CHENNAI HIGH COURT
QUASHED THE PUBLICATION OF THE LIST OF DISQUALIFIED DIRECTORS BY THE ROC,
CHENNAI AND THE DEACTIVATION OF THE DIN
OF THE APPELLANTS
QUASHED THE PUBLICATION OF THE LIST OF DISQUALIFIED DIRECTORS BY THE ROC,
CHENNAI AND THE DEACTIVATION OF THE DIN
OF THE APPELLANTS
Meethelaveetil
Kaitheri Muralidharan & Others Vs Union of India
Kaitheri Muralidharan & Others Vs Union of India
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
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
Plaintiff
advocate advanced his first contention, namely,that the requirement of prior
notice is implicit in Section 164(2). He pointed out that the ROC disqualified
about 3,09,614 directors under Section164(2)(a) of CA 2013 by order dated
08.09.2017. Subsequently, another listof disqualified directors aggregating to
about 45657 was published on 01.11.2017.
advocate advanced his first contention, namely,that the requirement of prior
notice is implicit in Section 164(2). He pointed out that the ROC disqualified
about 3,09,614 directors under Section164(2)(a) of CA 2013 by order dated
08.09.2017. Subsequently, another listof disqualified directors aggregating to
about 45657 was published on 01.11.2017.
in Bhagavan Das Dhananjaya Das v. Union of India [(2018) 6 MLJ 704] (Bhagavan
Das), the said
disqualifications were set aside. In the said judgment, the Court held that the
principles of natural justice should have been adhered to by issuing a proper
notice to all the directors concerned and that this position is fortified by
the fact that the default in filing the financial statements or annual returns
is a compoundable offence. On that basis, Section 164(2)(a) was construed such
that such disqualification cannot be effected without a prior notice.
Das), the said
disqualifications were set aside. In the said judgment, the Court held that the
principles of natural justice should have been adhered to by issuing a proper
notice to all the directors concerned and that this position is fortified by
the fact that the default in filing the financial statements or annual returns
is a compoundable offence. On that basis, Section 164(2)(a) was construed such
that such disqualification cannot be effected without a prior notice.
The defaulter’s list was uploaded on the MCA website
on 18.12.2018 and was challenged on the ground that it is in contravention of
the law laid down in
Bhagavan Das with regard to the requirement of prior notice.
on 18.12.2018 and was challenged on the ground that it is in contravention of
the law laid down in
Bhagavan Das with regard to the requirement of prior notice.
Advocate for petitioner relied upon the judgment of the Gujarat High
Court dated 18.12.2018 in Gaurang Balvantlal Shah v. Union of India, 214
Com.Cas. 199 (2019) (Gaurang Balvantlal Shah) wherein the Court concluded that
the disqualification under 164 (2) would take place automatically on the occurrence
of any of the eventualities mentioned therein but the action of the ROC in
publishing the list of disqualified directors is not justified and is not in
consonance with the provisions of Section 164(2) of CA 2013.
Court dated 18.12.2018 in Gaurang Balvantlal Shah v. Union of India, 214
Com.Cas. 199 (2019) (Gaurang Balvantlal Shah) wherein the Court concluded that
the disqualification under 164 (2) would take place automatically on the occurrence
of any of the eventualities mentioned therein but the action of the ROC in
publishing the list of disqualified directors is not justified and is not in
consonance with the provisions of Section 164(2) of CA 2013.
Petioner Advocate referred to
the definition of DIN under Rule 2 of the AQD Rules, and to Rule 11 thereof. By
drawing the attention of this Court to Rule 11, he pointed out that Rule 11
deals with the cancellation or surrender or deactivation of DIN and enables
such deactivation or cancellation only in the situations specified therein.
the definition of DIN under Rule 2 of the AQD Rules, and to Rule 11 thereof. By
drawing the attention of this Court to Rule 11, he pointed out that Rule 11
deals with the cancellation or surrender or deactivation of DIN and enables
such deactivation or cancellation only in the situations specified therein.
Those situations are if the DIN
is found to be a duplicate or obtained in a wrongful manner or by
fraudulent means.
is found to be a duplicate or obtained in a wrongful manner or by
fraudulent means.
In
addition, the DIN may be cancelled or surrendered or deactivated only in the
following four individual director-specific situations, namely, if the
individual concerned: dies; or has been declared to be unsound mind; or has
been adjudicated an insolvent; or if the holder of the DIN applies to surrender
the DIN on the basis that he/she has never been appointed as a director in any
company and the said DIN was never used for filing a document with any
authority.
addition, the DIN may be cancelled or surrendered or deactivated only in the
following four individual director-specific situations, namely, if the
individual concerned: dies; or has been declared to be unsound mind; or has
been adjudicated an insolvent; or if the holder of the DIN applies to surrender
the DIN on the basis that he/she has never been appointed as a director in any
company and the said DIN was never used for filing a document with any
authority.
