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2019 (1) TMI 27 - HC - Companies LawDisqualification of directors - Directors associated with struck off companies - disqualification as contemplated under Section 164(2)(a) - retrospectivity of provisions of Section 164(2)(a) - deactivating DINs (Directors Identification Numbers) - effect of Resignation of director - directors discharging his statutory liabilities under the Act - Held that - once an individual who is intending to be the Director of a particular company is allotted DIN by the Central Government such DIN would be valid for the lifetime of the applicant and on the basis of such DIN he could become Director in other companies also. Hence if one of the companies in which he was Director is struck off his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11 which specifically provides for the circumstances under which the DIN could be cancelled or deactivated.In that view of the matter the Court is of the opinion that the action of the respondents in deactivating the DINs of the petitioners - Directors along with the publication of the impugned list of Directors of struck off companies under Section 248 also was not legally tenable. Section 164(2) of the Act of 2013 which had come into force from 1.1.2014 would have prospective and not retrospective effect. The defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or annual returns for any continuous period of three financial years would be the defaults to be counted from the financial year 2014-15 only and not 2013-14. The respondents could not have treated the Directors as disqualified/ineligible for a period of five years from 1.11.2016 to 1.11.2021 while publishing the impugned list under Section 248 of the Act of 2013.Even if the Registrar removes the name of a company from the register of companies and even if such company would stand dissolved under Section 248 the statutory liabilities/obligations of such struck of company and its Directors would still remain to be discharged in view of Section 250 of the said Act of 2013. The respondents could not have deactivated the DINs allotted to the Directors under Section 154 of the said Act except under the circumstances mentioned in Rule 11 of the said Rules of 2014. In view of the above the impugned list dated 12.9.2017 of the Directors associated with the struck off companies under Section 248 published by the respondent No.1 is quashed and set aside. The respondents are directed to activate the respective Director Identification Numbers of the petitioners forthwith if not activated so far. However it is clarified that the respondents shall be at liberty to take legal action against the petitioners for any statutory default or non-compliance in accordance with law.
Issues Involved:
1. Legality of the publication of the list of disqualified Directors. 2. Validity of deactivation of Director Identification Numbers (DINs). 3. Application of Section 164(2) of the Companies Act, 2013. 4. Retrospective vs. prospective application of Section 164(2). 5. Compliance with principles of natural justice. 6. Impact of resignation of Directors prior to the publication of the list. 7. Applicability of the Condonation of Delay Scheme, 2018. Issue-wise Detailed Analysis: 1. Legality of the Publication of the List of Disqualified Directors: The petitioners challenged the action of the Ministry of Corporate Affairs (MCA) in publishing a list of Directors associated with "struck off companies" under Section 248 of the Companies Act, 2013, showing them as disqualified. The Court found that the publication of this list on 12.9.2017 was premature and untenable at law, as the disqualification under Section 164(2)(a) would only be attracted after the financial year 2016-17, i.e., after 30th October or 30th November 2017. The list was thus quashed and set aside. 2. Validity of Deactivation of Director Identification Numbers (DINs): The Court held that the deactivation of DINs was not legally tenable as Rule 11 of the Companies (Appointment of Directors) Rules, 2014, does not contemplate suo motu powers for the Central Government or any authorized officer to cancel or deactivate DINs. The DINs are valid for the lifetime of the applicant and cannot be deactivated merely because the company is struck off. The respondents were directed to reactivate the DINs of the petitioners. 3. Application of Section 164(2) of the Companies Act, 2013: Section 164(2) disqualifies a Director if the company has not filed financial statements or annual returns for any continuous period of three financial years. The Court clarified that this provision applies prospectively from 1.4.2014, meaning the three financial years would be 2014-15, 2015-16, and 2016-17. The respondents' interpretation that it included the financial year 2013-14 was rejected as it would give retrospective effect to the provision. 4. Retrospective vs. Prospective Application of Section 164(2): The Court emphasized that every statute is presumed to be prospective unless expressly stated otherwise. Section 164(2) of the Companies Act, 2013, was held to be prospective, applying only to defaults occurring after 1.4.2014. The Court cited Supreme Court judgments to support the principle that laws should not be applied retrospectively unless clearly intended by the legislature. 5. Compliance with Principles of Natural Justice: The petitioners argued that the publication of the disqualification list without giving them an opportunity to be heard violated principles of natural justice. The Court noted that disqualification under Section 164(2) occurs by operation of law and does not require a declaration or order from the authorities. Therefore, the principles of natural justice were not applicable in this context. 6. Impact of Resignation of Directors Prior to the Publication of the List: For Directors who had resigned before the publication of the list, the Court examined whether the resignation was properly communicated to the Registrar as required under Section 168 and the relevant rules. The Court found that in most cases, the petitioners failed to provide sufficient details to prove that the resignation was duly processed. Therefore, the issue of disqualification due to resignation was not conclusively addressed. 7. Applicability of the Condonation of Delay Scheme, 2018: The respondents argued that the Condonation of Delay Scheme, 2018, provided an opportunity for defaulting companies to rectify their defaults. However, the Court held that the scheme could not justify the premature publication of the disqualification list. The scheme was meant to address defaults for the financial years 2013-14 to 2015-16, but the Court reiterated that Section 164(2) applied prospectively from 1.4.2014. Conclusion: The High Court quashed the impugned list dated 12.9.2017 and directed the respondents to reactivate the DINs of the petitioners. The Court clarified that the disqualification under Section 164(2) of the Companies Act, 2013, applies prospectively and not retrospectively. The respondents were also reminded of their liberty to take legal action for any statutory defaults in accordance with the law.
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