List of the Directors associated with the struck off companies quashed : Gujarat HC

In matter of GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH Versus UNION OF INDIA

Below is the extract of the order:

28. The Rules of 2014 also provide for the procedure to be followed in case where the Director resigns from a company. Rule 15 thereof requires that the company shall, within 30 days from the date of receipt of notice of resignation from a Director, intimate the Registrar in Form DIR-12 and posts the information on its website, if any. Rule 16 provides that where a Director resigns from his office, he shall within a period of 30 days from the date of resignation forward to the Registrar a copy of his resignation along with reasons for resignation in Form DIR-11 along with the requisite fees. Every company is also obliged to keep at its registered office a register of its Directors and key managerial personnel containing the requisite particulars thereof. Having regard to the provisions contained in Section 168 read with Rules 15, 16 and 17, it clearly transpires that when a Director resigns from his office, by giving notice in writing to the company, the company is required to intimate the Registrar within 30 days of such notice, in Form DIR-12, and that the company is also required to place such resignation in the report of the Directors to be laid in the immediately following general meeting of the company. The Director is also required to forward a copy of his resignation to the Registrar within 30 days in Form DIR-11. Such resignation shall take effect from the date on which the notice is received by the company or the date, if any, specified by the Director in the notice, whichever is later. In none of the petitions, except SCA No.3831 of 2018, where the petitioners have claimed to have resigned, the Court finds any details as to whether the concerned company and the concerned petitioner Director had, in fact, intimated the Registrar as required under the said Rules and whether such resignation was incorporated in the report of the Directors laid in the general meeting of the company or not. Till such procedure as required under Section 168 and Rules 15 and 16 of the said Rules is followed, neither the resignation could be said to have taken the effect, nor the petitioner Director, who claims to have resigned could be absolved from the statutory liabilities of the Director required to be discharged under the Act. In absence of any particulars showing that the resignation of the concerned petitioner Director was tendered and accepted as per the provisions contained in the Act and Rules, the concerned petitioner Director could not be exempted from discharging his statutory liabilities under the Act.

29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioners as a consequence of the impugned list In this regard, it would be appropriate to refer to the relevant provisions contained in the Act and the said Rules. Section 152(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section 154. Section 153 requires every individual intending to be appointed as Director of a company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the lifetime of the applicant and shall not be allotted to any other person.

30.Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either with the Central Government or with the authorised officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rule contemplates cancellation or deactivation of DIN of the Director of the struck off company or of the Director having become ineligible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the lifetime of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director is struck off, his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be cancelled or deactivated.

31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactivating the DINs of the petitioners – Directors along with the publication of the impugned list of Directors of struck off companies under Section 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR-3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules.

32. Much reliance was placed by the learned ASG Mr.Vyas on the condonation of delay scheme dated 29.12.2017 introduced by the Ministry of Corporate Affairs after the publication of the impugned list, however, the said scheme would not justify the action of the respondents, in publishing the impugned list, which was absolutely contrary to the provisions of the Act of 2013 and the Rules made thereunder. The said scheme was in force from 1.1.2018 to 31.3.2018, which was extended up to May 2018, under which the Directors associated with the struck of companies, which had failed to file financial statements or annual returns continuously for a period of three financial years from 2013-14 to 2015-16 were granted an opportunity to rectify the default, by following the procedure laid down therein. However, this Court has held hereinabove that the provisions of Section 164(2)(a) having come into force from 1.1.2014, three financial years for the purpose of the said provision would be financial years 2014-15, 2015-16 and 2016-17 only, and not 2013-14, 2014- 15, and 2015-16. In any case, due to deactivation of the DINs, the concerned Directors were unable to take benefits of the said scheme also. Hence, the said scheme could not be pressed into service for justifying the publication of the impugned list.

List of the Directors associated with the struck off companies quashed : Gujarat HC

33. The upshot of the aforesaid discussion and findings may be summarized as under:-

(i) Section 164(2) of the Act of 2013, which had come into force from 1.1.2014 would have prospective and not retrospective effect.

(ii) The defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or annual returns for any continuous period of three financial years would be the defaults to be counted from the financial year 2014-15 only and not 2013-14.

(iii) The respondents could not have treated the Directors as disqualified/ ineligible for a period of five years from 1.11.2016 to 1.11.2021, while publishing the impugned list under Section 248 of the Act of 2013.

(iv) Even if the Registrar removes the name of a company from the register of companies, and even if such company would stand dissolved under Section 248, the statutory liabilities/obligations of such struck of company and its Directors would still remain to be discharged, in view of Section 250 of the said Act of 2013.

(v) The respondents could not have deactivated the DINs allotted to the Directors under Section 154 of the said Act, except under the circumstances mentioned in Rule 11 of the said Rules of 2014.

34. In view of the above, the impugned list dated 12.9.2017 of the Directors associated with the struck off companies under Section 248 published by the respondent No.1 is quashed and set aside. The respondents are directed to activate the respective Director Identification Numbers of the petitioners forthwith, if not activated so far. However, it is clarified that the respondents shall be at liberty to take legal action against the petitioners for any statutory default or non-compliance, in accordance with law.

35. All the petitions stand allowed accordingly.

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