2018 (5) TMI 2032 - HC - Companies Law

Disqualification of Directors - Section 164(2)(a) of the Companies Act, 2013 - case of respondent is that Section 164(2) of the said Act of 2013 came into operation with effect from 1st April, 2014 and hence the same can be made applicable only from the financial year 2013-14 and not for any period prior thereto and as such, the direction to disqualify the petitioners with effect from the financial years 2013-14 is not sustainable - HELD THAT - Prima facie, an arguable case has been made out by the petitioners and it appears that the disqualification under Section 164(2) of the said Act of 2013 would not prevent the petitioners to continue to act as directors of other companies which are not in default - Accordingly, there shall be an interim order staying the operation of the impugned list of disqualified directors published by the respondent no.1 so far as it pertains to the petitioners herein. There shall be a further interim order allowing the petitioners to continue as directors in all the companies in which the petitioners have been serving as directors and to comply with the formalities as provided under the Companies Act, 2013 - The said interim orders shall continue till the end of August, 2018 or until further orders whichever is earlier. List this matter for further consideration in the combined monthly list of July, 2018.

Summary

Issues: Challenge to disqualification of directors under Section 164(2)(a) of the Companies Act, 2013 based on non-filing of annual returns for consecutive years.

Analysis:
The judgment by the High Court of Calcutta dealt with a writ petition challenging a list published by the Registrar of companies naming directors disqualified under Section 164(2)(a) of the Companies Act, 2013. The petitioners, who were directors of various companies, argued that they were disqualified due to the non-filing of annual returns for a company that never commenced business activities. The petitioners contended that the disqualification should only apply from the financial year 2013-14 when Section 164(2) came into effect, relying on a previous judgment in the case of Arun Seth vs. Union of India. On the other hand, the respondent argued that the disqualification can be based on non-filing of annual returns for any continuous period of three financial years, regardless of when the provision came into force.

The Court found that an arguable case was made out by the petitioners, indicating that the disqualification under Section 164(2) of the Companies Act, 2013 should not prevent them from acting as directors in other compliant companies. Consequently, the Court issued an interim order staying the operation of the list of disqualified directors in relation to the petitioners and allowed them to continue serving as directors in other companies, subject to complying with the formalities under the Act. These interim orders were to remain in effect until the end of August 2018 or until further orders were issued, whichever came earlier.

Furthermore, the Court directed the respondents to file an affidavit-in-opposition within two weeks after the summer vacation, with a provision for the petitioners to respond within two weeks thereafter. The matter was scheduled for further consideration in the combined monthly list of July 2018, and the parties were to receive a copy of the order upon completion of all formalities.