2021 (2) TMI 402 - HC - Companies Law

De-activation of the Director Identification Number - Section 164(2) of the Companies Act 2013 - HELD THAT - Similar controversy was raised in other High Courts and after considering the issue at length the Gujarat High Court decided batch of petitions led by Special Civil Application No. 22435 of 2017 by its order dated 18.12.2018 2019 (1) TMI 27 - GUJARAT HIGH COURT where it was held that The writ petition for challenge to the de-activation of the Director Identification Number are allowed. It was de-activated on account of dis-qualification in one company effecting Director Identification Number for the other companies. The opposite parties are directed to activate the Director Identification Number for use for other company.

Summary

Issues Involved:
1. Deactivation of Director Identification Number (DIN) under Section 164(2) of the Companies Act, 2013.
2. Retrospective applicability of Section 164(2) of the Companies Act, 2013.
3. Legal validity of the list published showing disqualified Directors.
4. Authority and procedure for deactivation of DIN.
5. Impact of the Condonation of Delay Scheme on the disqualified Directors.

Issue-wise Detailed Analysis:

1. Deactivation of Director Identification Number (DIN) under Section 164(2) of the Companies Act, 2013:

The petition challenged the deactivation of the Director Identification Number (DIN) by invoking Section 164(2) of the Companies Act, 2013. The petitioners sought a direction to activate their DINs, which were deactivated due to disqualification arising from defaults committed by one company.

2. Retrospective applicability of Section 164(2) of the Companies Act, 2013:

The court referred to the Gujarat High Court's judgment in Special Civil Application No. 22435 of 2017, which held that Section 164(2) of the Act of 2013 could be applied only prospectively. The relevant financial years for disqualification under Section 164(2)(a) would be 2014-15, 2015-16, and 2016-17. The court emphasized that retrospective application of this provision would be unfair and contrary to established legal principles, citing the Supreme Court's ruling in Commissioner of Income Tax (Central)-I, New Delhi Vs. Vatika Township Private Limited, which stated that laws should not have retrospective operation unless explicitly stated.

3. Legal validity of the list published showing disqualified Directors:

The court found that the list published on 12.09.2017, showing the petitioners as disqualified from 01.11.2016 to 31.10.2021, was premature and not in accordance with the law. The disqualification under Section 164(2) would only be applicable after the defaults occurred post-01.04.2017. The court concluded that the list was not justified and deserved to be quashed.

4. Authority and procedure for deactivation of DIN:

The court examined the relevant provisions of the Companies Act, 2013, and the Companies (Appointment and Qualification of Directors) Rules, 2014. It noted that Rule 11 of the said Rules does not provide for the suo motu cancellation or deactivation of DIN by the Central Government or any authorized officer. The grounds for cancellation or deactivation listed in Rule 11 do not include disqualification under Section 164(2) or being a director of a "struck off" company. The court held that the deactivation of the petitioners' DINs was not legally tenable.

5. Impact of the Condonation of Delay Scheme on the disqualified Directors:

The court addressed the respondents' reliance on the Condonation of Delay Scheme dated 29.12.2017, which was introduced to allow directors of "struck off" companies to rectify defaults. The court held that the scheme could not justify the publication of the impugned list, as the provisions of Section 164(2)(a) were to be applied prospectively. Additionally, the deactivation of DINs prevented the directors from availing the benefits of the scheme.

Conclusion:

The writ petition challenging the deactivation of the Director Identification Number was allowed. The court directed the respondents to activate the DINs for use in other companies, while retaining the liberty to take legal action against the petitioners for any statutory default or non-compliance with the provisions of the Companies Act, 2013, in accordance with the law.