Directors disqualified under the Companies Act, 2013 may regain their identification numbers if substantial time has elapsed since disqualification, especially under CFSS-2020 facilitating fresh starts.

Headnote:(A) Companies Act, 2013 - Sections 164 and 167 - Disqualification of directors - Reactivation of DIN and DSC sought after disqualification due to non-filing of financial statements - Court affirms directors disqualified prior to 7th May 2018 may continue in other companies, while those disqualified post-2018 lose directorship universally - CFSS-2020 allows fresh start for defaulting companies and directors. (Paras 4-7)

(B) Reactivation under CFSS-2020 - The court reinforces that disqualified directors who qualify under the CFSS-2020 provisions should not be hindered from availing opportunities for new appointments. (Paras 5-6)

(C) Judicial precedents - Mukut Pathak, Sandeep Agarwal, and Radhika Byrn considered for guidance on reactivation of DINs and DSCs. (Paras 3, 4)

Facts of the case:
Petitioners, directors of defaulting companies, sought reactivation of their DINs and DSCs after their companies faced disqualification for financial non-compliance.

Findings of Court:
DINs and DSCs of the Petitioners ordered to be reactivated to enable further business conduct, considering the length of disqualification.

Issues: The court determined the applicability of disqualification rules and the impact of CFSS-2020 on directors' ability to start new businesses.

Ratio Decidendi: The court concluded that past disqualifications should not inhibit directors from pursuing new ventures when a substantial time has elapsed, aligning with the objectives of CFSS-2020.

Result: Petition granted; DINs and DSCs to be reactivated within one week.

Table of Content
1. directors disqualified due to company's status. (Para 2)
2. legal precedents on director disqualification. (Para 3)
3. application of cfss-2020 for active directors. (Para 4)
4. opportunity provided for new business post-disqualification. (Para 5 , 6)
5. reactivate din/dsc to permit new directorships. (Para 7 , 8)

JUDGMENT

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

2. The Petitioners were directors of two companies, namely, Golden Saphire Shipping and Logistics (India) Pvt. Ltd. and Golden Horn Container Services Pvt. Ltd. The name of Golden Horn Container Services Pvt. Ltd. was struck off for non-filing of financial statements and annual returns for three consecutive financial years. The Petitioners were disqualified and their Director Identification Number (hereinafter, "DIN") and Digital Signature Certificate (hereinafter, "DSC") were also deactivated. It is submitted that 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