2016 (11) TMI 1678 - Tri - Companies Law

Disqualification of Directors - Section 164 (2) (a) r/w Section 167 (1) (a) of the Companies Act 2013 - principles of res-judicata - retrospective effect or not - declaration of cease to continue as directors. Whether this CA is hit by resjudicata or not? - HELD THAT - It is not permissible in the light of the principle laid under Section 11 (IV) of CPC to seek removal of them as directors on another legal ground. No doubt it is true that if new legislation comes and gives new jurisdiction with retrospective action relating back to the acts in the past, it is altogether different situation. But when new Act has been in even before filing earlier CA 201/2015 for the removal of R4 R5 as directors, it can't be taken out separately subsequently after waiting until earlier application was dealt with - the applicant cannot take out a sentence from the order saying that since he is given liberty to seek interlocutory order on additional facts, he is entitled raise on the same facts by invoking another legal point. The applicant ought to have raised all these legal scores in the former application itself - thus, the relief sought by the applicant in this CA is held as hit by constructive resjudicata. Whether the disqualification set forth in Section 164(2)(a) r/w 167(1) (a) of the Act 2013 has retrospective effect or not? - HELD THAT - In the present case non-filing of financial statements before this enactment would not tantamount to disqualification to become Director or to continue as Director, new enactment made non-filing of financial statements for three consecutive years as disqualification and amounts to an offence only to the act after 1.4.2014 - If this disqualification is construed as applicable to the past acts, it is obviously unfair to the people conducted the affairs of the company under the impression that non-filing of financial statements for three years is not a default and not an offence - Therefore, this provision has to be read as applicable to the situations where non-filing has started, at the most in the past and continuing while this enactment has come to into existence and also to future non-filing but not to be considered as applicable to the past acts for it is an established proposition that an Act has to be considered retroactive only when it has been explicitly mentioned in the Act - decided against petitioner. Whether the applicant can seek NCLT to declare that R4 R5 cease to continue as directors in terms of Sections 164 (2) (a) r/w 167 (l)(a) of the Act 2013 in the CP filed u/s 397 and 398 of the Companies Act 1956/u/s 241 242 of the Companies Act 2013 or not? - HELD THAT - This applicant himself sought for holding AGMs for the years 2009-10 to 2013-2014, accordingly meetings were held, resolutions were passed by supplying all the statements after audit, therefore, if at all financial statements are not filed for the years mentioned, it can't be said as an act prejudicial to the interest of the applicants - this Bench has not found any merit in the argument the petitioner counsel taken out for declaring that R4 R5 ceased to continue directors of the company for it is in violation of the provision of law. Application dismissed.

Summary

Issues Involved:
1. Whether this CA is hit by res judicata.
2. Whether the disqualification set forth in Section 164(2)(a) r/w 167(1)(a) of the Companies Act 2013 has retrospective effect.
3. Whether the applicant can seek NCLT to declare that R4 & R5 cease to continue as directors in terms of Sections 164(2)(a) r/w 167(1)(a) of the Companies Act 2013 in the CP filed u/s 397 and 398 of the Companies Act 1956/u/s 241 & 242 of the Companies Act 2013.

Issue-wise Detailed Analysis:

1. Whether this CA is hit by res judicata:
The applicant previously filed CA 201/2015 seeking similar reliefs, including an injunction against R4 & R5 from acting as directors and the appointment of independent directors. The current CA 47/2016 also seeks to declare R4 & R5 disqualified from acting as directors due to non-filing of financial statements for five consecutive years. The High Court of Bombay set aside the CLB's order on CA 201/2015 and disposed of it with no order, leaving all rights and contentions open. The Tribunal concluded that since the applicant had the opportunity to raise the issue of disqualification in CA 201/2015 but did not, the current application is hit by constructive res judicata. The Tribunal emphasized that the applicant cannot raise the same issue based on a different legal ground after the previous application was disposed of.

2. Whether the disqualification set forth in Section 164(2)(a) r/w 167(1)(a) of the Companies Act 2013 has retrospective effect:
The applicant argued that the disqualification under Section 164(2)(a) and 167(1)(a) should apply retrospectively to the non-filing of financial statements for three consecutive years before the notification of these sections. The Tribunal referred to the Solicitor's Clerk case and the Ishwarnagar Co-operative Housing Building Society case, which established that posterior disqualification based on past conduct does not make a statute retrospective. The Tribunal held that non-filing of financial statements before the enactment of Sections 164 and 167 was not a default or an offence. Therefore, applying these sections retrospectively would be unfair and contrary to established legal principles. The Tribunal decided that the disqualification provisions do not have retrospective effect.

3. Whether the applicant can seek NCLT to declare that R4 & R5 cease to continue as directors in terms of Sections 164(2)(a) r/w 167(1)(a) of the Companies Act 2013 in the CP filed u/s 397 and 398 of the Companies Act 1956/u/s 241 & 242 of the Companies Act 2013:
The Tribunal emphasized that the test under Sections 397 and 398 of the Companies Act 1956 (now Sections 241 and 242 of the Companies Act 2013) is the test of unfair prejudice, not the validity of actions under legal provisions. It noted that even if financial statements were not filed, it must be shown that such non-filing was prejudicial to the applicant's interests. The Tribunal found no evidence that the non-filing of financial statements caused any prejudice to the applicant. Moreover, the Tribunal stated that it does not have separate jurisdiction to determine issues under Sections 164 and 167 unless it is part of a scheme to cause prejudice. Therefore, the Tribunal dismissed the application, stating that the applicant's case under Sections 397 and 398 does not hold merit based on the alleged violation of Sections 164 and 167.

Conclusion:
The Tribunal dismissed CA 47/2016 without costs, holding that the application is hit by constructive res judicata, the disqualification provisions do not have retrospective effect, and the applicant's case under Sections 397 and 398 does not establish unfair prejudice based on the alleged non-compliance with Sections 164 and 167.