The Kerala High Court held that the Director’s Identification Number (DIN) cannot be deactivated solely for disqualification from appointment in any Companies.
More than 200 petitions were filed challenging the Sections 164(2)(a) and 167(1)(a) of the Companies Act, 2013 and the disqualification thrust upon the petitioners for acting as Directors of Companies, pursuant to Sections 164 and 167.
The petitioners are persons who are disqualified pursuant to Section 164(2) for failure of their respective Companies to file Financial Statements/Annual Returns.
Section 164 of the Companies Act, 2013 made the disqualification on failure to file Annual returns, applicable to Directors of all Companies including Private Limited Companies. It is this sweeping change, which has given rise to these litigations.
The counsel representing writ petitioners contended that the incidents leading to disqualifications under Section 164(1) are personal to the Directors like Unsoundness of mind, Insolvency, Conviction in criminal cases etc. The incidents resulting in disqualification under 164(2) however, are non- filing by Company, of Annual Returns or Financial Statements for a continuous period of three years, failure of a Company to repay deposits accepted or interest payable, failure of the Company to redeem debentures on due dates, failure to pay dividends etc. The incidents resulting in disqualification under Section 164(2) are not directly attributable to Directors. The consequences however are grave.
“Those Directors are disqualified to act as Directors in all other companies also and that too for a period of long five years. The consequences are extremely disproportionate and unjustified. The legislative provisions in this regard are evidently, exceptionally and excessively arbitrary and would be and should be hit by Article 14 of the Constitution,” the petition read.
The petitioners further urged that under Section 248, if a Company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company, the Registrar has the power to remove the name of the Company from the Register of Companies. As Section 248 can be invoked against any Company, disqualifying the Directors without notice is arbitrary. As the Directors have no remedy against the disqualification under Section 164(2), except under Article 226 of the Constitution, principles of natural justice / audi alteram partem should necessarily be read into Section 164.
The Single Judge Bench of Justice N.Nagaresh held that The Director Identification Numbers (DINs) of the petitioners allotted under Rule 10 of the Companies (Appointments and Qualifications of Directors) Rules, 2014, are not liable to be deactivated or cancelled solely for the reason that the petitioners stand disqualified for appointment / reappointment as Directors of Companies by operation of Section 164(2).
The court directed the respondent authority to re-activate the Director Identification Numbers (DINs) of the petitioners forthwith. However, it is made clear that the respondents will be at liberty to cancel or deactivate the DINs of the petitioners for any reasons laid down in Rule 11 of the Companies (Appointment and Qualifications of Directors) Rules, 2014.
The case of as many as 200 petitioners was represented by Advocate Navod Prasannan Pattali, Advocate Shameem Ahmed, Advocate Mohan Pulickkal, Advocate Sukumar Nainan Oommen, Advocate Sherry Samuel Oommen, Advocate Ramola Nayanpalli, and Advocate M.N. Manmadan represented the Union of India and other respondents.
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