Omkar Gokhale.The Bombay High Court will decide a batch of petitions challenging the en masse disqualification of directors following a 2017 notification issued by the Ministry of Corporate Affairs (MCA)..The disqualification of directors followed the invocation of Section 164 (2) (a) of the Companies Act, 2013, which disqualifies a director if the company does not file financial statements or annual returns for a continuous period of three financial years..A Division Bench of Justices SC Dharmadhikari and GS Patel recently admitted and clubbed a batch of petitions filed by the directors so disqualified..As per the directors’ plea, the Registrar of Companies (RoC) made a mistake while calculating the three financial years of default. It is alleged that it combined both periods – when the old Companies Act of 1956 was effective, as well the period under the new Act, which came into force from April 1, 2014..After perusing the pleas made by the petitioners, the High Court has given oral directions to the RoC to scrutinise the cancellation of the Director Identification Numbers (DIN) of the directors concerned..The Court has also said that if the RoC fails to take necessary measures, the Court will pass an order in this regard. Additional Solicitor General Anil Singh appeared for the Ministry of Corporate Affairs..Case background.In September 2017, the MCA, through the RoC at Mumbai and other offices, had disqualified a large number of directors of both public and private companies, invoking Section 164 (2) (a) of the Companies Act, 2013. It concluded that the said companies were “shell companies.”.Aggrieved by their disqualification, the directors had moved to Bombay High Court last year. The plea seeks the re-activation of Director Identification Number (DIN) of these directors..The petitioners approached the Bombay High Court since after the revival of a company under the Companies Act, the director has to file a writ petition at the High Court to re-activate the DIN..Among other prayers, the petitioners have also sought for grant of compensation from the RoC for failure to perform its duties on the ground that the disqualification was done without issuing notice, in violation of natural justice principles..The petitions also mention that due to disqualification, the directors are debarred from acting as directors in their companies. As a result, some companies are unable to file their accounts and other returns..The petitioners have also posed a query before the High Court as to whether default of one company should spill over to other companies in respect of deactivation of DIN of the director..Notably, the petitions refer to the recent judgments of the Madras, Gujarat and Karnataka High Courts, which have decided in favour of the disqualified directors and quashed the MCA notification..As noted in the petitions, these High Courts ruled that the effect of new Companies Act of 2013 would not be retrospective. It is contended that since these orders are not stayed by the Supreme Court, the law laid down in them is applicable throughout India..The three High Courts held that the consideration of three financial years starting from 2013-14 or 2012-13 could not be taken into account by the RoC while disqualifying directors under Section 164 (2) of the 2013 Act. The first financial year since the new Act came into force would be 2014-15..The matter will be taken up by the Bombay High Court next on July 10..Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.
Omkar Gokhale.The Bombay High Court will decide a batch of petitions challenging the en masse disqualification of directors following a 2017 notification issued by the Ministry of Corporate Affairs (MCA)..The disqualification of directors followed the invocation of Section 164 (2) (a) of the Companies Act, 2013, which disqualifies a director if the company does not file financial statements or annual returns for a continuous period of three financial years..A Division Bench of Justices SC Dharmadhikari and GS Patel recently admitted and clubbed a batch of petitions filed by the directors so disqualified..As per the directors’ plea, the Registrar of Companies (RoC) made a mistake while calculating the three financial years of default. It is alleged that it combined both periods – when the old Companies Act of 1956 was effective, as well the period under the new Act, which came into force from April 1, 2014..After perusing the pleas made by the petitioners, the High Court has given oral directions to the RoC to scrutinise the cancellation of the Director Identification Numbers (DIN) of the directors concerned..The Court has also said that if the RoC fails to take necessary measures, the Court will pass an order in this regard. Additional Solicitor General Anil Singh appeared for the Ministry of Corporate Affairs..Case background.In September 2017, the MCA, through the RoC at Mumbai and other offices, had disqualified a large number of directors of both public and private companies, invoking Section 164 (2) (a) of the Companies Act, 2013. It concluded that the said companies were “shell companies.”.Aggrieved by their disqualification, the directors had moved to Bombay High Court last year. The plea seeks the re-activation of Director Identification Number (DIN) of these directors..The petitioners approached the Bombay High Court since after the revival of a company under the Companies Act, the director has to file a writ petition at the High Court to re-activate the DIN..Among other prayers, the petitioners have also sought for grant of compensation from the RoC for failure to perform its duties on the ground that the disqualification was done without issuing notice, in violation of natural justice principles..The petitions also mention that due to disqualification, the directors are debarred from acting as directors in their companies. As a result, some companies are unable to file their accounts and other returns..The petitioners have also posed a query before the High Court as to whether default of one company should spill over to other companies in respect of deactivation of DIN of the director..Notably, the petitions refer to the recent judgments of the Madras, Gujarat and Karnataka High Courts, which have decided in favour of the disqualified directors and quashed the MCA notification..As noted in the petitions, these High Courts ruled that the effect of new Companies Act of 2013 would not be retrospective. It is contended that since these orders are not stayed by the Supreme Court, the law laid down in them is applicable throughout India..The three High Courts held that the consideration of three financial years starting from 2013-14 or 2012-13 could not be taken into account by the RoC while disqualifying directors under Section 164 (2) of the 2013 Act. The first financial year since the new Act came into force would be 2014-15..The matter will be taken up by the Bombay High Court next on July 10..Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.
