2017 (10) TMI 1667 - HC - Indian Laws

Disqualification of directors due to default in filing annual returns - rectification of the defect - HELD THAT - Rule 14 of the Companies (Appointment and Qualification of Directors) Rules 2014 prima facie provides for rectifying the defect by enabling the defaulting companies to file their returns. However the said Rule does not provide what is required to be done by the respective authorities. In the light of the fact that a defaulting company is allowed to rectify the defect by filing the returns which have not been filed earlier the natural corollary of the same would be that the designated/competent authority is required to take the same into consideration. As the filing has to be done through e-platform the same cannot be done unless access is provided to. The authorized individual/Director has to file the same which obviously requires providing access by the authorities. As a matter of fact the material placed before this Court particularly the report of the Companies Law Committee dated nil.02.2016 submitted to the Hon ble Union Minister of Finance Corporate Affairs and I B discloses that the anomaly in relation to the same particularly with regard to the disqualification that is earned by an individual not only with respect to the defaulting company but also with respect to the other companies is noticed and the prima facie opinion of the Committee is that a rectification is required to be made restricting the scope of disqualification to the defaulting company. There shall be a direction to respondent No.1 to restore DIN Numbers 00057433 and 00129701 of petitioners 2 and 3 insofar as petitioner No.1-Company so as to enable them to submit annual returns of petitioner No.1 Company for the years 2011-12 to 2015-16 and further financial statements for the years 2012-13 to 2015-16 in compliance with Rule 14 of the afore-stated Rules read with Form DIR-8 Form DIR-9 and Form DIR-10. Conclusion - The respondent No. 1 is directed to restore the DIN Numbers 00057433 and 00129701 for petitioners 2 and 3 concerning petitioner No. 1-Company. Application disposed off.

Summary

The judgment from the Telangana High Court, presided over by Hon'ble Challa Kodanda Ram, J., addresses a procedural issue concerning the disqualification of directors due to default in filing annual returns. The primary legal question involves the interpretation of Rule 14 of the Companies (Appointment and Qualification of Directors) Rules, 2014. This rule ostensibly allows defaulting companies to rectify their filing defects but lacks clarity on the procedural steps required by authorities to facilitate this rectification.

The court noted that the Companies Law Committee had identified an anomaly where disqualification affects not only the defaulting company but also other companies associated with the individual. The committee suggested that disqualification should be limited to the defaulting company alone.

In conclusion, the court directed respondent No. 1 to restore the DIN Numbers 00057433 and 00129701 for petitioners 2 and 3 concerning petitioner No. 1-Company. This restoration is to enable the submission of overdue annual returns and financial statements for the specified years, in compliance with Rule 14 and relevant forms (DIR-8, DIR-9, and DIR-10).