Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2018 Supreme(Mad) 2380

IN THE HIGH COURT OF JUDICATURE AT MADRAS
T. Raja, J.
Shanti Kumbhat – Petitioner
Vs.
Union of India, Rep. by its Ministry of Corporate Affairs, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi and ors. – Respondents
W.P. Nos. 28155, 31515, 31516, 32016, 32188 to 32191, 32213, 32214, 32232, 32253, 32411,32454, 32969, 33036, 33037, 33042 to 33044, 33143, 33310, 33374 to 33377, 33412, 33486 to 33488, 33506, 33533, 33534, 33540, 33566, 34251, 34252, 34261 of 2017, 3268, 3269, 4274, 4275, 6912, 6913, 6923 to 6929, 6930 to 6936, 6991, 7029, 7059, 7061, 7062, 7068, 7069, 7151, 7157, 7158, 7165, 7166, 7180, 7181, 7195, 7196, 7197, 13000, 16570, 16585, 16659 to 16661, 16713 to 16716, 16755, 16756, 16762, 16829, 16876, 16920, 16929, 17011 to 17014, 17103 to 17106, 17124, 17133, 17191, 17204, 17226, 17284, 17285, 17293, 17348, 19318, 19355 of 2018, 28349, 28440, 30718 to 30722 of 2017, 19461, 19531, 19532, 19577, 18687, 15255 of 2018
Decided On : 03-08-2018

Advocates Appeared:
For the Petitioner: Mr. R. Sivaraman
For the Respondent: Mr. G.Rajagopalan, Additional Solicitor General of India, assisted by Mr. G. Karthikeyan, Assistant Solicitor General and, Dr. V. Venkatesan, Senior Central Government Standing Counsel

The disqualification of directors under Section 164(2)(a) of the Companies Act 2013 cannot be applied retrospectively, and the principles of natural justice must be adhered to in such cases.

Headnote:
Companies Act 2013 - Disqualification of Directors - Section 164(2)(a)
Fact of the Case:

The petitioners challenged the orders disqualifying them as Directors of companies under Section 164(2)(a) of the Companies Act 2013, claiming it to be illegal and arbitrary. The court had previously held that the disqualification was erroneously applied retrospectively and that the disqualification could only be triggered after a specific time period from the commencement of the Act. The court also emphasized the need for adherence to principles of natural justice and read down the provision to protect directors in companies following legal requirements.
Finding of the Court:

The impugned orders disqualifying the petitioners were set aside, and the writ petitions were allowed. The court directed the deposit made under the CODS 2018 Scheme to be transmitted to the Registrar of Companies for reconciliation with the respective company accounts.
Issues: Challenge to the disqualification of directors under Section 164(2)(a) of the Companies Act 2013, retrospective application of the disqualification, adherence to principles of natural justice, and the interplay between disqualification and striking off of company names.
Ratio Decidendi: The disqualification under Section 164(2)(a) cannot be applied retrospectively, and the disqualification could only be triggered after a specific time period from the commencement of the Act. The court emphasized the need for adherence to principles of natural justice and read down the provision to protect directors in companies following legal requirements.
Final Decision: The impugned orders disqualifying the petitioners were set aside, and the writ petitions were allowed. The court directed the deposit made under the CODS 2018 Scheme to be transmitted to the Registrar of Companies for reconciliation with the respective company accounts.

ORDER :

The petitioners in this bunch of writ petitions have challenged the respective impugned orders dated 8.9.2017, 1.11.2017 etc., passed by the Registrar of Companies, Tamil Nadu, Chennai, the second respondent herein, uploaded in the website of the Ministry of Corporate Affairs, New Delhi, the first respondent herein disqualifying them to hold the office of Directorship of the companies under Section 164(2)(a) of the Companies Act 2013, which came into effect from 1.4.2014, to quash the same as illegal, arbitrary and devoid of merits with a consequential direction to the respondents herein to permit the petitioners to get reappointed as Directors of any company or appointed as Directors in any other company without any hindrance.

2. Heard Mr.P.H.Aravind Pandian, learned senior counsel for Mr.C.V.Shailandhran, Mr.Shardul Amarchandmangaldas, Mr.Harishankar Mani for the respective petitioners, Mr.R.Sivaraman, Mr.Sankar Varadharajan, Mr.R.Balaguruswamy, Mr.J.Ravindran, Mr.K.Jayaraman, Mr.A.Narayanan, Mr.Naveenkumar Murthi, Mr.Desikan Balaji, Mr.N.V.Prakash, Mr.Govind Chandrasekhar, Mr.S.Sathianarayanan, Mrs.P.Bagyalakshmi, Mr.R.Prithviraj Pandian, Mrs.R.Sangeetha, Mr.S.Punniyakotti, Mr.A.P.Ramesh, Mr.K.Vijayaraghavan, Mr.R.S.Pandiyaraj, Mr.T.Sai Krishnan, Mr.K.Thiruvengadam, learned counsels appearing for the respective petitioners and also the other counsels, adopting the arguments of the learned senior counsel Mr.P.H.Aravind Pandian, on similar lines and Mr.G.Rajagopalan, learned Additional Solicitor General of India assisted by Mr.G.Karthikeyan, learned Assistant Solicitor General along with Dr.V.Venkatesan, learned Senior Central Government Standing Counsel, Mr.K.Ramanamoorthy, Mr.S.Sathish Rajan, Mrs.N.K.Nithilavani, Mr.S.Pavesh Kannan, Mr.B.Ramarathnam, learned Central Government Standing Counsels, Mr.C.V.Ramachandra Murthy, Senior Panel Counsel and Mr.P.Ayyaswamy for the respondents.

3. The issue raised in this bunch of writ petitions has been answered by this Court vide order dated 3.8.2018 passed in a batch of writ petitions viz., W.P.Nos.25455 of 2017 etc., batch (Bhagavan Das Dhananjaya Das v. Union of India and another) holding as follows:-

“29. In fine,

(a) When the New Act 2013 came into effect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner-directors from 1.11.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3.2014.

(b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression “for any continuous period of three financial years” and in the light of Section 2(41) defining “financial year” as well as their own General Circular No.08/14 dated 4.4.2014, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the financial years commenced from 2013-14, 2014-15 and 2015-16 i.e., one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings.

(c) By virtue of the first proviso to Section 96(1) of the 2013 Act, Annual General Meeting for the year ending on 31.3.2017 can be held within six months from the closing of financial year i.e., 30.9.2017, additionally in the light of Section 164(2)(a) referring to “annual return” and “financial statement”, the time limit to file annual return under Section 92(4) of 2013 Act is sixty days from Annual General Meeting or the last date on which Annual General Meeting ought to have been held, hence, the time limit to file balance sheet under Section 137(1) of the 2013 Act is again thirty days from Annual General Meeting. Therefore, in view of these legal position, the disqualification could get trigge

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