2017 (11) TMI 1908 - HC - Companies Law

Disqualification of directors of companies - Section 164(2)(a) of the Companies Act, 2013 - HELD THAT - For the purposes of interim protection, we are of the view that an arguable case has been made out by the petitioner/appellant. It appears, prima facie, that disqualification under Section 164(2) of the said Act would not prevent the petitioner to continue to act as Director of other companies which are not in default. However, we are not expressing any opinion as to whether or not he will be eligible for re-appointment in any of the companies. We are also of the prima facie view that Section 164(2)(a) cannot be given retrospective effect, it being a penal or quasi-penal provision. We also feel that the balance of convenience is in favour of granting interim relief to the appellant/writ petitioner. There will be an interim order as follows - An order of injunction staying the operation of the impugned list of disqualified directors published by the Respondent No. 1 so far as it pertains to the Appellant herein - An interim order allowing the Appellant to continue as director in all companies in which the Appellant has been serving as director. The interim order, passed herein, shall continue until disposal of the writ application by the learned single Judge - the appeal and the application for stay filed in connection with this appeal are, thus, disposed of.

Summary

Issues:
Challenge to disqualification under Section 164(2)(a) of the Companies Act, 2013 based on non-filing of annual returns for a company. Interpretation of Section 164(2) regarding retrospective effect and scope of disqualification. Granting of interim relief to the appellant to continue as director in other companies.

Analysis:
The judgment involved a challenge to the disqualification of a director under Section 164(2)(a) of the Companies Act, 2013 due to non-filing of annual returns for a company. The appellant argued that Section 164(2) cannot have retrospective effect and that disqualification only applies to re-appointment or further appointment as a director. The Court considered the submissions and found that an arguable case was made out by the appellant. It was noted that disqualification under Section 164(2) does not automatically prevent the appellant from acting as a director in other companies not in default, although eligibility for re-appointment was not determined. The Court held that Section 164(2)(a) cannot be given retrospective effect, considering it a penal or quasi-penal provision. The balance of convenience favored granting interim relief to the appellant, allowing them to continue as director in all companies they were serving in, except the defaulting company.

The Court issued an interim order staying the operation of the list of disqualified directors and allowing the appellant to continue as director in non-defaulting companies. However, the appellant was not entitled to continue as a director of the defaulting company. The respondents were directed to allow the appellant to file necessary documents using their Director Identification Number and Digital Signature Certificate. The Court decided that the issues should be finally decided by the single Judge after the exchange of affidavits, setting deadlines for filing. The interim order was to continue until the writ application was disposed of, emphasizing that the views expressed were prima facie and the Judge should decide without influence from the order.

The judgment clarified that the observations made were prima facie, and the Judge had the liberty to decide the writ application independently. Since no affidavits were called for, the allegations in the stay petition were not admitted by the respondents. The appeal and the application for stay were disposed of, and urgent certified copies of the order were to be provided to the parties upon request.