Writ petition challenging disqualification under Section 164(2)(a) of Companies Act 2013. Court allowed petition by setting aside impugned order, relying on a batch decision that the disqualification application violated natural justice.
Writ petition allowed and impugned order setting aside the disqualification of the petitioner to hold office of a director.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 06.01.2020
CORAM
THE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN
W.P. No.94 of 2020 and
W.M.P. No.112 of 2020
Suresh Krishna Iyer,
... Petitioner
-vs-
1.The Union of India
Represented by its
Ministry of Corporate affairs,
Shastri Bhawan,
Dr.Rajendra Prasad Road,
New Delhi - 110001.
2.Registrar of Companies
Tamilnadu, Chennai,
Block No.6, B Wing 2 nd floor,
Shastri Bhawan 26,
Haddows road,
Chennai – 600 006.
... Respondents
Prayer:- Writ Petition filed under Article 226 of the
Constitution of India praying to issue a Writ of
Certiorarified Mandamus, calling for the records of the 2 nd
respondent relating to the impugned order dated 08.09.2017
uploaded in the website of the 1 st Respondent in so far as the
petitioner vide DIN 03359523 herein is concerned, quash the
same as illegal, arbitrary and devoid of merit and
consequentially direct the Respondents herein to permit
Petitioner to get reappointed as Director of any Company or
appointed as Director in any company without any hindrance.
For Petitioner : Mr.S.Karunamoorthy
For Respondents: Mr.K.Subbu Ranga Bharathi, CGSC
O R D E R
Heard Mr.S.Karunamoorthy, Learned Counsel for the Petitioner and Mr.K.Subbu Ranga Bharathi, Learned Central Government Standing Counsel, appearing on behalf of the Respondents and perused the materials placed on record, apart https://hcservices.ecourts.gov.in/hcservices/ from the pleadings of the parties.
"29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner-directors from 1.11.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3.2014.
(b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression “for any continuous period of three financial years” and in the light of Section 2(41) defining “financial year” as well as their own General Circular No.08/14 dated 4.4.2014, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the financial years commenced from 2013-14, 2014-15 and 2015-16 i.e., one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings.
(c) By virtue of the first proviso to Section 96(1) of the 2013 Act, Annual General Meeting for the year ending on 31.3.2017 can be held within six months from the closing of financial year i.e., 30.9.2017, additionally in the light of Section 164(2)(a) referring to “annual return” and “financial statement”, the time limit to file annual return https://hcservices.ecourts.gov.in/hcservices/ under Section 92(4) of 2013 Act is sixty days from
Annual General Meeting or the last date on which Annual General Meeting ought to have been held, hence, the time limit to file balance sheet under Section 137(1) of the 2013 Act is again thirty days from Annual General Meering. Therefore, in view of these legal position, the disqualification could get triggered off only on or after 30.10.2017 only, if any company fails to file annual forms for three financial years. Importantly, it is to be borne in mind that even beyond that time limit, additional time limit of 270 days was available by virtue of the then first proviso to Section 403.
(d) Although there is no statute or provision expressly spelling out the observance of the principles of natural justice against disqualification of directors, as the legal right of the petitioners to continue as director in other company or to be reappointed in any other company, which are scrupulously following the provisions of the Companies Act, have been deprived of, the principles of natural justice should have been adhered to by issuing proper notice to all the directors.
(e) When the disqualification clause was not attracted to the directors of private companies under the old Act of 1956, the same cannot be allowed to take a retrospective effect under the new Act, when the provision of Section 164(2)(a) came into force only from 1.4.2014. This is also for one more reason that the failure to file the annual returns has been adequately taken care of by the penal provision under Section 92, making it clear that every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both. Again under Section 137, the failure to file the financial statement visits punishment with imprisonment for a term which may extend to six months or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both. Further, under Section 441 (4), the default in filing returns or accounts compoundable by Tribunal or Regional Director or by any officer authorized by the Central Government.
(f) In view of the above legal position, when the default in filing the accounts or returns are made as compoundable offence, Section 164(2)(a) providing the disqualification of director of private company https://hcservices.ecourts.gov.in/hcservices/ not only in the defaulting company, but also from
other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature, because, notice to be sent under Section 248(1) of the Companies Act, 2013 by the Registrar of Companies for striking off the name of the company from the Registrar of Companies on the premise that the company has not been carrying on any business for a period of two financial years, is different from the disqualification under Section 164(2)(a), inasmuch as a company can be struck off, if the company has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years. Therefore, in my considered opinion, although the petitioners have not challenged the provision of Section 164(2)(a), as the respondents have not followed the principles of natural justice, extinguishing the corporate life of the directors to the extent of disqualifying them to hold the directorship in the other companies, the said provision is liable to be read down, hence, Section 164(2)(a) is read down to the extent it disqualifies the directors in other companies which are scrupulously following the requirements of law, making it clear that no directors in other companies can be disqualified without prior notice.
(g) However, it is made clear beyond any pale of doubt that the mischief of removal of the names of the companies by the Registrar of Companies and the disqualification of the directors in the defaulting company will go together, as it is inseparable, and the Registrar of Companies need not give fresh notice to the directors for their disqualification from the dormant company, if there is a failure to file the financial statement or annual return for any continuous period of three financial years as per Section 164(2)(a).
stands allowed and the impugned order is set aside on the aforesaid terms. Consequently, the connected Miscellaneous Petition is closed. No costs.
Sd/-
Assistant Registrar
//True copy//
Sub Assistant Registrar
smv
To
1.The Union of India
Ministry of Corporate affairs,
Shastri Bhawan,
Dr.Rajendra Prasad Road,
New Delhi - 110001.
2.Registrar of Companies
Chennai, Tamilnadu,
Block No.6, B Wing 2 nd floor,
Shastri Bhawan 26,
Haddows road,
Chennai – 600 006.
+1cc to Mr.S.Karunamoorthy, Advocate SR.No.581
W.P. No.94 of 2020
and
W.M.P. No.112 of 2020
AD(CO)
GMY(31/01/2020)
3 issues framed by the court
Whether the petitioner is entitled to the identical relief granted to petitioners in a batch of similar cases regarding the disqualification order.
Whether Section 164(2)(a) of the Companies Act 2013 should be read down in light of the absence of natural justice in a related matter.
Whether the impugned order listing the petitioner as disqualified under Section 164(2)(a) should be set aside.
Colour shows how this judgement treated each authority
Batch of cases in W.P. No. 25455 of 2017Referred¶13
[(2018) 6 MLJ 704]
6 provisions across 2 enactments
Suresh Krishna Iyer
The Union of India
Registrar of Companies
C.V. Karthikeyan
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
