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2020 (9) TMI 175 - HC - Companies LawStriking off the name of Kushal Power from the Register of the Companies - non-filing of financial statements and annual returns - disqualification of directors - Section 164(2)(a) of the Companies Act, 2013 - HELD THAT - The judgment in MUKUT PATHAK ORS., YOGESH KHANTWAL, AARTI KHANTWAL, AND VINEET WADHWA VERSUS UNION OF INDIA AND ANR. 2019 (11) TMI 319 - DELHI HIGH COURT , insofar as the merits of the case is concerned, is squarely applicable in the present case. The said judgment clearly holds that the proviso to Section 167(1)(a) of the Act cannot be read to operate retrospectively. It was further held that the said proviso, being a punitive measure with respect to the rights and obligations of directors, cannot be applied retrospectively unless the statutory amendment expressly provides so. In the present case, the facts and circumstances show that the Companies Fresh Start Scheme (CFSS) is a new scheme, which has been notified on 30th March, 2020. This Scheme was not invoked before the Ld. Division Bench. The scheme is obviously launched by the Government in order to give a reprieve to such companies who have defaulted in filing documents and they have been allowed to file their requisite documents and to regularize their operations, so as to not face disqualification. The Scheme also envisages non-imposition of penalty or any other charges for belated filing of the documents - The purpose and intent of the Scheme is to allow a fresh start for companies which have defaulted. In order for the Scheme to be effective, Directors of these companies ought to be given an opportunity to avail of the Scheme. The launch of the Scheme itself constitutes a fresh and a continuing cause of action. Under such circumstances, the question of delay or limitation would not arise. Considering the COVID-19 pandemic, the MCA has launched the Fresh Start Scheme-2020, which ought to be given full effect. It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme itself nugatory. Petition allowed.
Issues Involved:
1. Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013. 2. Retrospective application of amendments to Sections 164(2) and 167(1)(a) of the Companies Act, 2013. 3. Impact of the Companies Fresh Start Scheme (CFSS) 2020 on disqualified directors. 4. Delay in filing the writ petition challenging the disqualification. Detailed Analysis: 1. Disqualification of Directors under Section 164(2)(a) of the Companies Act, 2013: The petitioners, directors of two companies, were disqualified due to non-filing of financial statements and annual returns, leading to the striking off of one company from the Register of Companies on 30th June 2017. Their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) were also cancelled, preventing them from carrying on business activities in the active company. 2. Retrospective Application of Amendments to Sections 164(2) and 167(1)(a) of the Companies Act, 2013: The petitioners argued that the amendments introduced by the Companies Amendment Act, 2018, effective from 7th May 2018, should not apply retrospectively. They relied on the judgment in Mukut Pathak & Ors. v. Union of India & Ors., which held that the proviso to Section 167(1)(a) being a punitive measure, cannot be applied retrospectively unless expressly provided by the statutory amendment. The Court in Mukut Pathak stated that disqualifications incurred under Section 164(2) prior to 7th May 2018 should not lead to vacation of office in other companies. 3. Impact of the Companies Fresh Start Scheme (CFSS) 2020 on Disqualified Directors: The petitioners sought to benefit from the CFSS 2020, introduced to allow companies to rectify defaults in filing documents without facing disqualification. The scheme, launched on 30th March 2020, provides immunity from penalties and prosecution for belated filings and aims to facilitate a fresh start for companies. The petitioners argued that their disqualification and deactivation of DINs and DSCs hindered their ability to avail of the scheme for the active company, Koksun Papers. 4. Delay in Filing the Writ Petition Challenging the Disqualification: The respondents contended that the petition was filed belatedly, as the disqualification list was published in 2017. The Division Bench in Anamika Devi v. Union of India & Anr. and Gaurav Kumar v. Union of India & Anr. dismissed similar petitions on the grounds of delay. However, the Court noted that the CFSS 2020 constitutes a fresh cause of action, and the pandemic situation necessitated giving full effect to the scheme. Judgment: The Court found the judgment in Mukut Pathak applicable, asserting that the amendments to Sections 164(2) and 167(1)(a) cannot be applied retrospectively. The Court recognized the CFSS 2020 as a fresh cause of action, allowing directors of active companies to rectify defaults and continue business operations. Given the pandemic and the scheme's intent, the Court set aside the petitioners' disqualification and directed the reactivation of their DINs and DSCs within three working days. Conclusion: The writ petition was allowed, and all pending applications were disposed of, enabling the petitioners to continue their business activities under the CFSS 2020.
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