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2019 (7) TMI 1686 - HC - Companies LawPrinciples of natural justice - Disqualification of Directors - Section 164(2) of the Companies Act - direction to 2nd respondent to activate DINs of the petitioners, to enable them to function other than in strike off companies - petitioner contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside - HELD THAT:- The 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible - as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent. Issuance of prior notice before disqualifying the petitioners as directors - HELD THAT:- Section 164(2)(a) makes it clear that it provides disqualification on happening of an event i.e., if a person who is or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re-appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. Thus, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. Deactivation of DINs - contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the violation mentioned under Section 164(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 164(2)(a) of the Act, DIN cannot be cancelled - HELD THAT:- Clauses (a) to (f) of Rule 11, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules - the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. The impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINs of the petitioners, enabling them to function as Directors other than in strike off companies - Petition disposed off.
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