9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (4) TMI 354 - HC - Companies LawDisqualification of Directors to continue as Directors of all the Companies in which they were Directors for a period of Five years - Section 164 (2) of Companies Act, 2013 - disqualification of Director of those Companies only on the ground that those Directors are also holding similar Office in other Companies which have committed default attracting disqualification under Section 164 (2) of Act, 2013 - HELD THAT - Section 164 of Act, 2013 is not only similar to Section 274 of Act, 1956 but a bit wider. Disqualification added in Section 274 (1) by insertion of Clause (g) has been continued in Section 164 though framed in slightly different language and is on the Statute as sub-section (2) of Section 164 of Act, 2013 - Under Act, 2013 liability to file Annual Return is provided vide Section 92. It says that every Company shall prepare a return (described in Section 92 as Annual Return ) in the prescribed form containing particulars as detailed in Sub-section 1 of Section 92, as they stood on the close of Financial Year. Such Annual Return shall be signed by Director and the Company Secretary. Where there is no Company Secretary, it shall be signed by a Company Secretary in practice. Sub-section (4) of Section 92 makes it obligatory for every Company to file Annual Return with ROC within sixty days from the date on which Annual General Meeting (AGM) is held or where no AGM is held in any year within sixty days from the date on which AGM should have been held together with the statement specifying the reasons for not holding the AGM. The filing of Annual Returns and Financial Statements are obligatory, non-compliance thereof is punitive and penal is nature. Therefore, Legislature has found it expedient to include violation of said provisions as one of the disqualification of a person to be a Director of such Company. What shall be the financial years, which can be considered for the purpose of disqualification under Section 164 (2) of Act, 2013, which came into force on 01.04.2014? - HELD THAT - A perusal of Section 2(41) of Act, 2013 shows that for a provision, which came into force on 01.04.2014, 'Financial Year' which ended on 31.03.2014 will not be relevant, inasmuch as, disqualification under Section 164(2)(a) of Act, 2013 is failure of submission of Financial Statements or Annual Returns for any continuous period of three Financial Years and this provision, which is adverse and penal in nature, cannot be made applicable to a Financial Year which had already lapsed and when there was no such condition attracting any disqualification on an event as provided under Section 164(2) (a) of Act, 2013. - for attracting mischief of Section 164(2) (a) of Act, 2013, the 'Financial Year' would commence from 2014-15 and not prior thereto. Whether Section 164 (2) of Act, 2013 is arbitrary and discriminatory, hence violative of Articles 14 and 19 (1)(g) of the Constitution of India or not? - HELD THAT - While holding the Company responsible and to face consequences of such violation, Legislature has found it appropriate to hold the person responsible for its management i.e. Director to suffer certain consequences, which cannot be said to be unreasonable or per se arbitrary or irrational - there are no force in the submission that Section 164 (2) of Act, 2013 is ultra vires - This question, therefore, is answered against petitioners. Whether principles of natural justice are applicable before holding a Director disqualified under Section 164(2) or holding that Office of Director has become vacant under Section 167(1) (a)? - HELD THAT - Section 248 of Act, 2013, therefore, does not talk of disqualification, which a Director would suffer so as to incur disqualification under Section 164 (2) read with Section 167 of Act, 2013. Thus the mere fact of striking off of a Company by itself can not prejudice a Director for the purpose of Sections 164 (2) and 167 (1) of Act, 2013 - if conditions precedent to attract Section 164 (2) of Act, 2013 is established to exist, consequences are by operation of law but the condition precedent is that the condition of disqualification actually exists and for this purpose, a bare minimum requirement of notice to such Directors would be necessary to verify, whether such condition exists or not. Whether there is such failure as contemplated and provided by Section 164(2)(a) of Act, 2013 to attract disqualification thereunder and also to incur consequences provided under Section 167(1) (a) of Act, 2013, it has to be established, as a matter of fact, that there is such failure. For this purse, in our view, a notice would be necessary to find out whether the alleged disqualification which according to ROC has been incurred by any Director, is an undisputed fact or if disputed, opportunity to concerned person has to be given to establish otherwise - it cannot be said that continuance of a person as Director though under law