2019 (11) TMI 1388 - HC - Indian Laws

Deactivation of petitioner's DIN - certain defaults allegedly made by the petitioner in respect of a particular company - HELD THAT - The petitioner has prima facie satisfied this Court that the respondents have acted de hors the law and natural justice in abrogating the DIN of the petitioner in respect of other companies than the company allegedly at default. There shall be stay of operation of the de-activation of the DIN of the petitioner in respect of other companies, than the company in respect of which the allegation of default has been made, till disposal of the writ petition. The matter will appear for hearing on January 14, 2020.

Summary

Issues:
Deactivation of Director Identification Number (DIN) by Registrar of Companies based on alleged defaults made by the petitioner in a particular company.

Analysis:
The petitioner's grievance was that their DIN was deactivated by the respondent due to alleged defaults in a specific company. The petitioner argued that the punishment was disproportionate as the DIN was related to directorship in multiple companies, not just the one in question. The respondent relied on Section 164(2) of the Companies Act, 2013, stating that a person cannot be re-appointed as a director in a defaulting company or any other for five years. Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014 was cited, emphasizing the need for certain formalities by the director, which the petitioner allegedly did not comply with on time.

The respondent further referred to a Supreme Court order granting a stay on a similar Bombay High Court order, arguing against granting a stay in this case due to the matter being sub judice. The petitioner cited a Telangana High Court order where the DIN of petitioners was restored, urging that similar relief be granted. The Court analyzed Section 164(2) of the 2013 Act, highlighting the distinction it makes between the director's eligibility in the defaulting company and others. It concluded that the petitioner's directorship in companies other than the defaulting one should not be curbed under Section 164(2).

Regarding Section 167 of the 2013 Act, the Court noted that the proviso came into force after the petitioner's disqualification, making it inapplicable. It clarified that Rule 14 of the 2014 Rules pertains to the defaulting company, not others, and cannot mandate compliance for all companies where the director is involved. The Court found that the respondents acted contrary to the law and natural justice by deactivating the petitioner's DIN in companies unrelated to the alleged default. Consequently, a stay was ordered on the deactivation of the petitioner's DIN in other companies until the writ petition's disposal. The respondents were directed to file their affidavits within three weeks, with the matter scheduled for a hearing on January 14, 2020.