2017 (11) TMI 1910 - HC - Companies Law

Disqualification of Director from acting/operating as Directors - non-filing the financial statements and annual returns for a period of 3 years - applicability of Section 164(2)(a) of Companies Act. HELD THAT - Notice of motion for 07.12.2017. In the meantime, disqualification of the petitioners as Directors shall remain stayed and their DIN, which have been de-activated, is directed to be activated/restored.

Summary

Issues:
1. Applicability of Section 164(2)(a) of the Companies Act, 1956 to the petitioners.
2. Validity of the action taken by respondent no.1 in issuing a list of Disqualified Directors.
3. Deactivation of Director Identification Numbers (DIN) of the petitioners.
4. Lack of provision for deactivation of DIN in case of non-filing of financial statements and annual returns.
5. Comparison with orders passed by other High Courts staying disqualification of Directors.

Analysis:

1. The petitioners, who are Directors of private limited companies, challenge the action of respondent no.1 in issuing a list of Disqualified Directors under Section 164(2)(a) of the Companies Act, 1956. They argue that the section is not applicable to them as it was introduced with effect from 01.04.2014, and the three-year period for non-compliance ended on 01.04.2017, while the impugned action was initiated on 01.11.2016. The counsel contends that if the DIN of the petitioners is deactivated, they would be unable to file financial statements and annual returns for any company they direct.

2. The petitioners further assert that while penalties exist for late filing of financial documents, there is no provision in the law for deactivating DINs. They refer to orders from other High Courts where disqualification of Directors like themselves has been stayed. The Court, in response, issues a notice for motion and directs that the disqualification of the petitioners as Directors shall remain stayed, ordering the restoration of their deactivated DINs in the interim.

3. The judgment addresses the concerns raised by the petitioners regarding the deactivation of their DINs and the potential impact on their ability to fulfill their duties as Directors. By staying their disqualification and restoring their DINs, the Court ensures that the petitioners can continue to operate in their roles pending further proceedings. This decision safeguards the petitioners' rights and prevents any unjust consequences resulting from the deactivation of their DINs.

4. The Court's ruling highlights the importance of procedural fairness and adherence to legal provisions in matters concerning the disqualification of Directors and the deactivation of DINs. By considering the timelines and applicability of relevant sections of the Companies Act, the Court upholds the principles of natural justice and ensures that the petitioners are not unduly penalized for alleged non-compliance. The judgment serves as a precedent for similar cases involving Director disqualifications and DIN deactivations, emphasizing the need for thorough examination and proper application of the law.