TMI Blog2021 (12) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... Misc. Bench No. - 306 of 2021, 16477 of 2021, 24797 of 2020, 24799 of 2020, 1188 of 2020 - - - Dated:- 1-12-2021 - Hon'ble Rajan Roy And Hon'ble Suresh Kumar Gupta JJ. For the Petitioner : Sri Shailendra Srivastava For the Respondent : A.S.G. ORDER Heard Sri Shailendra Srivastava and Sri Sarvesh Kumar Tiwari, Advocates for the petitioners and Sri S.B. Pandey, learned Senior Counsel A.S.G. assisted by Shri Anand Dwivedi, Advocates for opposite party nos. 1 and 2. This is a bunch of writ petitions wherein the petitioners who were Directors of respective private limited companies have challenged their disqualification as Directors for respective periods as uploaded on the e-portal by the Registrar of Companies (U.P.), Kanpur. They have also challenged deactivation of their Director Identification Number (hereinafter referred as 'DIN'). As the issues involved in all the petitions are similar, therefore, a common judgment and order is being passed. Writ Petition No.306 (M/B) of 2021 (Ram Kishor Verma Anr. vs. Union of India Ors.) has been heard as the leading writ petition. At the very outset, it needs to be mentioned that there is no ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n another company, namely, Shivpuri Herbs and Plantation Pvt. Ltd. whose name has been struck off from the register of companies on account of statutory non-compliances. This company has four Directors including the petitioner. The other three Directors have also been disqualified under Section 164(2)(a) of the Act, 2013. The petitioner has been disqualified as Director for the period 01.11.2018 to 31.10.2023. In Writ Petition No.16477 (M/B) of 2021, the sole petitioner is Director in a company, namely, Siddhidatri Infraventures Pvt. Ltd. whose name has been struck off from the register of companies on account of statutory non-compliances. This company has four Directors including the petitioner. The other three Directors have also been disqualified under Section 164(2)(a) of the Act, 2013 vide list dated 23.01.2019. The disqualification of the petitioner and the other Directors is for the period 01.12.2017 to 30.11.2022. In Writ Petition No.1188 (M/B) of 2020, the sole petitioner is Director in two companies, namely, Vyom Agro Industries Pvt. Ltd. and Protiva Animal Nutrition Private Limited. The petitioner has resigned from the Directorship of the latter company on 04.06.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided on 16.06.2021. On the other hand, Sri S.B. Pandey, learned Assistant Solicitor General of India assisted by Sri Anand Dwivedi, learned counsel for the contesting opposite parties submitted that the petitioners were Directors of the respective companies which failed to file their mandatory financial statements/ annual returns for a continuous period of three years which resulted in their disqualification and also in deactivation of petitioners' DIN as they were its Directors. The disqualification of the petitioners is by operation of law and no adjudication in this regard is envisaged in the Act, 2013 as per Section 164(2)(a) r/w Section 167(1)(a) of the Act, 2013. Section 164(2) read with Section 167 of the Act, 2013 have been brought in for protecting the larger public interest. Rule 11 of the Companies (Appointment of Directors) Rules, 2014 operates in a different field whereas disqualification and consequential deactivation of DIN of the petitioners is by operation of law as per the mandate contained in Section 164(2)(a) read with Section 167 (1) of the Act, 2013. The respondents have only flagged the defaulters by publishing a list of disqualified Directors and sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in practice. In case of 'One Person Company' and 'small company', such return is required to be signed by the company secretary, or where there is no company secretary, by the director of the company. Every company is required to place a copy of the annual return on the website of the company, if any, and the web-link of such annual return is required to be disclosed in the Board's report. Every company is required to file with the Registrar a copy of the annual return, within the time stipulated in this provision. On failure, punishment and fine are prescribed. Section 137 deals with copy of the financial statements to be filed with Registrar within the time prescribed therein. Section 164 of the Act, 2013 reads as under:- 164. Disqualifications for appointment of director.- (1) A person shall not be eligible for appointment as a director of a company, if - (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has 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 turpitud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifications specified in section 164; [Provided that where he incurs disqualification under subsection (2) of Section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.] (b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board; (c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested; (d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184; (e) he becomes disqualified by an order of a court or the Tribunal; (f) he is 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: Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)- (i) for thirty