A common question raised by promoters, directors, and even professionals is:
“Once a company is incorporated and a Certificate of Incorporation is issued, can it still be declared void?”
Under the Companies Act, 2013, incorporation grants a company legal personality and corporate existence. However, this corporate status is not absolute or untouchable. Where incorporation is obtained by fraud, misrepresentation, or suppression of material facts, the law empowers authorities and tribunals to undo the very foundation of the company.
This article explains whether and how a company can be declared void after incorporation, the statutory framework governing such action, and the serious legal consequences that may follow.
1. Legal Effect of Certificate of Incorporation
General Rule
Under Section 7(2) of the Companies Act, 2013, once the Registrar issues a Certificate of Incorporation, the company:
Comes into existence as a body corporate
Acquires perpetual succession
Becomes capable of owning property, contracting, suing, and being sued
Traditionally, the certificate is treated as conclusive evidence that all procedural requirements have been complied with.
But Is It Absolute?
No.
The Companies Act, 2013 significantly departs from the earlier regime by expressly empowering authorities to look behind the incorporation if fraud is detected.
2. Statutory Power to Undo Incorporation – Section 7(7)
Key Provision
Section 7(7) of the Companies Act, 2013 provides that where a company has been incorporated by:
Furnishing false or incorrect information
Suppressing material facts
Any fraudulent action
the National Company Law Tribunal (NCLT) may pass appropriate orders.
Powers of the Tribunal
The Tribunal may:
Regulate the management of the company
Direct that liability of members shall be unlimited
Remove the name of the company from the Register of Companies
Order winding up of the company
Pass any other order deemed fit in public interest
👉 This effectively means that corporate existence itself can be nullified in substance, even after incorporation.
3. Can a Company Be Declared “Void” in Strict Legal Sense?
Technical Position
The Companies Act, 2013 does not use the phrase “void ab initio company”. However, removal of name or winding up on grounds of fraudulent incorporation achieves the same legal effect.
Judicial Understanding
Courts have consistently held that:
Fraud vitiates everything
Corporate personality cannot be used as a cloak for illegality
Case Law Illustration
Delhi Development Authority v. Skipper Construction Co. (P) Ltd. (1996) 4 SCC 622
The Supreme Court held that where the corporate form is used to commit fraud, courts are entitled to lift the corporate veil and disregard the company’s separate existence.
Legal Principle:
Incorporation obtained by fraud does not deserve protection of law.
4. Difference Between Irregular Incorporation and Fraudulent Incorporation
| Aspect | Irregular / Procedural Defect | Fraudulent Incorporation |
|---|---|---|
| Nature | Clerical or technical lapse | Intentional deception |
| Effect | Rectifiable | Fatal |
| Tribunal Powers | Correction / compliance | Strike-off / winding up |
| Liability | Company | Promoters, directors & professionals |
5. Liability of Promoters, Directors, and Professionals
Promoters & First Directors
Under Section 7(6):
Promoters and first directors are personally liable
Action may be taken under Section 447 (Fraud)
Professionals (Advocate / CA / CS)
Professionals certifying incorporation compliance:
Are not immune from liability
Can face penal action, prosecution, and disciplinary proceedings
Case Law Illustration
Institute of Chartered Accountants of India v. Mukesh R. Shah (2004) 7 SCC 579
The Supreme Court held that professionals owe a high duty of care when certifying statutory compliance.
6. Practical Situations Where Incorporation Is Challenged
In practice, incorporation is questioned where:
Shell companies are detected
Registered office is fictitious
Directors are benami or disqualified
Incorporation is used for money laundering or tax evasion
False affidavits or declarations are filed
Many such cases begin with ROC inspection and culminate in NCLT proceedings.
7. Effect on Contracts and Third Parties
A crucial concern is the impact on third parties.
Legal Position
Before passing orders under Section 7(7), the Tribunal must:
Give the company an opportunity of being heard
Consider transactions entered into by the company
Protect interests of creditors and bona fide third parties
Thus, courts balance public interest with commercial certainty.
8. Can Incorporation Be Challenged After Many Years?
There is no fixed limitation period prescribed for action under Section 7(7).
However:
Delay may be relevant
Strong proof of fraud is essential
Bona fide third-party rights weigh heavily
Conclusion
Key Legal Position Summarised
✔ A company cannot casually be declared void after incorporation
✔ But incorporation obtained by fraud or suppression is vulnerable
✔ NCLT has wide powers to strike off or wind up such companies
✔ Promoters, directors, and professionals face personal consequences
Advocate’s Takeaway
Incorporation is not a mere procedural milestone—it is a legally sensitive act with long-term consequences. Errors or shortcuts at this stage can destroy the company years later.
Preventive legal scrutiny at incorporation is far safer than curative litigation after enforcement begins.
Professional Note
If your company is facing ROC action, inspection, or NCLT proceedings relating to incorporation defects or allegations of fraud, early legal advice can significantly mitigate exposure.