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2020 Supreme(Mad) 1759
IN THE HIGH COURT OF JUDICATURE AT MADRAS
A.P. SAHI, SENTHILKUMAR RAMAMOORTHY, JJ.
Meethelaveetil Kaitheri Muralidharan & Another - Appellants
Versus
Union of India, Represented by its Secretary, Ministry of Corporation Affairs, New Delhi & Another - Respondents
Writ Appeal Nos. 569, 718, 720, 721, 841 & 842 of 2020 & CMP. Nos. 8122, 9787, 10648 & 10649 of 2020
Decided on : 09-10-2020
Advocate Appeared:
For the Appellant :Om Prakash, Senior Counsel, Ilaiyaraja for M/s. Ramalingam Associates, R. Rajesh P.H. Aravind Pandian, Senior Counsel for M/s. V. hailandhran, Advocate.
For the Respondents: R. Sankaranarayanan, ASG., Assisted by S. Janarthanam, SPC.
Headnote:
COMPANIES ACT - Section 164(2) - Disqualification of Directors - Prior Notice - Deactivation of DIN - Held, prior notice is required before disqualifying a director under Section 164(2) of the Companies Act, 2013. The ROC is not empowered to deactivate the DIN under the relevant rules.
Fact of the Case:
The Appellants, who were directors of various companies, challenged the disqualification imposed on them by the Registrar of Companies (ROC) under Section 164(2) of the Companies Act, 2013 (CA 2013) for not filing financial statements or annual returns for three consecutive financial years. They also challenged the deactivation of their Director Identification Number (DIN).
Finding of the Court:
The Court held that a prior notice is required before disqualifying a director under Section 164(2) of CA 2013. The Court also held that the ROC is not empowered to deactivate the DIN under the relevant rules.
Issues: 1. Whether a prior notice is required before disqualifying a director under Section 164(2) of CA 2013? 2. Whether the ROC is empowered to deactivate the DIN under the relevant rules?
Ratio Decidendi: 1. Section 164(2) of CA 2013 deals with disqualification of directors for not filing financial statements or annual returns for three consecutive financial years. The disqualification is attributed to the directors of the Defaulting Company, i.e. the company which has not filed the financial statements or annual returns. 2. In order to apply Section 164(2) to a particular director, it is necessary to determine whether the director concerned is responsible for the default of the Defaulting Company. This determination requires an enquiry, which cannot be conducted without giving a prior notice to the director concerned. 3. Rule 11 of the Companies (Appointment and Qualifications of Directors) Rules, 2014 (AQD Rules) provides for the cancellation or surrender or deactivation of DIN. However, deactivation of DIN is not provided for upon disqualification under Section 164(2) of CA 2013.
Final Decision: The appeals were allowed by setting aside the impugned order dated 27.01.2020. Consequently, the publication of the list of disqualified directors by the ROC and the deactivation of the DIN of the Appellants was quashed. The Court also directed the ROC to reactivate the DIN of the respective directors within 30 days of the date of receipt of a copy of the order.
JUDGMENT :
Senthilkumar Ramamoorthy, J.
(Prayer in W.A.No.569 of 2020: Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 in W.P.No.750 of 2020 & allow the appeal.
IN W.A.No.718 OF 2020: Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 passed in W.P.No.27463 of 2019 on the file of this Court and allow the said writ petition as prayed for.
IN W.A.No.720 OF 2020: Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 passed in W.P.No.27467 of 2019 on the file of this Court and allow the said writ petition as prayed for.
IN W.A.No.721 OF 2020: Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 passed in W.P.No.15637 of 2019.
IN W.A.No.841 OF 2020: Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 passed in W.P.No.35384 of 2019. Prayer IN W.A.No.842 OF 2020:
Writ Appeal is filed under Clause 15 of Letters Patent to set aside the order dated 27.01.2020 passed in W.P.No.35388 of 2019.)
1. This batch of writ appeals arise out of a common order dated 13.01.2020 whereby the separate writ petitions filed by each Appellant herein to quash the respective disqualification by the Registrar of Companies (the ROC) and for consequential reactivation of the Director Identification Number (DIN) or permission for appointment/reappointment as director were dismissed.
2. The Companies Act, 2013 (CA 2013) deals with disqualifications for appointment as a director in Section 164 which came into force on 01.04.2014. Section 164(1) thereof sets out eight grounds of disqualification that are individual director-specific and broadly corresponds to Section 274(1)(a)-(f) of the earlier Companies Act, 1956 (CA 1956). Section 164(2), which bears some resemblance to Section 274(1)(g) of CA 1956 but is wider in scope, on the other hand, deals with default by the company concerned in fulfilling its obligations and the attribution of such default to the directors, thereby resulting in their disqualification. In these cases, we are concerned with Section 164(2)(a) which prescribes that a person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years is not eligible to be re-appointed as a director of the company or appointed as a director of any other company for five years from the date of default. In each of these cases, on the ground specified in Section 164(2)(a) of CA 2013, the name of each Appellant was included in a list of disqualified directors, which was published on the website of the first Respondent. The DIN of each Appellant/director was consequently deactivated. Such disqualification and deactivation were challenged in the writ petitions. The two main grounds on which the disqualification and deactivation were challenged are : (i) prior notice was not issued to the Appellant concerned calling upon him to show cause as to why he should not be disqualified as a director; and (ii) the ROC is not entitled to deactivate the DIN of these directors as per CA 2013 and the rules framed thereunder.
3. By the impugned order, in paragraph 27, the learned single Judge concluded that a notice would be an empty formality in the facts and circumstances because the disqualification occurs ipso facto and the issuance of a notice would make no difference.
4. As regards the deactivation of the DIN, the learned single Judge concluded, in paragraph 34, that the DIN can only exist during the period when an individual holds office as a director and, therefore, the deactivation of the DIN is a logical corollary of disqualification. In the present appeals, the said order of the learned single Judge is under challenge.
5. We heard Mr. Aravind Pandian, the learned senior counsel, assisted by Mr.C.V.Shailandhran, learned counsel for the Appellant in W.A. No.721 of 2020; Mr. Om P