days from the date of convi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inted director of a company may face a situation of default as envisaged in clause (a) or (b) so that he may rectify the same. Now, the provisions contained in Section 164(2)(a) have to be read in consonance with Section 167 which deals with vacation of office of director and, inter-alia , provides that the office of a director shall become vacant in case he incurs any of the disqualifications specified in Section 164; provided that where he 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 which is in default under that sub-section. It is by conjoint operation of these two provisions that a director in a company which has not filed financial statements or annual returns for any continuous period of three financial years incurs disqualification mentioned in clause (a) of sub-Section (2) of Section 164 and consequently, his office of director becomes vacant. By operation of proviso to Section 167 (1) on incurring of such disqualification under sub-Section (2) of Section 164 the office of director held by such person becomes vacant not only in the defaulting company but in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returns/ financial statements to the Registrar of Companies and also to upload the same on its website, therefore, this information as to whether annual return/ financial statement has been filed by the company is available to the Registrar of Companies and other officers of Ministry of Corporate Affairs and based on this information, the defaulters can be flagged as the consequences of failure to file the aforesaid returns/ statements are prescribed in the Act, 2013 itself and the disqualification etc which follow is by operation of law. In view of this, no order of adjudication is required by the Registrar of Companies in this regard and the contention of learned counsel for the petitioner to the contrary is misplaced and unacceptable. As regards, the contention of learned counsel for the petitioner that no notice or opportunity of hearing was given and reliance placed by them in this regard upon the judgment of a Co-ordinate Bench of this Court in the case of Jay Shankar Agrahari (supra), on perusal of the said judgment we find that a specific issue in this regard was framed and considered by this Court in the said case and the question was as under:- Whether principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in the aforesaid provision. Similarly to attract Section 164 (2) (b) of Act, 2013 it has to be shown that there is failure on the part of company of dividends, deposits, interests etc. This is again a question of fact. Unless these facts are shown to exist or have occurred, it cannot be doubted that disqualification under Section 164 (2) of Act, 2013, shall not be attracted. It then observed in para nos.72, 74, 75, 76 and 77 as under:- 72. As we have already said that if conditions precedent to attract Section 164 (2) Act, 2013 is established to exist, consequences are by operation of law but the condition precedent is that the condition of disqualification actually exists and for this purpose, in our view, a bare minimum requirement of notice to such Directors would be necessary to verify, whether such condition exists or not. .. 74. Thus, we reiterate that the fact whether there is such failure as contemplated and provided by Section 164(2)(a) of Act, 2013 to attract disqualification thereunder and also to incur consequences provided under Section 167 (1) (a) of Act, 2013, it has to. be established, as a matter of fact, that there is such failure. For thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly when to attract disqualification and consequences under aforesaid provisions, certain basic facts, whether exist or not, had to be established and for this purpose at least a notice to concerned person was necessary to be given by ROC. We, therefore, answer Question-3 accordingly. Now, on a conjoint reading of the paragraphs of the said judgment quoted hereinabove, we find, firstly, that the Division Bench clearly opined that if eventuality which attracts disqualification or vacation of office of director has occurred then the consequences being automatic which is disqualification, it cannot be said that principles of natural justice are required to be applied at that stage. In fact, no authority under the Act, 2013 has been required to make such a declaration. Instead, statute itself makes declaration. The effect and consequence of attracting disqualification is automatic. It requires no order or declaration by any authority. The list issued by the Registrar of Companies of such unqualified directors is only a ministerial act. It further opined that every provision which excludes principles of natural justice cannot be said to be per se arbitrary. What is contemplated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication and consequences under aforesaid provisions, certain basic facts, whether exist or not, had to be established and for this purpose at least a notice to the concerned person was necessary to be given by Registrar of Companies. It answered the question accordingly. With due respect, this latter part of its opinion as expressed in para nos.61, 72, 75 to 76 appears to be contrary to its earlier opinion expressed in para