he has suffered disqualification and he knows it, and office of Director has become vacant, will remain unpunished but he has to suffer further penalty also. It is, however, true that even this consequence will arise only when basic facts of incurring disqualification are established. This has to be established by an Authority who is responsible for monitoring and ensuring compliance of various provisions of Statute. A complete embargo on principles of natural justice would not be justified, particularly when to attract disqualification and consequences under aforesaid provisions, certain basic facts, whether exist or not, had to be established and for this purpose at least a notice to concerned person was necessary to be given by ROC. Whether there is any provision empowering Registrar of Companies to de-activate DIN of petitioners who were allotted DIN under Section 154 of Act, 2013? - HELD THAT - We need not go into this aspect in detail for the reason that various High Courts have examined relevant statutory provisions on this aspect and have taken a common view that there is no provision which empowers ROC to de-activate 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) - the question is answered in favour of petitioners - in absence of any provision to deactivate DIN of petitioners if they have incurred disqualification under Section 164 of Act, 2013, the action of respondents and in particular of ROC, in deactivating DIN of petitioners, cannot be sustained. All writ petitions have to be allowed partly and action of respondents in deactivating DIN of petitioners is to be quashed - Petition allowed in part.
Issues Involved:
1. Applicability of Section 164(2) of the Companies Act, 2013. 2. Constitutionality of Section 164(2) under Articles 14 and 19(1)(g) of the Constitution. 3. Requirement of natural justice before disqualification. 4. Authority to deactivate Director Identification Number (DIN). Detailed Analysis: 1. Applicability of Section 164(2) of the Companies Act, 2013: The Court determined that for the purpose of Section 164(2)(a) of the Companies Act, 2013, the financial years relevant for attracting disqualification would commence from the financial year 2014-15 and onwards, not prior thereto. The financial year ending on 31.03.2014, which predates the enforcement of Section 164(2) on 01.04.2014, cannot be considered. This conclusion was supported by a General Circular No.08/14 dated 04.04.2014 issued by the Ministry of Corporate Affairs. The Court rejected the argument that the financial year 2013-14 should be included, as held by the Delhi High Court in Mukut Pathak. 2. Constitutionality of Section 164(2) under Articles 14 and 19(1)(g) of the Constitution: The Court upheld the constitutionality of Section 164(2), finding it neither arbitrary nor discriminatory. The provision is similar to Section 274(1)(g) of the Companies Act, 1956, which had been upheld by various High Courts. The Court reasoned that disqualification for non-compliance with statutory obligations is a reasonable restriction and serves the purpose of ensuring good corporate governance. The classification between compliant and non-compliant directors was found to have a reasonable nexus with the objective sought to be achieved, thus not violating Articles 14 and 19(1)(g). 3. Requirement of natural justice before disqualification: The Court held that principles of natural justice are not required before disqualification under Section 164(2) or before declaring the office of a director vacant under Section 167(1)(a), as the disqualification is automatic by operation of law. However, the Court emphasized that the factual basis for disqualification must be established. Therefore, a notice should be given to the concerned directors to verify the facts before disqualification is confirmed. This ensures that the directors have an opportunity to contest the disqualification if the facts are disputed. 4. Authority to deactivate Director Identification Number (DIN): The Court found no statutory provision empowering the Registrar of Companies (ROC) to deactivate DINs solely on the ground of disqualification under Section 164(2). Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014, which provides for the cancellation or deactivation of DINs, does not include disqualification under Section 164(2) as a ground. Various High Courts, including the Delhi High Court in Mukut Pathak, the Gujarat High Court in Gaurang Balvantlal Shah, and the Telangana High Court in Venkata Ramana Tadiparthi, have held similarly. The Court concluded that the action of deactivating DINs was not legally tenable. Conclusion: The Court allowed the writ petitions partly, quashing the ROC's list declaring the petitioners as disqualified and the deactivation of their DINs. The ROC was directed to issue notices to the petitioners to verify the facts of disqualification, providing them an opportunity to contest the disqualification before any further action is taken.
|
