The court affirmed that disqualified directors may have their DIN and DSC reactivated under the CFSS-2020 Scheme to facilitate a fresh business start, highlighting the principle of giving opportunities post-disqualification.

JUDGMENT

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

2. The Petitioners were directors in M/s Innowin Info Solutions Private Limited, which company was struck off due to non-filing of the company's financial statements or annual returns for a continuous period of three financial years. The Petitioners were disqualified and their Director Identification Number (hereinafter, "DIN") and Digital Signature Certificate (hereinafter, "DSC") were also deactivated. The Petitioners now wish to start a new business and accordingly, pray for reactivation of their DIN/DSC.

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 Agarwal (supra) has analyzed CFSS-2020 to conclude that the purpose of the scheme is to provide an opportunity for `active' companies i.e., companies whose names have not been struck off, who may have defaulted in fil