no.59 and 60 noticed hereinabove, moreover, the information as to whether the annual return/ financial statement has been filed by the company or not is available with the Registrar of Companies and the companies are bound to provide the same to him, therefore, the fact as to whether the returns/ statements have been filed or not can be ascertained from records of Registrar of Companies as also the website of the company itself wherein they are required to be uploaded and as they are also required to be delivered or served to the Registrar of Companies in computer recordable electronic form through the e-portal maintained by the Central Government on its website and the Central Government is required to maintain a secured centralized electronic registry for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en inserted w.e.f. 07.05.2018, therefore, it is to be considered as to whether the disqualification of the petitioners in other companies would occur if the disqualification under Section 167(1) read with Section 164(2)(a) was incurred prior to 07.05.2018. The proviso to Section 167(1)(a) has been inserted in the Act, 2013 w.e.f. 07.05.2018 and various High Courts of this country have held that provision is applicable prospectively. Although, it is a moot point as to whether, in the event a disqualification has occurred prior to 07.05.2018 but on the said date and thereafter, the same continues, the proviso will apply or not, considering the object sought to be achieved, nevertheless, we need not go into this question for the reason in the cases before us, in Writ Petition No.24797 (M/B) of 2020 the disqualification has been published after 07.05.2018 and the period of disqualification is from 01.11.2018 to 31.10.2023, therefore, clearly the proviso applies in this case. As regards Writ Petition No.24799 (M/B) of 2020, here again, the situation is the same and the period of disqualification is 01.11.2018 to 31.10.2023, therefore, in this case also, the proviso clearly applies. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alification. Consequently, as he is not a Director in any other existing company, therefore, this issue does not arise in the said case also. Now, the only question which remains to be considered is as to whether deactivation of DIN of the petitioners is sustainable on facts and in law and whether there is any requirement of specific provision for such action, in the absence of which, as claimed by the petitioners, such deactivation is impermissible. Chapter XI of the Act, 2013 deals with appointment and qualifications of directors. According to Section 149 (1) every company shall have a Board of Directors consisting of individuals as directors and shall have minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company. Other provisions with regard to appointment of directors and their maximum numbers are also contained in the said provisions. Section 152 deals with appointment of directors. According to sub-Section (4) of Section 152 every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ual returns, financial statements and other documents required to be filed under the Act, 2013. Rule-9 of the Rules, 2014 deals with application for allotment of Director Identification Number before appointment in an existing company. Rule 10 deals with allotment of DIN. As per sub-rule (6) of Rule- 10, the DIN so allotted under the said rules is to be valid for the life-time of the applicant and shall not be allotted to any other person. Rule 11 of the Rules, 2014 reads as under:- 11. Cancellation or surrender or Deactivation of DIN.- The Central Government or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel or deactivate the DIN in case (a) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number; (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if the director makes an application to surrender the DIN in the circumstances mentioned in clause (f) thereof. All these eventualities mentioned in Rule 11 are independent eventualities of their own whereas deactivation of DIN consequent to disqualification of the director is not based on an independent eventuality but is an action which is merely consequential and which could be said to be a natural or logical corollary of disqualification of a Director. If action is taken under Rule 11 on the grounds mentioned therein then prior opportunity of being heard is to be given for the obvious reason that existence of such eventuality as are mentioned in Rule 11 will have to be ascertained factually and independently whereas in a case of deactivation of DIN consequent to disqualification of a director under Section 164(2)(a) read with Section 167(1)(a), the fact as to whether the annual returns/ financial statements have been filed by the company for a period of three continuous years or not can be readily ascertained from the information available with the Registrar of Companies as these returns/ statements are required to be filed with him and can also be ascertained from the e- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. As per the aforesaid provision where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting. It being so, the newly appointed directors by virtue of proviso to Section 164(2) which provides that, where a person appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment