2018 (3) TMI 1137 - HC - Companies Law

Disqualifications for appointment of director - constitutional validity of provision U/s.164(2)- Held that - The operation of law cannot be stalled, diverted or made non-operative and the petitioners cannot be allowed to continue as Directors on the Board of Directors in defaulting company or even other companies and the illegality in the form of non-compliance on the part of the company in which the petitioners were admittedly the Directors, cannot be perpetuated by invoking the extraordinary jurisdiction of this Court. As far as the question of constitutional validity of provision U/s.164(2) of the Act is concerned, this Court does not find any illegality, unconstitutionality or ultra vires in the provisions of Section 164(2)(a) or Section 167 of the Act. Merely because the provisions may operate harshly against the Directors of the defaulting company, it does not render a provision enacted with an avowed purpose of ensuring the due compliance of the provisions of the Act, foundationless or ultra vires.The writ petitions are premature and without any foundation

Summary

Issues:
Challenge to the constitutional validity of Section 164(2)(a) of the Companies Act, 2013 and related press release, disqualification of directors, removal of disqualification, unblocking of Directors Identification Number (DIN), opportunity for default correction, application under the "Condonation of Delay Scheme, 2018", and the overall legality of the provisions.

Analysis:
The petitioners approached the court seeking relief against the disqualification imposed under Section 164(2)(a) of the Companies Act, 2013. The disqualification arises when a company fails to file financial statements or annual returns for three consecutive financial years. The petitioners argued that this provision unfairly disqualifies directors without proper adjudication. However, the court found the petitions premature as the petitioners did not obtain the order from the Registrar of Companies or present their case before the appropriate authority. The court emphasized that the petitioners should have first approached the Registrar of Companies to challenge the disqualification and present their case, as required by law.

Regarding the constitutional validity of Section 164(2)(a) and Section 167 of the Act, the court held that the provisions were not illegal, unconstitutional, or ultra vires. The court noted that the purpose of these provisions is to ensure compliance with the law and prevent defaulting directors from continuing in their positions. The court dismissed the challenges to the provisions, stating that they serve the intended purpose of enforcing compliance with the Companies Act.

The court emphasized that the petitioners did not provide a factual foundation for their challenge and did not approach the appropriate authority for resolution. The court highlighted the importance of presenting relevant facts before the Registrar of Companies for a reasoned decision. Without such foundational steps, the court found the petitions lacking merit and premature. Ultimately, the court dismissed the petitions, stating that they were without foundation and premature, and therefore not maintainable under Article 226 of the Constitution of India.

In conclusion, the court dismissed the writ petitions as premature and lacking a factual foundation. The court emphasized the importance of following due process and presenting cases before the appropriate authorities for adjudication. The petitions challenging the disqualification of directors under Section 164(2)(a) were deemed premature and not maintainable without proper factual basis and adherence to legal procedures.