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Case Comment on: Floating Services Ltd. v/s MV San Fransceco Dipaloa

The company is also considered as a juristic person. It has all the rights and liabilities. This case mainly deals with companies' right to sue and to be sued. It specifically focuses on the nuances of the company filing a suit after it is dissolved. The author aims to find out how important a role the case plays in determining the rights of the companies after their dissolution.

Also, the case highlights the significance of understanding the legal status of a dissolved company, the authority to act on its behalf, and the procedural requirements for legal proceedings. The researcher would delve deeply into these questions by referring to the existing laws and precedents on the topic, considering the fact that the topic at hand is well scrutinized by various renowned legalists. The researcher would aim to reach a conclusion as per their own reasoning and analysis.

Factual Aspects
The company based in the United Kingdom, the plaintiff, claims to be the owner of a vessel. The plaintiff claims that on June 27, 2000, they purchased this vessel from Audrey Ventures Company. Following that, on July 1, 2003, the plaintiff and defendant signed a contract for the sale of the vessel for US $400,000. Ten percent of this sum was initially paid by the defendant. July 7, 2003, was the scheduled delivery date for the vessel.

The vessel was not in possession of because they did not pay the outstanding balance. Additionally, the ship has been idle at Oostende Port in Belgium since June 27, 2000, and no crew has been on board. Then the defendant took the vessel in secret from this location and sailed it out of Oostende Port without paying the US $3,60,000 that was still owed.

This was allegedly achieved by the defendant by using a forged June 30, 2003 bill of sale and a November 6, 2003 registration certificate from the Belize Ship Registry. The plaintiff is requesting a declaration stating that they are the only owners of the vessel in light of these circumstances and that they are entitled to the title.

Additionally, they demand that the plaintiff regain lawful possession of the vessel and that any ownership, title, or interest in it be denied to the defendant and anyone claiming rights through the defendant. A court order ordering the defendant, or any other person claiming rights through defendant No. 2, to turn over the vessel to the plaintiff is also being requested by the plaintiff. The defendant is currently in possession of the vessel.

Contention of the Parties
Claiming ownership of a vessel under the Admiralty Act, the plaintiff, represented by Mr. M.J. Thakor, filed a suit because it was deemed a maritime lien and fell within the court's territorial jurisdiction. The major fear of the plaintiff was that the ship might be sold to a shipbreaker, an ex parte order of arrest was requested for the vessel in March 2004. In order to safeguard the plaintiff's interests, an ex parte order of arrest was issued.

The plaintiff maintained that the company would be considered to have never been dissolved because they had taken action to get it back on the register. Defendants refuted the plaintiff's allegations, claiming that a dissolved company should not be permitted to file a lawsuit due to its non-existent nature.

Defendants requested damages for wrongful arrest and filed an application to set aside the arrest order. The main contention point of the plaintiff was that the company had been dissolved in the UK and that the plaintiff's claim was founded on false statements. The company was dissolved in December 2003 after an application was filed in 2003 to have it removed from the UK Companies House register.

The plaintiff's case, according to the defendants, involves more than just a procedural error and seriously questions the plaintiff's authority to file a lawsuit on behalf of a dissolved company. Defendants also centered their contentions on the question of who is authorized to sign and authenticate pleadings on behalf of a company. It highlights that pleadings cannot be signed by someone who does not have specific authority to act on behalf of the company. They further contended that the document was not properly notarized and that it lacked the authority to act alone or jointly and severally.

Issue Raised
  • Whether the plaintiff, being a dissolved limited company, had the legal capacity to bring the suit. Also, whether the procedural defects in the power of attorney or the pleadings could be cured.

Companies registered under the law have the ability to initiate legal actions and be subject to legal actions in their own corporate names. The company's right to sue arises when it incurs some form of harm, either to its assets or its distinct legal identity, rather than the harm suffered by its directors. Further, the court stated that the company and shareholders are different entities and so are their rights, i.e., the rights of the company and their shareholders are not the same.

�To set the name, the Hon�ble Court referred to the case of Nandgopal v. NEPC Agra Foods Ltd. 1995 83 Comp. Cas. 213 (Mad.), under this case it was held that when the company receives a bounced back check then it is capable of filing a complaint under the Negotiable Instrument Act.� The money represented by the check belongs to the company, not its officials, so the company alone can bring a complaint.

Moreover, the court bestowed the power to the company to sue its own company members in case they do anything that may harm the reputation of the company after the incorporation. This clears that the company is a separate legal entity when compared to its members and it also has the right to sue in case of libel and slander as they also have the right to raise their voice against the defamation.

The court ultimately determined that the procedural flaws in the plaintiff's case were serious and had an impact on the essence of the case by applying the guidelines set forth by the Apex Court (Supreme Court) in the United Bank of India case. The OJMCA was approved as a result, and the lawsuit was dropped. Additionally, the court revoked the vessel's arrest order and mandated that the plaintiff pay the OJMCA and litigation costs. The plaintiff asked the court to extend the arrest order, but the request was denied.

Critical Analysis
Analysis of Judge's Opinion
In the concerned case the main contention of the plaintiff is that the lawsuit is legitimate because, even though the company was dissolved, it should be considered legally restored upon later re-registration. And, in counter of this the defendants contends that as the company is dissolved, they do not any significance, it is non-existent and thus they cannot institute a suit. They also contended that company has not provided full disclosure of material facts.

The Hon�ble Court while addressing the same issues at hand stressed upon the importance of complete and full disclosure of the material facts to the court, especially in ex-parte cases. Even in cases where pertinent information is not disclosed and it has a tendency to affect the court�s order is not considered right as the court order could have been completely different if there had been a justified and full disclosure.

