Section 164 of the Companies Act, 2013 lays down the criteria on the basis of which the director of a company can be disqualified from his post. The disqualification clause under Section 164 (2) should be read alongside the Section 167 of the Companies Act, which lays down the grounds for vacation of office of the Directors. Section 164(2)(a) of the Act, states that when the director in question has failed to file the annual returns or the financial statements for a continuous period of three years, the concerned director shall become ineligible for reappointment as a director in the given company, or any other company for a period of five years from the date of failure of the director to file the returns and his office shall be liable to be vacated in all the Companies, other than the company which is in default.
The implementation of the provisions under the Section 164 was seen prominently when in 2017, the Ministry of Corporate Affairs (MCA) vide its notification dated September 12, 2017, listed as many as over 3 lakh directors as disqualified by virtue of Section 164(2) of the Act. Subsequent to this disqualification, the COD Scheme (Condonation of Delay) was introduced by the MCA vide its notification dated 29.12.2017. The scheme was designed by the MCA as a means to allow the aforementioned defaulter directors with a means to submit the financial statements or other relevant documents within a given period.
However, of all the directors who were disqualified by the MCA vide its notification in 2017, there were many directors who were unable to make use of the window which the COD Scheme had provided to file the requisite overdue documents. Subsequent to the time-limit under COD scheme having elapsed, the remaining disqualified directors of the companies which had been struck off from the Register of Companies, were left with only two forms of further remedies
- Application for the revival of company i.e. for the restoration of the name of the company which has been struck off from the ROC, or
- Apply for removal of the disqualification without the revival of the company i.e. by filing a writ petition before the High Court, against the disqualification by the MCA.
The recourse by filing a writ petition before the High Courts under Article 226 seeking judicial relief has proven to be an effective method for the directors to have their disqualification removed. The concerned petitions observed claims being made by the disqualified directors regarding infringement of Article 19(1)(g) of the Constitution of India.
The landmark case in this regard was the case of M/s. Dr. Reddy’s Research Foundation & Ors. vs. The Ministry of Corporate Affairs & Anr. The High Court of Hyderabad directed the respondents i.e. the Registrar of Companies to restore the DIN numbers of the disqualified directors.
On these lines, another landmark case where in the order passed by ROC was decided to be set aside is the case of G.Muthukumar Vs. Registrar of Companies, Madras.
Recourse was granted to the Director by the High court of Madras in the case of G.Muthukumar Vs. Registrar of Companies on 8th March 2021 where no notice was given to petitioner before disqualifying him as Director of company. The impugned order passed by Registrar of Companies disqualifying petitioner as Director of company under section 164(2)(a) was illegal and same was to be set aside as per the order of the Madras High court.
Facts of the case :
Petitioner/director filed writ petition challenging his disqualification as Director under section 164(2)(a) and deactivation of DIN on ground that he had not submitted the financial statements for three consecutive financial years. Petitioner challenged the impugned order on ground that without affording an opportunity to the petitioner, the said order had been passed. Since no notice was given to the petitioner before disqualifying him as Director of company, impugned order dated 17-12-2018 passed by the Registrar of Companies disqualifying the petitioner as Director of the company under section 164(2)(a) was illegal and was to be set aside.
The learned counsellor of the petitioner said that the impugned order dated 17-12-2018 has been passed in violation of the provisions of the Companies Act, 2013 and therefore, the said order was bad in law.
The issue raised in this writ petition was considered by the Hon’ble Division Bench of this Court in the case of Meethelaveetil Kaitheri Muralidharan v. Union of India  where in the bench highlighted the fact that 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 disqualification under section 164(2) of CA 2013.
The bench also examined the provisons of the 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.
It also reiterated the fact that the DIN Rules do not empower the ROC to deactivate the DIN and that such deactivation would also be contrary to Section 164(2) read with 167(1) of CA 2013 in as much as the person concerned would continue to be a director of the Defaulting Company.
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 of DIN, the DIN of the respective directors shall be reactivated within 30 days of the date of receipt of a copy of this order.
(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)Authors – CS Vino.Vasu.Bhar
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