TMI Blog2019 (7) TMI 1533X X X X Extracts X X X X X X X X Extracts X X X X ..... director. Because it cannot be the position that a disqualification applicable for appointment as a director, such as unsound mind and conviction, cannot disqualify a director who has incurred such a disqualification after he has become a director. Therefore, harmoniously read, the interplay between Section 164 and 167 is that the office of a director of a company will not automatically fall vacant if a director of a company incurs any of the disqualifications enumerated in Section 164(2) of the Act of 2013. The contention of the Appellant is rejected that the Arbitration Application filed on behalf of the Respondent by its Directors who were disqualified was not maintainable. The office of these Directors had not fallen vacant on their disqualification, and they could represent the Respondent - appeal dismissed. - Appeal Lodging No. 318 Of 2019 In Arbitration Petition No. 716 Of 2019 With Notice Of Motion Lodging No. 662 Of 2019 - - - Dated:- 9-7-2019 - Pradeep Nandrajog, CJ. And N. M. Jamdar, JJ. Mr. D. D. Madon, Senior Advocate a/w Mr. Ashish Kamat, Mr. Kunal Katariya, Mr. Vishesh Malviya Mr. Digvijay Sarangdhar I/by M/s. Rashmikant and Partners for the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant were having disputes with the Appellant over share transactions. Alarmed, the Respondent called for details of transactions carried out by the Appellant from the National Stock Exchange. The Respondent also acquired Trade Loss documents from the National Stock Exchange on 8 May 2017. According to the Respondent on verification of the accounts, the Respondent found that various false entries of debits were made. Besides this position, a credit balance of 17,52,47,517/- was reflected in the ledger account regarding transaction carried out on the National Stock Exchange. The Respondent issued a letter on 23 November 2017 demanding this amount and other losses, but the amount was not paid. The Respondent filed a complaint against the Appellant with the Economic Offences Wing on 12 March 2018. An F.I.R. was registered by the Economic Offences Wing on 22 June 2018. The Respondent also lodged a complaint with the Investor Services Cell of the National Stock Exchange on 26 July 2018. On 31 August 2018, the Respondent filed an Arbitration Application with the National Stock Exchange in From-I as per the National Stock Exchange Bye-laws. 3. The Respondent raised four claims. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in the award of the Arbitral Tribunal and that no ground was made out to set aside the award as enumerated in Section 34 of the Act of 1996. The learned Single Judge rejected the petition by order dated 24 June 2019. 7. We have heard Mr. D. D. Madon, Learned senior advocate appearing for the Appellant, Mr. Shyam Mehta, Learned senior advocate appearing for the Respondent and Mr. Sachin Chandarana, learned counsel appearing for the National Stock Exchange of India Ltd. 8. The Appellant has reiterated its two main contentions. That is the Claim No. 1 is barred by limitation, and the arbitration application was not maintainable. We will first take up the aspect of limitation. 9. The Arbitration application filed by the Respondent states that on 31 March 2015 the credit in the account of Appellants was 17,52,47,517/- , and the arbitration application was filed on 31 August 2018. The Arbitral Tribunal gave the benefit of section 18 of the Limitation Act to the Respondent, relying upon the plaint in Civil Suit filed by the Appellant against the Respondent and its three directors in the City Civil Court, Mumbai on 18 July 2018. The suit was filed seeking recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had sought the amount of 31,52,370/- from the Respondent along with 18% interest. The reason the Appellant had annexed the plaint was because of its defense. The defense being that no sum is due to the Respondent and in fact Respondent owes certain sum to the appellant which is claimed in the Suit. Also, since the Appellant had filed a suit against the Respondent and its directors, the matter is subjudice in the competent civil court. These documents, thus, formed part of the proceeding before the Arbitral Tribunal. 12. It is trite, that the Code of Civil procedure is not strictly applicable to the arbitral proceedings, but its fundamental principles can be invoked. Relevant provisions of Order VII Rule 6 of the Civil Procedure Code reads as under:- 6. Grounds of exemption from limitation law.- Where the suit is instituted after the expiration of the period prescribed by the law of limitation, the plaint shall show the ground upon which exemption from such law is claimed: [Provided that the Court may permit the plaintiff to claim exemption from the law of limitation on any ground not set out in the plaint, if such ground is not inconsistent with the gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ledger accounts annexed at B-1 to B-4 of defendant nos.1 to 4 till the inception would show there has been extensive trade carried out in the consolidated ledger account of the defendant nos.1 to 4 over the years and none has been disputed. The claim of the Appellant against the Respondent is based on the consolidated ledger accounts of defendant nos.1 to 4, who included Priti Vora, Mansi Vora, Mridula Vora and Respondent Verona Capital Ltd. In the ledger account regarding the defendant no.4, for the April 2015, the amount of 17,52,47,517/- was reflected. This position was continued throughout the accounts till 31 March 2018. Therefore, it cannot be any dispute that as on 31 March 2018, the Appellant had admitted liability of 17,52,47,517/- in favour of the Respondent. Since there was a clear acknowledgement throughout in the admitted ledger accounts maintained by the Appellant, even as of 31 March 2018, the application filed on 31 August 2018 was within limitation. In conclusion, the ground of limitation raised by the Appellant is rejected. 15. The second ground urged was of maintainability of the arbitration application filed in the Stock Exchange. Facts pertaining to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company; (e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force; (f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; (g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during the last preceding five years; or (h) he has not complied with sub-section (3) of section 152. (2) No person who is or has been a direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 164(1) or Section 164(2) or both. 19. The purpose of interpretation of statute is to ascertain the intention of the Parliament. At first instance, the court would go by plain words of the statute. However if juxtaposition of two provisions in a statute, literally read, would lead to absurd and unintended results then the provisions will have to be harmoniously read. 20. For the purpose of disqualification, Section 164 of the Act of 2013 can be divided in two parts. They are Sub-section (1) and Sub-section (2). Sub-section (1) relates to disqualification of a person for appointment as a director. The disqualifications listed are, to put in general terms: unsound mind; insolvency; conviction for offences involving moral turpitude with imprisonment not less than six months; order of disqualification passed by a court; conviction for an offence of related party transaction. If a person has suffered these consequences, then he cannot be appointed as a director. The second category of disqualification is in Sub-section (2). This Sub-section disqualifies a person who is or has been director of a company which has not filed financial statements or annual returns or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22. Next debate on this aspect was on the implication of the proviso is inserted in Section 167 of the Act 2013 by Act 1 of 2018 with effect from 7 May 2018. It states that that where a person incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company in default. The argument of the Appellant is that this position was brought out on 7 May 2018 and it would not assist the directors of the Respondent before the date. This argument is incorrect. The legislative intent prior to the incorporation of the proviso, was not to declare that the office of the director covered in contingencies under Section 164(2)(a) to become vacant forthwith and the only embargo was on the eligibility for re-appointment. The proviso introduces a mandate from 7 May 2018, that a director of a company which has failed to file its financial statements or annual returns for a continuous period of three financial years, cannot continue as a director of the other companies. The contention of the Appellant that the proviso relaxed the position in favour those directors who were disqualified under Section 164(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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