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TMI Blog2020 (1) TMI 1212X X X X Extracts X X X X X X X X Extracts X X X X ..... and disqualification was attracted for non filing of financial statements or annual returns. The provisions are clear. There is no scope for ambiguity for the same. This Court had not been called to give a ruling on the vires of Section 164(2)(a). According to this provision, if a person, who is a Director of a Company which had not filed financial statements or annual returns for a continuous period of three financial years, then he/she was not eligible to be reappointed as a Director on that Company or can be appointed in other Company for a period of five years - A proviso was inserted in Section 167(1)(a) with effect from 07.05.2018, which stated that if disqualification is incurred then the office of Director shall become vacant in all other companies where the individual was a Director. The vires of this proviso was questioned and challenged before a Division Bench of this Court. In the present batch of writ petitions, the three financial years, 2014-15, 2015-16 and 2016-17 have been completed. The Companies have not filed the annual returns / financial statements. They have defaulted in such filing of annual returns / financial statements. The Act very clearly states t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2018 - - - Dated:- 27-1-2020 - WP. 13616, 13617, 13630, 18888, 21057, 21059, 21060, 23952, 23953, 31110, 31824, 34121, 34126, 34208, 34213, 34297/2018, 179, 181, 491, 496, 501, 505, 786, 798, 804, 815, 818, 859, 862, 864, 878, 881, 882, 883, 884, 885, 887, 1292, 1295, 1417, 1424, 1429, 1436, 1441, 1470, 1474, 1476, 1478, 1540, 1587, 1595, 1544, 1637, 1735, 1743, 1765, 1945, 1994, 1995, 2003, 2085, 2088, 2195, 3070, 3073, 2267, 2273, 2277, 2280, 2420, 2425, 2428, 2432, 2437, 2424, 2435, 2452, 2455, 2524, 2535, 2763, 2801, 2806, 2819, 2830, 2836, 2858, 2923, 2925, 2976, 3042, 3047, 3101, 3116, 3141, 3149, 3206, 3291, 3296, 3298, 3301, 3409, 3415, 3478, 3481, 3517, 3521, 3527, 3531, 3535, 3555, 3563, 3631, 3667, 3672, 3675, 3688, 3695, 3754, 3765, 3772, 3762, 3782, 3791, 3795, 3801, 3970, 3976, 3799, 3820, 3824, 3925, 3978, 3989, 4020, 4027, 4034, 4036, 4049, 4055, 4057, 4073, 4074, 4101, 4102, 4105, 4140, 4171, 4183, 4188, 4184, 4186, 4212, 4218, 4223, 4298, 4305, 4307, 4334, 4343, 4408, 4412, 4415, 4420, 4425, 4456, 4553, 4555, 4559, 4564, 4581, 4611, 4613, 4651, 4662, 4665, 4669, 4666, 4672, 4674, 4703, 4763, 4768, 4798, 4802, 4805, 4852, 4853, 4854, 4859, 4947, 4950, 4953, 497 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, 13484, 13543, 13491, 13535, 13589, 13667, 13711, 13729, 13731, 13732, 13750, 13752, 13756, 13763, 14235, 15154, 15253, 15354, 15419, 15423, 15505, 15550, 15552, 15604, 15637, 15840, 15645, 15712, 15722, 15730, 15737, 15740, 15749, 15812, 15824, 15829, 15914, 15916, 15990, 15998, 16053, 16057, 16070, 16107, 16115, 16186, 16083, 16200, 16219, 16321, 16337, 16546, 16548, 16602, 16606, 16634, 16717, 16757, 16760, 16763, 16835, 16831, 16842, 16843, 16952, 16958, 17001, 17009, 17019, 17067, 17081, 17082, 17124, 17234, 17312, 17767, 17876, 17924, 18201, 18202, 18206, 18242, 18259, 18279, 18282, 18361, 18379, 18511, 18521, 18526, 18573, 18574, 18615, 18795, 18928, 19047, 19072, 19074, 19085, 19111, 19126, 19156, 19465, 19611, 19619, 19691, 19694, 19773, 19874, 19880, 20093, 20238, 20363, 20375, 20444, 20453, 20731, 20741, 20746, 20835, 20857, 20859, 20881, 20885, 20923, 20936, 21012, 21074, 21078, 21080, 21083, 21088, 21191, 21194, 21297, 21310, 21312, 21313, 21331, 21783, 21820, 21866, 21906, 21908, 21909, 21910, 22116, 22118, 22214, 22255, 22262, 22306, 22315, 22375, 22743, 22747, 22751, 22748, 22753, 22756, 22790, 22961, 23022, 23144, 23137, 23349, 23353, 23357, 23426, 23429, 23456, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed; and (e) Seawind Shipping Private Limited. 5. The petitioner was a promoter of M/s. Madan Shipping Private Limited. Owing to various circumstances, M/s. Madan Shipping Private Limited was not carrying on any operations from the year 2008. The first respondent, namely, Ministry of Corporate Affairs, New Delhi, issued a show cause notice under Section 248(1) of the Companies Act 2013 for striking off the name of the Company from the Register of the Companies for non filing of annual returns for a continuous period of three years. The petitioner unfortunately, again owing to various circumstances, omitted to reply to the notice. Thereafter, the first respondent struck strike off the Company under the provisions of Section 248 of the Companies Act 2013 published by the second respondent in the Gazattee Notification. The second respondent released a list of disqualified Directors, who had been disqualified under Section 164(2)(a) of the Companies Act 2013. The name of the petitioner found place in the list. By virtue of such disqualification, the petitioner was prohibited from being appointed or reappointed as a Director in any other Company. The petitioner claimed that he had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Senior Counsel finally stated that by virtue of such disqualification, the petitioners had to vacate the office of Directorship in all the companies in which they were holding the post of Directorship and stated that this has seriously affected their reputation. 12. The learned Senior Counsel pointed out Sections 164 and 167 of the Companies Act 2013 and also Rules 11 and 12 of the Companies (Appointment and Qualification of Directors) Rules 2014. In this connection, reliance was placed on the Judgement of the Gujarat High Court in Gaurang Balvatlal Shah Vs. Union of India dated 18.12.2018, the order of the learned Single Judge of this Court reported in (2018) 6 MLJ 704 Bhagavan Das Dhananjaya Das Vs. Union of India and another, Judgment of the Delhi High Court in Mukut Pathak and others Vs. Union of India and Another dated 04.11.2019 and of Karnataka High Court in Yashodara Shroff Vs. Union of India, order dated 12.06.2019. Strong reliance was placed on the Judgement dated 16.01.2020 of a Division Bench Judgment of the Allahabad High Court in Writ C.No. 12498 of 2019 batch Jai Shankar Agrahari and others Vs. Union of India and Other. 