Directors disqualified before 7th May 2018 retain directorships in other companies while being entitled to reactivate their identification numbers to utilize the Companies Fresh Start Scheme, 2020.

Headnote:(A) Companies Act, 2013 - Sections 164 and 167 - Reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC) for directors disqualified prior to 7th May 2018 - Petitioners sought reactivation to avail Companies Fresh Start Scheme, 2020 (CFSS-2020) - Court reactivated DIN and DSC for directors of active companies while providing opportunity to file belated documents for struck off companies. (Paras 2-8)

(B) Judicial Precedents - Provisions in Mukut Pathak case clarify that certain disqualifications cannot have retrospective effect and board positions affected prior to statutory amendments are not nullified. (Paras 4-5)

(C) Companies Fresh Start Scheme, 2020 - Introduced to support defaulting companies and facilitate their compliance through alleviative measures, allowing directors to file necessary documents without punitive fees. (Paras 12-13)

Facts of the case:
The Petitioners, directors of two Companies, were disqualified due to non-compliance and sought to reactivate their DIN/DSC to benefit from CFSS-2020.

Findings of Court:
The Court upheld prior decisions enabling reactivation of DIN/DSC for those who meet the criteria set by CFSS-2020.

Issues: The central issues were the applicability of disqualification provisions post and pre statutory amendments and the intent of the CFSS-2020.

Ratio Decidendi: The court determined that prior disqualifications do not nullify directorships in active companies and reaffirmed that the purpose of the CFSS-2020 mandates restoration to allow compliance.

Result: Petition disposed of with reactivation of DIN for Talent Scanner Pvt. Ltd.

Table of Content
1. directors disqualified for non-filing of documents. (Para 2)
2. legal precedents on disqualification and activation of din. (Para 3)
3. application of cfss-2020 for active companies. (Para 4 , 5)
4. impact of extending the cfss-2020. (Para 6)
5. order for reactivation of din/dsc. (Para 7)
6. disposition of the present petition. (Para 8)

JUDGMENT

Prathiba M. Singh, J. (Oral)--This hearing has been done by video conferencing.

2. The Petitioners in this case are directors of two Companies - Bhargava Films Pvt. Ltd. and Talent Scanner Pvt. Ltd. The Petitioners were disqualified as directors in respect of Bhargava Films Pvt. Ltd. due to non-filing of balance-sheet and other returns with the Registrar of Companies (hereinafter, "ROC"). The said company was also struck off from the Register of Companies. The disqualification occurred on 1st November, 2016. The prayer of the Petitioners is that their Director Identification Number (hereinafter, "DIN") and Digital Signature Certificate (hereinafter, "DSC") be reactivated to permit them to avail of the Companies Fresh Start Scheme, 2020 (hereinafter, "CFSS-2020").

3. The legal aspects arising out of disqualification of directors under Section 164 and 167 of the COMPANIES ACT , 2013 and the deactivation of their DIN and DSC numbers have been dealt with in the following judgements:

i. Mukut Pathak & Ors. v. Union of India & Ors., 265 (2019) DLT 506,

ii. Sandeep Agarwal & Anr. v. Union of India & Anr., (W.P.(C)5490/2020, decided on 2nd September, 2020) and

iii. Radhika Byrne v. UOI & Anr., (W.P.(C) 5534/2020, decided on 28th December, 2020).

4. There are four categories of Directors that are approaching Courts seeking setting aside of disqualification and activation of DIN/DSC numbers.

a) Directors who have been disqualified prior to 7th May 2018, qua other companies in addition to the defaulting company:

As per the proviso to Section 167 (1) (a) of the COMPANIES ACT , 2013, once a director is disqualified qua one company i.e., the defaulting company, the office of the said director would become vacant in all companies. The said proviso, has, however, come into effect only on 7th May, 2018. In Mukut Pathak (supra) it was held that this proviso cannot have retrospective effect and would only apply if the disqualification took place after 7th May 2018. Paragraph 98 of Mukut Pathak (supra) reads as under:

"98. In view of the above, the petitioners would not demit their office on account of disqualifications incurred under Section 164 (2) of the Act by virtue of Section 167 (1)(a) of the Act prior to the statutory amendments introduced with effect from 07.05.2018. However, if they suffer any of the disqualifications under Section 164 (2) on or after 07.05.2018, the clear implication of the provisos to Section 164 (2) and 167(1)(a) of the Act are that they would demit their office in all companies other than the defaulting company."

Since there is no stay on the judgment in Mukut Pathak (supra), it continues to hold the field. Thus, in cases where directors have been disqualified prior to 7th May, 2018, the proviso to Section 167 (1)(a) would not apply and the directors would continue to be directors in companies other than the defaulting company. The disqualification of such directors qua active companies would therefore be liable to be set aside and their DIN and DSC's reactivated.

b) Directors who have been disqualified post 7th May 2018, qua other `active' companies:

As held in Mukut Pathak (supra), in all cases where the directors have been disqualified on or after 7th May, 2018, the proviso to Section 167 (1) (a) would apply and such directors would cease to be directors in all companies including the defaulting company. In March, 2020, in light of the COVID19 pandemic, the Ministry of Corporate Affairs vide General Circular No. 12/2020 introduced CFSS-2020 to allow a fresh start for defaulting companies and directors of such companies. This Court, in Sandeep Agarwa