The Delhi High Court has upheld the Registrar of Companies’ order that rejected conversion of Reebok India Company from an “Unlimited Liability Company” to a “Limited Liability Company”.
Dismissing Reebok India‘s petition, Justice Subramonium Prasad said that the reasons given by the RoC in rejecting the Reebok’s application on the ground that various prosecutions have been filed by the Serious Fraud Investigation Office against it for offences under the Companies Act and the Indian Penal Code cannot said to be so perverse, especially keeping in mind the interest of shareholders and the interest of creditors.
“The anxiety on the part of the RoC that the creditors and stakeholder should not be left high and dry cannot be said to be completely unjustified,” Justice Prasad said.
“The registrar was also not provided with an NoC or undertaking from all the shareholders to support the conversion application and the petitioner(Reebok) did not even issue a public advertisement inviting objections from various creditors/stakeholders on the issue of conversion,” the HC said.
The RoC had also observed that Reebok suffered substantial financial losses and had a net deficit in current liabilities over the assets in excess of Rs 2100 crore. The registrar was also not provided with a no-objection certificate or undertaking from all the shareholders to support the application for conversion and Reebok did not even issue a public advertisement inviting objections from various creditors or stakeholders on the issue of conversion, the HC order noted.
Reebok, engaged in the business of wholesale cash and carry trading of footwear, apparel, and sports equipment under the “Reebok” brand name through franchise-based stores across India, had in 2014 filed an application for conversion of the company into a limited liability company. In 2020, the registrar rejected Reebok’s application on the basis of an analysis of financial statements of the company.
It further found that Reebok had a net deficit in current liabilities over the assets amounting to Rs. 2117.52 crore, Rs. 2175.32 crore and Rs 2122.14 crore as on March 31, 2014, March 31, 2015 and March 31, 2019, respectively, due to cash losses incurred by the company during the past financial years and the net worth of the company is negative and if company goes into winding up or is unable to pay its debts/liabilities then only the three shareholders of company have to bring money to pay the debts of the company and the company will not be able to pay its creditors in full.