13. All the learned counsels, who adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company law. Section 2(34): Director means a director appointed to the Board of a Company. Section 2(40): Financial Statement in relation to a company, includes- (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the conviction and sentence of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause(iv); provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement. Section 2(51): Key managerial personnel , in relation to a company, means - (i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer (v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act. (3) An extract of the annual return in such form as may be prescribed shall form part of the Board s report. (4) Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403. (5) If a company fails to file its annual return under sub-section (4), before the expiry of the period specified under section 403 with additional fees, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng financial statements for the financial year. (3) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2): Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statementof its subsidiary or subsidiaries in such form as may be prescribed: Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed. (4) The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in subsection (3). (5) Without prejudice to subsection (1), where the financial statements of a company do not comply with the accounting standards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under section 154. (4) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act. (5) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed: Provided that in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment. (6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number ofdirectors of a public company shall- (i) be persons whose period of office is liable to determination by retirement of directors by rotation; and (ii) save as otherwise expressly provided in this Act, be app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alified for appointment; (iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or (v) section 162 is applicable to the case. Explanation.-Forthe purposes of this section and section 160, the expression -retiring director? means a director retiring by rotation. Section 153: Application for allotment of Director Identification Number.- Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed. [provided that the Central Government may prescribe any identification number which shall be treated as Director Identification number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.] Section 154: Allotment of Director Identification Number.- The Central Government shall, within one month from the receipt of the application under section 153, allot a Director Ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conviction or order of disqualification]. Section 166: Duties of directors.- (1) Subject totheprovisionsof this Act, a director of a company shall act in accordance with the articles of the company. (2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment. (3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. (4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. (5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equalto that gain to the company. (6) A director of a company shall not assign his office and any assignment so made s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both. (3) Where all the directors of a company vacate their offices under any of the disqualifications specified in subsection (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. (4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1). Section 248: Power of Registrar to remove name of company from register of companies.- (1) Where the Registrar has reasonable cause to believe that- (a) a company has failed to commence its business within one year of its incorporation; [or] 2* * * * * (c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y from the register of companies. (7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under subsection (5), shall continue and may be enforced as if the company had not been dissolved. (8) Nothing in this section shall affect the power of the Tribunal to wind up a company the name of which has been struck off from the register of companies. Section 403: Fee for filing, etc.- (1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed: Provided that any document, fact or information may be submitted, filed, registered or recorded, after the time specified in relevant provision for such submission, filing, registering or recording, within a period of two hundred and seventy days from the date by which it should have been submitted, filed, registered or recorded, as the case may be, on payment of such additional fee as may be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintained for dormant companies. (5) A dormant company shall have such minimum number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed. (6) The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section. 18. Rule 11 of the Companies (Appointment and Qualification of Directors) Rules 2014 is as follows:- 11. Cancellation or surrender or Deactivation of DIN.- The Central Government or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received 11alongwith fee as specified in Companies (Registration Offices and Fees) Rules, 2014 from any person, cancel or deactivate the DIN in case - (a) the DIN is found to be duplicated in respect ofthe same person provided the data related to both the DIN shall be merged wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default. (4) Upon receipt of the Form DIR-9 under sub-rule (2), the Registrar shall immediately register the document and place it in the document file for public inspection. (5) Any application for removal of disqualification of directors shall be made in Form DIR-10. 20. The powers and duties of Registrars had been given in the Companies (Registration Offices and Fees) Rules 2014. Rule 5 relating to Powers and Duties of Registrars is as follows:- 5. Powers and duties of Registrars.