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2020 (9) TMI 265 - HC - Companies LawVires of the proviso under Section 167(2)(a) of the Act which was inserted to the Companies (Amendment Act 2017) - disqualification with respect to Directorship of 'Public' companies - Principles of Natural Justice - HELD THAT - The issue decided in the case of KHUSHRU DORAB MADAN VERSUS UNION OF INDIA 2020 (1) TMI 1212 - MADRAS HIGH COURT where it was held that the three financial years 2014-2015, 2015-16 and 2016-17 have been completed and since annual returns / financial statements have not been filed, disqualification automatically follows and when disqualification is incurred, deactivation of Director Identification Number also automatically follows. The DIN number can exist only during the life time of post of Directorship and not for the entire life of the individual. Issuing a prior notice would be of no avail and would only be an empty formality since the provision of law is clear on this aspect. Petition dismissed.
Issues Involved:
1. Vires of the proviso under Section 167(2)(a) of the Companies Act. 2. Disqualification of Directors under Section 164(2)(a) of the Companies Act. 3. Requirement of notice before disqualification. 4. Deactivation of Director Identification Number (DIN). Issue-wise Detailed Analysis: 1. Vires of the proviso under Section 167(2)(a) of the Companies Act: The Court referenced a previous judgment where the vires of the proviso under Section 167(2)(a) of the Companies Act, 2013, inserted by the Companies (Amendment Act 2017), was upheld. The Division Bench in W.P.No. 32763 of 2019 had validated the provision, emphasizing that the proviso must be interpreted in ordinary terms and justified on grounds of preventing anomalous situations and ensuring transparency and probity in governance. The Court concluded that the proviso is neither manifestly arbitrary nor does it violate any fundamental rights under Part III of the Constitution of India. 2. Disqualification of Directors under Section 164(2)(a) of the Companies Act: The Companies Act 2013, effective from 12.09.2013, brought significant changes, including stricter compliance for filing Annual Returns and Financial Statements. Section 164(2)(a) disqualifies Directors of any company (not just public companies) for non-filing of financial statements or annual returns for three consecutive financial years. The Court clarified that the law is unambiguous: if a Director of a company fails to file the required documents for three continuous years, they are disqualified from being reappointed or appointed in any other company for five years. 3. Requirement of notice before disqualification: The Court examined the necessity of issuing a notice before disqualification. It referenced multiple judgments, including those from the Allahabad High Court, Gujarat High Court, Delhi High Court, and Karnataka High Court, which struck down notifications due to the prospective nature of the Act and the incomplete three-year period from 01.04.2014. However, in the present case, the three financial years (2014-2015, 2015-2016, and 2016-2017) had been completed without filing the required documents. The Court held that issuing a notice would be an "empty formality" since the law is clear and only one conclusion is possible: disqualification. 4. Deactivation of Director Identification Number (DIN): The Court addressed the deactivation of the DIN, stating that the DIN coexists with the office of Directorship. Once a Director is disqualified, their DIN must be deactivated. The term "life" of the DIN refers to the period during which the individual holds the office of Directorship, not their entire lifetime. The Court rejected the argument that the DIN should remain active even after disqualification or resignation, asserting that an irrational interpretation cannot be given. Conclusion: The Court dismissed the writ petitions, concluding that the three financial years had been completed without filing the necessary documents, leading to automatic disqualification and subsequent deactivation of the DIN. The Court emphasized that issuing a prior notice would be futile, as the provisions of the law are clear and unambiguous. The petitions were dismissed with no costs, and connected miscellaneous petitions were closed.
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