2019 (12) TMI 1431 - HC - Companies Law

Disqualification of Directors - permission to Petitioner to get re-appointed or appointed as Directors in any other Company without any hindrance - section 164 (2) (a) of the Companies Act 2013 - HELD THAT - The issue decided in the case of BHAGAVAN DAS DHANANJAYA DAS VERSUS UNION OF INDIA, REGISTRAR OF COMPANIES, TAMILNADU CHENNAI 2018 (8) TMI 436 - MADRAS HIGH COURT , where it was held that when the default in filing the accounts or returns are made as compoundable offence, Section 164(2)(a) providing the disqualification of director of private company not only in the defaulting company, but also from other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature, because, notice to be sent under section 248(1) of the Companies Act, 2013 by the Registrar of Companies for striking off the name of the company from the Registrar of Companies on the premise that the company has not been carrying on any business for a period of two financial years, is different from the disqualification under section 164(2)(a), inasmuch as a company can be struck off, if the company has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years. H ence, Section 164(2)(a) is read down to the extent it disqualifies the directors in other companies which are scrupulously following the requirements of law, making it clear that no directors in other companies can be disqualified without prior notice. As the Petitioner in this case is similarly placed to the Petitioners in the aforesaid batch of cases relating to the same impugned list published in the website by the Respondents, they are entitled to identical relief that has been granted to them - Petition allowed.

Summary

Issues:
Challenge to disqualification of directors under section 164(2)(a) of the Companies Act 2013 based on lists published by the Registrar of Companies, Tamil Nadu, Coimbatore. Application of principles of natural justice in disqualification process.

Analysis:
1. Disqualification of Directors: The judgment addresses the challenge to disqualification of directors under section 164(2)(a) of the Companies Act 2013 based on lists published by the Registrar of Companies, Tamil Nadu, Coimbatore. The court highlighted that the disqualification clause should not have a retrospective effect and that the disqualification could only be triggered after a specific timeline. The judgment emphasized the importance of following legal provisions and principles of natural justice in disqualifying directors, especially in cases where the directors of private companies were not subject to disqualification under the old Act of 1956.

2. Application of Principles of Natural Justice: The judgment underscored the significance of adhering to the principles of natural justice in the disqualification process. It mentioned that even though there is no explicit provision mandating the observance of natural justice principles in director disqualification cases, the denial of the legal right of directors to continue in their roles necessitates the application of natural justice. The court highlighted the need for proper notice to be issued to all directors before disqualification and stressed that the disqualification process should not disproportionately affect directors who are diligently following legal requirements.

3. Operative Portion of Previous Order: The judgment referred to an earlier order that addressed similar challenges related to lists published by the Registrar of Companies, Tamil Nadu, Chennai. It quoted the operative portion of the previous order, which emphasized the incorrect retrospective application of the disqualification clause and the necessity of adhering to specific timelines and legal provisions regarding filing of annual returns and financial statements.

4. Relief Granted: The judgment concluded by granting relief to the petitioner, similar to that provided in the previous batch of cases. It set aside the impugned orders, allowing the petitioner to be re-appointed or appointed as directors in other companies without hindrance. The connected Miscellaneous Petition was closed, and no costs were awarded in the matter.

In summary, the judgment addressed the challenge to director disqualification under section 164(2)(a) of the Companies Act 2013, emphasizing the importance of following legal provisions, timelines, and principles of natural justice in such cases. It granted relief to the petitioner, setting aside the impugned orders and allowing the petitioner to hold directorship in other companies, similar to the relief granted in previous related cases.