 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." 2. Boxco Ltd., In re [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 i .....

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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. " 3. Bombay Gas Co. (P.) Ltd. v. Central Government [1997] 89 Comp. Cas. 195 (Bom.) wherein it is held thus:- "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 .....

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y on this aspect of the case." 4. Maharashtra State Textile Corporation Ltd. v. Official Liquidator [1978] 1 SCC 490, the apex court has laid down as follows:- 'in the case of East End Dwellings Company Limited v. 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 o .....

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, 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 c .....

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relevant to a situation where the 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: "§510 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 .....

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ime 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 t .....

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s, 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 dissolut .....

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mitted 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 artificia .....

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ey," 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 March 1, 1989 for failure to pay the required franchise taxes for the years 1987, 1 .....

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ose 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 .....

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red 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 i .....

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traction of the Court machinery shall prejudice no one. (See: "Bhajanlal v. State of Punjab [1971] 1 SCC 34) With reference to the decision in Patterson v. State of Alabama [1934] 294 US 600, 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 un .....

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the modified remedy may flow. 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 Pasupuleti Venkateswarlu v. .....

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ly granted, the Court, even in appeal, can take note of such supervening facts with fundamental impact." Further, relying on Chockalinga Chetty v. 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 .....

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etropolitan 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 a .....

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e 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. .....

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inability of the petition in the first instance. The following facts are not in dispute. That the present petition was filed as on 3.4.2010. That the petitioner's status as a corporation stood voided, on account of non payment of taxes, under the Delaware Code applicable in the State of its incorporation, in the United States of America, as on 1.3.2010. And that it stood renewed and revived by a certificate of revival dated 2.8.2011. The point that would arise for consideration is therefore, .....

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he 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 large .....

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ts suspension under a state statute providing for corporate dissolution only if the taxes were not paid within five years of the suspension. Raleigh Swimmig Pool Co. v. Wake Forest Counry Club, 11 NC App 715; 182 SW2. On the other hand, many states restrict the capacity of suspended corporations to sue or be sued. Rimco Enterprises Inc. v. Texas Electric Service Co. (Tex Civ App Fort Worth) 599 SW2d 362, often by specifically forbidding a corporation from maintaining an action while under suspen .....

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mphasis supplied) xxx § 2788. Generally Corporate privileges may be withdrawn by a state if they are abused or misemployed. Eagle Ins. Co. v. Ohio, 153 US 446, 38 L Ed 778, 14 S ct 868. Forfeiture of a corporation's privileges Central Nat. Bank v. Dallas Bank and Trust Co. (Tex Civ App) 66 SW2d 474 or dissolution of a corporation by the sovereign body that created it, 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, is a .....

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on or commission. Central Nat. Bank v. Dallas Bank and Trust Co. (Tex Civ App) 66 SW2d 474. § 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. Dickey v. Southwestern Surety Ins.Com, 119 Ark 12 173 SW 398 § 2826 Assertion of forfeiture or .....

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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. Valley .....

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R.Dev. Co. (Iowa) 210 NW2d 632 (ovrld on other grounds Miller v. Register & Tribune Syndicate, Inc. (Iowa) 336 NW2d 709)" (Emphasis supplied) In the light of the above , the decisions relied on behalf of the petitioner in the case of Frederic G, Grapf & Son Inc. (supra) and Boxco Ltd. In re (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 co .....

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