2019 (6) TMI 421 - HC - Companies Law

Direction to the 2nd Respondent Registrar of Companies, Mumbai not to act upon the extract, a copy of which is Exhibit A to the Petition - scope of Section 164 (2)(a) of the Companies Act 2013 - HELD THAT - he issue whether this provision can be invoked and applied despite the amendment to the Companies Act 2013 been brought into efect from 1st April 2014, can it afect the position of a director who was appointed prior to this provision being brought into efect, is very vital. Secondly, we will have to consider the impact of this provision on a person who is or has been a director of a company which has defaulted in complying with the requirements of the Companies Act 2013. Whether every director of a company in this position should be proceeded against and declared to be ineligible for reappointment or appointment in other companies is the main question. Once it is argued that the disqualification is not automatic and would not result in vacating of the office, then, all the more it is necessary to be clarified until we hear the parties at some length that the documents such as Exhibit A uploaded on the portal of the Registrar of Companies as also any other document which in the nature of the page 23 of the paper-book by itself and without anything more will not prevent or preclude the participation of such directors in the proceedings contemplated in Section 29-A of IBC. The position of the Petitioner in terms of Section 29-A under a distinct statute namely the Insolvency and Bankruptcy Code 2016 shall not be afected by the impugned acts of Respondent No. 2. With this clarification having been issued we do not think that a specific ad-interim or interim order is required in this Petition. This Petition is also to be placed on 13th June 2019.

Summary

Issues involved:
Interpretation of Section 164(2)(a) of the Companies Act 2013 regarding disqualification of directors due to non-filing of financial statements, Impact of the provision on directors appointed before its enforcement, Consideration of eligibility for reappointment as a director in case of default by a company, Examination of the effect of disqualification on participation in insolvency proceedings under Section 29-A of the Insolvency and Bankruptcy Code 2016.

Analysis:

1. The petitioners sought direction against the Registrar of Companies not to act upon the extract report listing disqualified directors under Section 164(2)(a) of the Companies Act 2013. The petitioner claimed to have resigned from a company before the enforcement of the provision and argued that the disqualification should not apply retroactively.

2. The petitioner emphasized that the wording of the section distinguishes between eligibility for appointment as a director (sub-section 1) and disqualification for reappointment in case of non-compliance by a company (sub-section 2). The court examined the implications of the provision on directors of defaulting companies and the necessity to clarify the impact on their directorship in other companies.

3. The court considered the potential consequences of disqualification on the petitioner's participation in insolvency proceedings under Section 29-A of the Insolvency and Bankruptcy Code 2016. The petitioner's involvement in a resolution plan bidding process was at risk due to the disqualification, raising concerns about exclusion from the bidding process and the resolution application.

4. In light of the legal arguments and the distinct contingencies addressed by Section 164(2)(a), the court clarified that the petitioner's position under the Insolvency and Bankruptcy Code 2016 would not be affected by the actions of the Registrar of Companies. This clarification aimed to ensure the petitioner's eligibility to participate in insolvency proceedings despite the disqualification under the Companies Act.

5. The court's decision was influenced by the interpretations of similar issues by other High Courts like Gujarat, Madras, and Rajasthan. The judgment highlighted the need to balance the provisions of the Companies Act with the rights and interests of directors facing disqualification, particularly concerning their participation in insolvency proceedings.

6. The court scheduled further proceedings on 13th June 2019 to address additional petitions and related matters, emphasizing the importance of clarifying the application and impact of Section 164(2)(a) on directors' eligibility and participation in corporate governance and insolvency processes.