can very well take recourse to Item (D) of table referred above prescribing the additional fees for belated filing of annual returns/ financial statements read with Rule 12 of the Companies (Registration Offices and Fees), Rules, 2014 and Section 403 of the Act, 2013. The provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of disqualification incurred under Section 164(2) (a) can be filed under sub-rule (5) of the Rules, 2014 along with an application for belated filing of annual returns/ financial statements under Rule-12 read with Item (D) of the Table of the aforesaid Rules and if the disqualification is removed then as a consequence thereof, DIN can also be re-activated. There is no bar in this regard in the Act, 2013 or rules made thereunder. Now, coming back to the question as to whether such deactivation is permissible, we find that the object of such deactivation, as is also mentioned in the counter affidavit of the opposite parties, is that such DIN is allotted to an individual for the purposes of his functioning as a director of a company or appointment as director in any company and for no other purposes. Once such an individual is disqualified under Section 164(2)(a) then by virtue of Section 167(1) his office becomes vacant. It being so, he cannot function as a director of the company and by virtue of the proviso to Section 167 (1) which has come into effect from 07.05.2018 the office of director held by such an individual in other companies i.e. companies other than the defaulting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequential step taken as a result of disqualification of the director so as to avoid the mischief of DIN being misused and also as the object of providing the DIN has ceased to exist temporarily till the individual continues to be disqualified. For such a consequential action, no specific provision is required, meaning thereby, even in the absence of any provision as it is only a consequential action, therefore, it is permissible in law and we beg to disagree in this regard with the reasoning given by various High Courts in this regard as also the decision of our High Court in Jai Shankar Agrahari (supra) and Mohd. Tariq Siddiqui (supra) . We may, briefly, refer to the decisions of the various other High Courts wherein it has been held that deactivation of DIN consequent to disqualification of a director is impermissible in law in the absence of any such provision in Rule 11 of the Rules, 2014 or under any other provision of the Act, 2013 or rules made thereunder. In Gaurang Balvantial Shah (supra) , it was held in this context that rule 11 of the Rules, 2014 does not contemplate any suo-moto powers either with the Central Government or with the authorized officer or with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all other companies would be vacated but not the company which is in default, which is not the correct legal position and would clearly be incongruous not only with the very object of the provision but also specific provision contained in clause (a) of sub-section (1) of Section 167 which applies to disqualification in the defaulting company when it is read conjointly with Section 164(2). It would be highly unreasonable to hold that because of non-filing of annual returns/financial statements for any continuous period of three financial years in the defaulting company, though the office of director held by such individual of the defaulting company would become vacant in other companies where he holds such office, it would not become vacant and he would not be disqualified in the defaulting company itself. As regards Rule-11, we have already given our reasons in this regard, which do not need any reiteration. We may now refer to decision of the Delhi High Court in the case of Mukut Pathak (supra) . In this case, it has been, inter alia , held that provisions pertaining to DIN are only to ensure that any person acting as a director has a unique identity to identify him. Plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rule 11 does not permit such cancellation of DIN, has gone on to hold that in view of Section 167, the office of such director in the defaulting company would not be vacated whereas, in other companies, it would be vacated. This again is based on misreading of the proviso to Section 167 (1)(a) and the incorrect placement of comma therein, an aspect which we have already dealt with earlier while discussing similar opinion expressed by Gujarat High Court in Bhagavan Das Dhanajaya Das (supra) . In these circumstances, considering the object for providing the DIN and the mischief which can take place if the same is not deactivated consequent to disqualification of an individual as a director, we are of the opinion that even if this is not one of ground for deactivation under Rule 11 of the Rules, 2014, as, it is merely a consequential action and has a rationale and purpose to achieve, therefore, it is permissible, as, one who has the power to do something also has the power to undo it. Moreover, no prejudice is being caused to the concerned as already discussed hereinabove. However, on this issue, as we are taking a view different from the one taken by two Co-ordinate Benche ..... X X X X Extracts X X X X X X X X Extracts X X X X
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