Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2021 Supreme(Mad) 465

IN THE HIGH COURT OF JUDICATURE AT MADRAS
ABDUL QUDDHOSE, J.
Arul Kumar Manickam & Another – Appellant
Versus
Union of India, Represented by its Ministry of Corporate Affairs, New Delhi & Another – Respondent
W.P. Nos. 2148 & 2154 of 2021 & W.M.P. Nos. 2428, 2429, 2433 & 2436 of 2021
Decided On : 04-02-2021

Advocates Appeared:
For the Petitioners:M. Kalyanaraman, Advocate.
For the Respondents: Madanagopal Rao, Central Government Standing Counsel.

Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013 should be in accordance with procedural requirements and afford the directors an opportunity to be heard.

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

The writ petitions challenged the disqualification of the petitioners as Directors under Section 164(2)(a) of the Companies Act, 2013 for not submitting financial statements or annual returns for three consecutive financial years.
Finding of the Court:

The court found that the impugned order disqualifying the petitioners as Directors was passed without affording them an opportunity, which was held to be in violation of the provisions of the Companies Act, 2013. The court applied the ratio laid down by a previous Division Bench judgment and set aside the impugned order, allowing the writ petitions.
Issues: The issues revolved around the disqualification of directors under Section 164(2)(a) of the Companies Act, 2013 and the violation of procedural requirements in passing the impugned order.
Ratio Decidendi: The court interpreted the provisions of the Companies Act, 2013 and relied on a previous judgment to conclude that disqualification without affording an opportunity was in violation of the law.
Final Decision: The common impugned order disqualifying the petitioners as Directors was set aside, and the writ petitions were allowed.

JUDGMENT :

(Common Prayer: Writ Petitions filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorarified Mandamus to call for the records of the 2nd respondent relating to the impugned order dated 01.11.2017 uploaded in the website of the 1st respondent in so far as the petitioners herein are concerned, quash the same as illegal, arbitrary and unconstitutional and consequentially direct the respondents herein to permit petitioners to get re-appointed as Directors of the companies.)

1. These writ petitions have been filed challenging the disqualification of the petitioners as Directors under Section 164(2)(a) of the Companies Act, 2013 on the ground that they have not submitted their financial statements or annual returns for three financial years consecutively. The petitioners have challenged the common impugned order dated 01.11.2017 passed by the second respondent on the ground that without affording opportunity to the petitioners, the said order has been passed.

2. Mr.Madanagopal Rao, learned Central Government Standing Counsel accepts notice on behalf of the respondents. By consent of both parties, these Writ Petitions are taken up for final disposal at the admission stage itself.

3. Heard Mr.M.Kalyanaraman, learned counsel for the petitioners and Mr.Madanagopal Rao, learned Central Government Standing Counsel for the respondents.

4. It is also contended by the learned counsel for the petitioners that the common impugned order has been passed in violation of the provisions of the Companies Act, 2013 and therefore the said order is bad in law.

5. The issue raised in this writ petition was considered by the Hon’ble Division Bench of this Court by its order dated 09.10.2020 in W.A. No.569 & Ors. of 2020 in the case of Meetgelaveetil Kaitheri Muralidharan Versus Union of India & Another and in paragraphs 36 and 38, it has been held as follows:

“36. As is evident from the above, Rules 9 and 10 deals with the application for allotment of DIN. Rule 10 (6) specifies that the DIN is valid for the life time of the applicant and shall not be allotted to any other person. Rule 11 provides for the cancellation or surrender or deactivation of the DIN. It is very clear upon examining Rule 11 that neither cancellation nor deactivation is provided for upon disqualification under Section 164(2) of CA 2013. In this connection, it is also pertinent to refer to Section 167(1) of CA 2013 which provides for vacating the office of director by a director of a Defaulting Company. As a corollary, it follows that if a person is a director of five companies, which may be referred to as companies A to E, if the default is committed by company A by not filing financial statements or annual returns, the said director of company A would incur disqualification and would vacate office as director of companies B to E. However, the said person would not vacate office as director of company A. If such person does not vacate office and continues to be a director of company A, it is necessary that such person continues to retain the DIN. In this connection, it is also pertinent to point out that it is not possible to file either the financial statements or the annual returns without a DIN. Consequently, the director of Defaulting Company A, in the above example, would be required to retain the DIN so as to make good the deficiency by filing the respective documents. Thus, apart from the fact that the AQD Rules do not empower the ROC to deactivate the DIN, we find that such deactivation would also be contrary to Section 164(2) read with 167(1) of CA 2013 inasmuch as the person concerned would continue to be a director of the Defaulting Company.

38. In the result, these appeals are 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 is hereby quashed. As a corollary to our conclusion on the deactivation

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