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2019 (7) TMI 1533 - HC - Indian LawsDisqualification of Directors of Respondent - Respondent whose name was struck off from the Register of Companies and whose directors stood disqualified - time limitation - HELD THAT - In the case at hand, the disqualification of the Directors is under Section 164(2)(a) of the Act 2013. So the discussion is in the context of this provision. A casual glance at Section 167 does create an impression that the office of the director, who is disqualified under all categories of Section 164 will fall vacant. There is a reference in Section 167(1)(a) to Section 164. The question is whether the reference is to Section 164(1) or Section 164(2) or both - The purpose of interpretation of statute is to ascertain the intention of the Parliament. At first instance, the court would go by plain words of the statute. However if juxtaposition of two provisions in a statute, literally read, would lead to absurd and unintended results then the provisions will have to be harmoniously read. Section 164 (1) does not deal only with disqualification for initial appointment, it also contemplates a sitting director. Because it cannot be the position that a disqualification applicable for appointment as a director, such as unsound mind and conviction, cannot disqualify a director who has incurred such a disqualification after he has become a director. Therefore, harmoniously read, the interplay between Section 164 and 167 is that the office of a director of a company will not automatically fall vacant if a director of a company incurs any of the disqualifications enumerated in Section 164(2) of the Act of 2013. The contention of the Appellant is rejected that the Arbitration Application filed on behalf of the Respondent by its Directors who were disqualified was not maintainable. The office of these Directors had not fallen vacant on their disqualification, and they could represent the Respondent - appeal dismissed.
Issues Involved:
1. Limitation Period for Claim No. 1 2. Maintainability of the Arbitration Application Issue-wise Detailed Analysis: 1. Limitation Period for Claim No. 1: The Appellant argued that Claim No. 1 was barred by limitation, as the claim was presented on 30 August 2018, beyond the three-year limitation period from 31 March 2015. The Arbitral Tribunal had given the benefit of Section 18 of the Limitation Act to the Respondent, relying on the plaint in a Civil Suit filed by the Appellant, which acknowledged the liability till 31 March 2018. The Appellant contended that the statement of claim did not specify how the limitation period was computed or which Article of the Limitation Act was invoked. The Appellant also argued that the extension of limitation under Section 18 of the Limitation Act was not specifically pleaded, and the Arbitral Tribunal should not have referred to the plaint filed by the Appellant. The Court noted that the Code of Civil Procedure is not strictly applicable to arbitral proceedings but its fundamental principles can be invoked. The proviso to Order VII Rule 6 of the CPC allows the court to permit the plaintiff to claim exemption from the law of limitation if the court is satisfied that such ground is not inconsistent with the grounds set out in the plaint. The Court found no perversity in the Arbitral Tribunal's reliance on the documents annexed to the plaint by the Appellant, which showed an acknowledgment of liability till 31 March 2018. Therefore, the application filed on 31 August 2018 was within limitation. 2. Maintainability of the Arbitration Application: The Appellant argued that the Arbitration Application was not maintainable because the Respondent's name was struck off from the Register of Companies, and its directors were disqualified. The Respondent's name was restored to the Register of Companies by the National Company Law Tribunal (NCLT) on 30 October 2018. The Appellant contended that the directors continued to be disqualified and could not present the Reference before the Arbitral Tribunal. The Court examined Sections 164 and 167 of the Companies Act, 2013. Section 164(2)(a) disqualifies a person who is or has been a director of a company that has not filed financial statements or annual returns for three continuous financial years. Section 167(1)(a) states that the office of a director shall become vacant if he incurs any of the disqualifications specified in Section 164. The Court interpreted that the reference to Section 164 in Section 167(1)(a) does not include the contingencies provided in Section 164(2). The Court concluded that the office of a director of a company will not automatically fall vacant if a director incurs any of the disqualifications under Section 164(2). The Court also noted that the proviso to Section 167, inserted by Act 1 of 2018 with effect from 7 May 2018, states that the office of the director shall become vacant in all the companies, other than the company in default. The Court rejected the Appellant's argument that this proviso relaxed the position in favor of directors disqualified under Section 164(2)(a). The Court held that prior to the proviso, there was no automatic vacation of office for directors falling under Section 164(2)(a), and the proviso introduced a mandate from 7 May 2018 that such directors cannot continue as directors in other companies. The Court found that the Arbitration Application filed on behalf of the Respondent by its disqualified directors was maintainable, as their office had not fallen vacant, and they could represent the Respondent. The Court also noted that even if the Arbitral Tribunal committed a legal error in entertaining the application, it did not fall within the test laid by the Supreme Court for setting aside an award on the ground of patent illegality. Conclusion: The appeal was dismissed, and the Notice of Motion (L) No. 662 of 2019 was also dismissed.
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