- (1) The Registrars shall exercise such powers and discharge such duties as are conferred on them by the Act or the rules made thereunder or delegated to them by the Central Government, wherever the power or duty has been conferred upon the Central Government by the Act or the rules made there under. (2) Whenever according to the Act, any function or duty is to be discharged by the Registrar, it shall, until the Central Governmentotherwise directs, be done by the Registrar , or in his absence, by such person as the Central Government may for the time being authorise: Provided that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court (A.P.Sahi, CJ and Subramonium Pradad, J) in W.P.No. 32763 of 2019 [ G.Vasudevan Vs. Union of India and others had after examining the scope, object and sweep of the proviso, had finally stated as follows:- 28. A perusal of the above extract from the judgment of the Hon'ble Karnataka High Court in Yashodhara Shroff Vs. Union of India (supra), reveals that the Court has found that the proviso to Section 167(1)(a) must be interpreted in ordinary terms and would apply to the entirety of Section 164 including sub-section 2. The Court has further held that this proviso can be justified on two grounds. Firstly, it has been reiterated that the exclusion of Directors from vacating their posts in the defaulting company while doing so in all other companies where they hold Directorship has been done in order to prevent the anomalous situation wherein the post of Director in a company remains vacant in perpetuity owing to automatic application of Section 167(1)(a) to all newly appointed Directors. Secondly, the underlying object behind the proviso to Section 167(1)(a) is seen to be the same as that of Section 164(2) both of which exist in the interest of transparency and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases, notifications issued in the year 2017 were struck down both on the ground that the provision was prospective in nature and three financial years had not been completed and notice had not been given prior to disqualification. When due respects the facts in the Writ Petitions on hand is different. 27. In the present batch of writ petitions, the three financial years, 2014-15, 2015-16 and 2016-17 have been completed. The Companies have not filed the annual returns / financial statements. They have defaulted in such filing of annual returns / financial statements. The Act very clearly states that if there is such a default then the Directors would be disqualified. This Court cannot extend the time for filing of annual returns or financial statements. When a period of time is stipulated in a statute, it has to be strictly interpreted. In the earlier batch, leverage was granted because the annual general meeting should be called within a period of six months namely on or before 30th September of each succeeding year and thereafter a further period of 30 days / 60 days is given to file the annual returns. Here the three financial years had come to an end. The said period of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apoor Vs. Jagmohan ( 1980 (4) SCC 379), Chinnappa Reddy, J. followed Ridge vs. Baldwin and set aside the order of supercession of the New Delhi Metropolitan Committee rejecting the argument that there was no prejudice though notice was not given. The proceedings were quashed on the ground of violation of principles of natural justice. But even in that case certain exceptions were laid down to which we shall presently refer. 23. Chinnappa Reddy, J. in S.L.Kapoor's case [(1980) 4 SCC 379], laid two exceptions (at p.395) namely, if upon admitted or indisputable facts only one conclusion was possible , then in such a case, the principle that breach of natural justice was in itself prejudice, would not apply. In other words if no other conclusion was possible on admitted or indisputable facts, it is not necessary to quash the order which was passed in violation of natural justice. Of course, this being an exception, great care must be taken in applying this exception. 24. The principle that in addition to breach of natural justice, prejudice must also be proved has been developed in several cases. In K.L. Tripathi Vs. State Bank of India ( 1984(1) SCC 43), Sabyasachi Mukherj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Bank and Others]: In an industrial dispute referred to by the Central Government which has an allIndia implication, individual workman cannot be made parties to a reference. All of them are not expected to be heard. The Unions representing them were impleaded as parties. They were heard. Not only the said Unions were heard before the High Court, as noticed hereinbefore from a part of the judgment of the High Court, they had preferred appeals before this Court, Their contentions had been noticed by this Court. As the award was made in presence of the Unions, in our opinion, the contention of Respondents that the award was not binding on them cannot be accepted. The principles of natural justice were also not required to be complied with as the same would have been an empty formality. The court will not insist on compliance of the principles of natural justice in view of the binding nature of the award. Their application would be limited to a situation where the factual position or legal implication arising thereunder is disputed and not where it is not in dispute or cannot be disputed. If only one conclusion is possible, a writ would not issue only because there was a violat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ife' can only mean that the life of the DIN can exist only for till the life of the office of Directorship survives and not for the entire life of the individual Director. Holding that an individual who was a Director in a company and had been allotted DIN and would be able to hold on to it till his life, even though he relinquishes the office of Directorship, defines logic. The Director Identification Number can be exist only during the period when an individual holds office of Directorship. It may be reactivated when the individual resumes the office of Directorship. During his/her lifetime only on Director Identification Number can be allotted. 35. An irrational interpretation cannot be given that the Director Identification Number can still attach itself to the individual even after he resigns, or is disqualified from the post of Directorship or vacates the office. Consequently, when a Director is disqualified, it follows that the DIN should be deactivated. 36. I am concious of the fact that I have followed the ratio laid down in Bhagavan Das Dhananjaya Das (supra) struck down the notification issued in the year 2017. On facts, the impugned notifications in the instan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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