Directors disqualified before 7th May 2018 retain their positions in active companies, allowing reactivation of their DINs and DSCs under the Companies Fresh Start Scheme-2020.

Headnote:(A) Companies Act, 2013 - Section 164(2)(a) and Section 167(1)(a) - Disqualification of directors - Petitioner's disqualification as director due to non-compliance in defaulting company - Court allowed reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC) of petitioner, categorizing under directors disqualified before 7th May 2018. (Paras 4, 6)

(B) Directors of active companies - Activation of DIN/DSC for directors of active companies who were disqualified prior to 7th May 2018 is permitted as per the Companies Fresh Start Scheme-2020, allowing them to file returns and continue functioning. (Para 5)

Facts of the case:
The petitioner, a director of four companies, faced disqualification under Section 164(2)(a) for failure to file compliance documents resulting in deactivation of DIN from November 2017 to October 2022.

Findings of Court:
The disqualification of the petitioner is to be set aside for active companies, and DIN and DSC to be reactivated within ten days.

Issues: The main issues were the applicability of disqualification provisions under the Companies Act to the petitioner and the status of activation of his DIN/DSC.

Ratio Decidendi: The court ruled that directors disqualified before 7th May 2018 are entitled to retain their positions in active companies, and thus their DIN/DSC must be reinstated without the retroactive application of disqualification provisions.

Result: The petition is disposed of with DIN and DSC reactivation ordered.

Table of Content
1. disqualification of directors due to non-compliance. (Para 1 , 2 , 3)
2. application of cfss-2020 for directors. (Para 4 , 5)
3. reactivation of din/dsc for pre-7th may 2018 disqualified directors. (Para 6)
4. disposal of petition and applications. (Para 7 , 8)

JUDGMENT

Prathiba M. Singh, J. (Oral)

1. This hearing has been done by video conferencing.

CM APPL. 1524/2021 (for exemption) in W.P.(C) 604/2021

2. Allowed, subject to all just exceptions. Application is disposed of.

W.P.(C) 604/2021 & CM APPL. 1523/2021 (for stay)

3. The Petitioner is a director of four companies, namely, Dayal Beverages Limited, Velocity Projects Private Limited, Maan Infradevelopers Private Limited and Super Buildmart Private Limited. Two companies are registered in Uttar Pradesh and two are registered in Delhi. All four companies are active companies, however, they are non-compliant companies for non-filing of their returns. Due to alleged non-compliance/default in Dayal Beverages Limited under Section 164(2)(a) of the Companies Act, 2013 i.e., non-filing of financial statements or annual returns for any continuous period of three financial years, the said Petitioner was also disqualified as a director from 1st November, 2017 to 31st October, 2022 and his DIN and DSC were de-activated.

4. This Court has considered the legal position relating to activation of DIN/DSC numbers of directors of defaulting companies in Anjali Bhargava & Anr. v. UOI & Anr., (W.P.(C) 11264/2020, decided on 6th January, 2021). The relevant portion of the said order reads:

"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 COVID-19 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 pu