2022 (12) TMI 620 - HC - Companies Law

Disqualification of the Petitioners - Deactivation of Director Identification Number (DIN) and the Digital Signature Certificate (DSC) of the Petitioners - non-filing of balance sheet and other returns with the Registrar of Companies. - The grievance of the Petitioners is that they have been disqualified without issuing any show cause notice, or giving any giving any opportunity to present their case. - HELD THAT - This scheme has been introduced in view of the COVID-19 pandemic with the aim to enable a fresh start to defaulting companies and directors of such companies. The disqualification of defaulting companies was a step which was taken sometime in 2016-17 in order to ensure that filing of regular returns and compliances are undertaken strictly as per the provisions of the Act. It was also meant to be a measure to ensure that entities that are not conducting businesses are not misused as 'shell companies' for any improper activities. A substantial part of the disqualification period has already been completed. The introduction of the CFSS is itself a step for 'providing a fresh start'. Under such circumstances, continuation of the disqualification would defeat the Scheme and its purpose. In furtherance of the purpose of this scheme, directors of struck off companies who seek to be appointed as directors of other/new companies, ought to be provided an opportunity to avail of this scheme, provided that they have undergone a substantial period of their disqualification. Following the decision in Mukut Pathak Ors. v. UOI Ors., 2019 (11) TMI 319 - DELHI HIGH COURT and Anjali Bhargava Anr. v. UOI Anr. 2021 (1) TMI 1228 - DELHI HIGH COURT , this Court directs that the DIN/DSC of the Petitioners be reactivated within 2 weeks to enable them to file the requisite documents in terms of the Companies Act, 2013 and effect compliances in respect of the companies.

Summary

Issues:
Reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC) under Companies Act, 2013.

Analysis:
The petitioners sought reactivation of their DIN and DSC, which were deactivated due to disqualification under Sections 164(2)(a) and 167 of the Companies Act, 2013, for non-filing of balance sheets and returns. The petitioners, directors in multiple companies, were disqualified without a show cause notice, hindering them from fulfilling their obligations. Respondents argued jurisdictional issues since the deactivation was done in Uttarakhand, but petitioners highlighted Delhi's relevance as one company was registered there. The petitioners emphasized that all their companies were active, and the court referred to the legal position in Anjali Bhargava case regarding reactivation of DIN/DSC for directors facing disqualification.

The court differentiated between directors disqualified before and after May 7, 2018. For directors disqualified before this date, the proviso to Section 167(1)(a) does not apply retrospectively, allowing them to continue in active companies. The judgment in Mukut Pathak was cited to support this interpretation. Directors disqualified post-May 7, 2018, face different implications under the law. The Circular No. 12/2020 introduced a scheme for defaulting companies during the COVID-19 pandemic, aiming to provide a fresh start for active companies. The court directed reactivation of DINs and DSCs for disqualified directors of active companies in line with the spirit of the scheme.

The court also addressed disqualified directors of struck-off companies seeking to be appointed in new companies. The Ministry's circular highlighted the purpose of the scheme to facilitate a fresh start for defaulting companies and directors. The court emphasized the need to provide an opportunity for directors seeking appointment in new companies after a substantial disqualification period. The introduction of the CFSS aimed to prevent misuse of shell companies and promote compliance with the Act. The court's decision aligned with previous judgments, directing reactivation of petitioners' DIN/DSC within two weeks to enable compliance with the Companies Act, setting aside their disqualification for active entities.