Further, focusing on the assets of the dissolved company, the court referred the case of Pierce Leslie & Co. Ltd. v. Miss Violet Ouchterlony Wakshare case, in which it was held that upon the dissolution of the company the assets of the company vests in the government.

By applying the same principle to the present case, the court stated that once the company is dissolved, the plaintiff as a shareholder has no interests or rights in the company assets. Furthermore, it was clearly mentioned that in the present case, the reason for contradictions and inconsistencies was the plaintiff that affected the core of the case. While analyzing the concerned case it was clear that the plaintiff had not disclosed the complete facts that disturbed the core of the case.

For stance, at first, the plaintiff asserted in a statement that on March 5, 2004, an application had been submitted for the restoration of the business. In a separate statement, they claimed that they were unable to apply for restoration because of how urgent the matter was. On March 8, 2004, however, a third statement said that the restoration application would be submitted.

The second main issue is the application under Section 653 and Section 654 of the Companies Act. If a company's members or creditors believe they were wrongfully dissolved, they may apply to have their names restored to the register. They have to convince the court that the company was either operating or that the restoration is solely intended to restore the company's name in order for restoration to take place. However, it is not clear whether it is just to restore the company when earlier the company was voluntarily dissolved.

The assets and rights of a dissolved company are considered to be bona vacantia and belong to the government, according to Section 654 of the 1985 Act. As a result, the plaintiff cannot request any relief on behalf of the company without informing or involving the Sovereign. This clearly shows that in the present case, the plaintiff's claim of business property is not supported by the law. It went on to say that legally incorporated companies have the right to file and defend lawsuits under their own names.

As the business in the present case has been dissolved, it is the duty of the company to first clear the debts of the company, only then the shareholder will be able to claim his part of the property. They also stressed that even if there is one shareholder the shareholders and a limited company will remain a separate entity The Memorandum and Articles of Association of the company govern the principle of agency. A managing director can only exercise powers delegated to them; a director or board of directors must explicitly receive permission through a resolution to file a lawsuit.

Thirdly, it was made clear that the business could not verbally designate someone to act on its behalf in court. Only the company's Articles of Association may be followed. A corporation's authorized director, secretary, or principal officer must sign all pleadings. Justice in cases involving public corporations should not be hampered by procedural flaws, as was stressed in the United Bank of India v. Naresh Kumar case.

Pleadings on behalf of a corporation may be signed and verified by an individual holding a particular position within the organization. Furthermore, even in cases where an officer's signing of pleadings was not explicitly permitted, a corporation may nevertheless approve of the action.

Present Relevance
Earlier Section 653 of the Companies Act, 1956 dealt with the aspect of the restoration of a Company to the Register. However, the said provision is not applicable at the present time and it has been replaced by Section 252(3) of the Companies Act, 2013. The main focus of Section 653 was to restore the company that was removed from the company register due to non-compliance.

Then later on modifications were brought by the Companies Act, 2013 which included provisions pertaining to the restoration and revival of businesses. There are certain reasons for adding this provision to the Act and why reinstatement of companies to the register is important.

It is important to recover the assets of the company, we see that at times the company is dissolved but it still holds the assets so to get the money back or to pay the debts the company can be restored; at times we also see that company is dissolved due to non-compliance so to revive this defunct company it can be used; further at times company is restored to preserve the stakeholders; lastly, at times it also restored to do the legal compliances for stance to do the tax fillings, contract obligations and so on.

The procedures and prerequisites for a company's restoration under Section 252 of the Companies Act of 2013 are to first submit the application to the National Company Law Tribunal, then to give the details of the ground of restoration, then a notice must be published in a newspaper announcing the restoration of the company, then if any individual has any objection they will direct it to the NCLT and company has to answer to these objections raised, then hearing is done in the NCLT to decide on the raised objections, then restoration procedure order is passed by the NCLT and then document filing is done, the fee is paid and finally, Certificate of Registration will be given by the RoC and the company will be deemed restored.

Authors Observation
The case plays a very significant role in our legal system as it specifically delves into the company's right to sue and to be sued in its corporate name. The distinction between a company's legal entity and its shareholders is another point that the case focuses on.

The core issue that arises in this particular case is the restoration of the dissolved company, further that raises the point of whether a company, which was dissolved at the time of filing a lawsuit, can subsequently restore its legal status and be considered as if it were never dissolved. Though the court recognized and established rights in the particular case.

However, the company in this case was not allowed to be restored and there were many procedural defects in their case. Then, the Hon�ble Court further established the significance of procedural compliance in legal matters and also stated that the defects can be cured but in the present case, it was to the extent it affected the core of the case. Furthermore, is also settled that the pleadings must be signed by the properly authorized officers or individuals. Thus, overall, the various principles, compliances, and rights were established in the case.

This legal case hinges on the central point that a company, that was dissolved at the time of filing a lawsuit, can subsequently restore its legal status and be considered as if it were never dissolved but they have to obtain an order from the court and there should not be any procedural defect in the case. Further, it also establishes the company�s right to sue and to be sued.

The case also underscores the significance of the distinctions between a company's legal entity and its shareholders. It explains the legal concepts related to the legal status of companies, the role of directors, and the rights of shareholders in legal matters and emphasizes the importance of following proper procedures when representing a company in legal proceedings. Therefore, the case plays an important role in our system and has been referred to in many cases which reflects the importance of this case.

  • Floating Services Ltd. v. MV San Fransceco Dipaloa 2004 52 SCL 762 Guj
  • v Nandgopal v. NEPC Agra Foods Ltd. 1995 83 Comp. Cas. 213 (Mad.)
  • v Pierce Leslie & Co. Ltd. v. Miss Violet Ouchterlony Wakshare 1969 AIR 843, 1969 SCR (3) 203
  • v United Bank of India v. Naresh Kumar and Ors. AIR 1997 Sc 3

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