2020 (3) TMI 1060 - HC - Companies Law

Deactivation of DINs of petitioner - It is submitted by learned counsel for the petitioners that although only one of the companies was alleged to have committed default, the DIN of the petitioners was deactivated in respect of the other companies, in which they were directors, as well, which was de hors the law - HELD THAT - The disqualification of the DIN of the petitioners could not operate in respect of other companies than the defaulting company. In the event the DIN of a director is to be deactivated and not merely the name of the company struck out from the RoC, the said person has to be given notice individually and heard and given an opportunity to establish that he was not liable for the alleged default committed by the company. This court is of an opinion that an opportunity of hearing had to be given to the petitioners prior to the deactivation of their DINs, even in respect of the defaulting company, which has not been given in the present case. Further, the RoC cannot deactivate the DIN only on the ground that a director has incurred disqualification under Section 164(2)(a) or his office has become vacant under Section 167(1)(a). Since such DIN is allocated under Section 154 of the 2013 Act, and there is no provision in the Act for the deactivation of the DIN of a director only on the ground of such disqualification under Section 164(2)(a) or Section 167(1)(a), the action of the RoC in the present case, in deactivating the DIN of the petitioners on the ground of such violation of Section 164(2)(a) of a particular company cannot confer a right on the RoC to deactivate such DIN. Petition allowed.

Summary

Issues:
Deactivation of Directors Identification Numbers (DINs) without due process of law

Analysis:
The petitioners, as directors of several companies, challenged the deactivation of their DINs by the Registrar of Companies (RoCs) without following due process. They argued that their DINs were deactivated in companies where they were directors, even though only one company was alleged to have committed default, which they contended was unlawful. The petitioners emphasized that the deactivation of their DINs in other companies, besides the defaulting one, was unjust as it did not follow the provisions of the Companies Act, 2013.

The petitioners relied on Section 164 of the 2013 Act to argue that disqualification under this section was limited to the defaulting company and did not extend to other companies where the directors were involved. They highlighted the distinction between being "reappointed" in the defaulting company and being "appointed" in other companies, indicating that the disqualification should not affect their directorship in non-defaulting companies. They stressed the importance of the principle of Audi Alteram Partem, asserting that they should have been given a hearing before any disqualification as directors.

The petitioners cited various judgments, including one from the Allahabad High Court, to support their argument that the deactivation of DINs should be limited to the defaulting company and not extended to other companies where the directors were involved. They contended that the deactivation of their DINs in all companies was unjust and deprived them of their powers as directors in non-defaulting companies.

In response, the respondents referred to a Bombay High Court judgment suggesting that Section 164 could operate retrospectively based on non-filing of financial statements or annual returns by a company. They also cited a Madras High Court judgment emphasizing that a director's disqualification should lead to the deactivation of their DIN, which should only exist during their tenure as director and not indefinitely.

After considering the arguments and legal provisions, the court agreed with the petitioners' stance that the deactivation of DINs should be limited to the defaulting company and not extended to other companies. The court held that the RoC cannot deactivate DINs solely based on disqualification under Section 164(2)(a) without a specific provision in the Act for such deactivation. Consequently, the court allowed the writ petitions, setting aside the orders deactivating the petitioners' DINs and directing the reactivation or allocation of new DIN numbers within a specified timeframe.

In conclusion, the court ruled in favor of the petitioners, emphasizing the need for due process and adherence to legal provisions when deactivating DINs of directors, particularly concerning disqualification under the Companies Act, 2013.