In Gourang Balvantlal Shah, the
Gujarat High Court concluded that the DIN could not be cancelled or deactivated
merely because one of the companies in which such person was a director had
been struck off from the Registrar of Companies under Section 248 of CA 2013.
In Yashodhara Shroff and Others v. Union of India, order dated 12.06.2019
(Yashodara Shroff), the Karnataka High Court concluded that Section 164(2) of
CA 2013 applies prospectively and not retrospectively and, on that basis,
directed restoration of the DIN where the disqualification of directors
was not valid.
Gujarat High Court concluded that the DIN could not be cancelled or deactivated
merely because one of the companies in which such person was a director had
been struck off from the Registrar of Companies under Section 248 of CA 2013.
In Yashodhara Shroff and Others v. Union of India, order dated 12.06.2019
(Yashodara Shroff), the Karnataka High Court concluded that Section 164(2) of
CA 2013 applies prospectively and not retrospectively and, on that basis,
directed restoration of the DIN where the disqualification of directors
was not valid.
Similarly, the Delhi High Court in
Mukut Pathak v. Union of India W.P.(C) No.9088 of 2018 (MukutPathak), by order
dated 04.11.2019, concluded that there is no provision supporting the
respondent's action of cancelling the DIN and the Digital Signature Certificate
(DSC) and that the said action is unsustainable. He concluded his submissions
by contending that Section 167(1) (a), which is set out below, should be read
down so as to apply only to disqualification under Section 164(1) and not under
Section 164(2):
Mukut Pathak v. Union of India W.P.(C) No.9088 of 2018 (MukutPathak), by order
dated 04.11.2019, concluded that there is no provision supporting the
respondent's action of cancelling the DIN and the Digital Signature Certificate
(DSC) and that the said action is unsustainable. He concluded his submissions
by contending that Section 167(1) (a), which is set out below, should be read
down so as to apply only to disqualification under Section 164(1) and not under
Section 164(2):
Attorney General argued that the
judgment in S.Subramania Aiyar v. United India Life Insurance Co. Ltd., AIR
1928 Mad. 1215, he contended that the directors of a company, who are
responsible for filing financial statements and annual returns and are
responsible for the default in doing so, cannot absolve themselves of
liability.
judgment in S.Subramania Aiyar v. United India Life Insurance Co. Ltd., AIR
1928 Mad. 1215, he contended that the directors of a company, who are
responsible for filing financial statements and annual returns and are
responsible for the default in doing so, cannot absolve themselves of
liability.
He also relied on a few judgments,
such as S.L. Kapoor v. Jagmohan (1980) 4 SCC 379; KSRTC v. S.G. Kotturappa (2005) 3 SCC 409; and
Board of Directors, HPTC v. K.C. Rahi (2008) 11 SCC 502 for the proposition
that compliance with natural justice is situation-specific and cannot be put in
a straight-jacket.
such as S.L. Kapoor v. Jagmohan (1980) 4 SCC 379; KSRTC v. S.G. Kotturappa (2005) 3 SCC 409; and
Board of Directors, HPTC v. K.C. Rahi (2008) 11 SCC 502 for the proposition
that compliance with natural justice is situation-specific and cannot be put in
a straight-jacket.
Aravind Pandian argued that By drawing reference to
the celebrated judgment in the case of Life Insurance Corporation v. Escorts Ltd.
(1986) 1 SCC 264, he contended that a statutory provision cannot be interpreted
by drawing reference to the form prescribed for its implementation. He further
submitted that this is not a case of suspending the DIN but of deactivation
thereof.
the celebrated judgment in the case of Life Insurance Corporation v. Escorts Ltd.
(1986) 1 SCC 264, he contended that a statutory provision cannot be interpreted
by drawing reference to the form prescribed for its implementation. He further
submitted that this is not a case of suspending the DIN but of deactivation
thereof.
In light of the above analysis, we concur with the
views of the Delhi High Court in Mukut Pathak, the Allahabad High Court in Jai Shankar
Agrahari and the Gujarat High Court in Gaurang Balvantlal Shah to the effect
that the ROC is not empowered to deactivate the DIN under the relevant rules.
views of the Delhi High Court in Mukut Pathak, the Allahabad High Court in Jai Shankar
Agrahari and the Gujarat High Court in Gaurang Balvantlal Shah to the effect
that the ROC is not empowered to deactivate the DIN under the relevant rules.
In Yashodhara Shroff, the Karnataka High Court upheld
the constitutionality of Section 164(2) and proceeded to hold that a prior or
post decisional hearing is not necessary. For reasons detailed in preceding
paragraphs, we disagree with the view of the Karnataka High Court that prior
notice is not required under Section 164(2) of CA 2013.
the constitutionality of Section 164(2) and proceeded to hold that a prior or
post decisional hearing is not necessary. For reasons detailed in preceding
paragraphs, we disagree with the view of the Karnataka High Court that prior
notice is not required under Section 164(2) of CA 2013.
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
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.
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
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.
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