Deactivation of DIN of the Directors is not automatic (Calcutta High Court – 14th Feb 2022)

Satya Narayan Banik Vs Union of India (Calcutta High Court) dated 11/02/2022

 

The writ petitioners are aggrieved by cessation of office as directors of one M/s. Hahnemann International Pvt. Ltd. The disqualification happened by operation of Section 164 (2) for not filing balance sheets and annual returns for a continuous period of three years from the year 2014-15.

The ROC has also deactivated the Director Identification Number of the petitioners for which the petitioners are aggrieved by.

 

The petitioners have advanced a three-fold argument challenging such disqualification.

 

(i) That they were not permitted to avail the benefit of the “Company’s Fresh Start Scheme of 2020” despite applying by letter dated 11th November, 2020.

 

(ii) That the petitioners were not afforded a prior hearing before the disqualification as a directors and were hence denied principles of Natural Justice.

(iii) The Registrar of Companies is not authorized to deactivate their Director Identification Numbers (DIN) of the and that such activation of DIN pursuant to the disqualification is not automatic.

On the power of the ROC to deactivate the DIN of the petitioners it would be necessary to go into whether the provisos to the two Section 164(2) and 167(1), introduced subsequently by amendment.

Citing reference of Yashodhara decision (Karnataka HC)

I find considerable force in the argument of petitioners’ counsel as, on 01.11.2016, when the petitioners were disqualified, while they had to vacate the office of the director, it necessarily referred to the defaulting company under Section 164(2) of the Act. But, realizing the fact that if all the directors in the defaulting company had to vacate office, then such Board of Directors would be bereft of directors and would lead to an absurd situation, the proviso was inserted to the effect that a director of a defaulting company shall not vacate office of the director in the defaulting company. Therefore, the said portion of the proviso could be construed to be clarificatory in nature and therefore, would have a retrospective effect.

But, while saying so, the proviso also states that a director of a defaulting company would vacate office of the director in all other companies in which he is a director. The same was not envisaged under Section 167(1)(a) of the Act prior to insertion of the proviso, but by the insertion of the proviso such an immediate consequence is also envisaged. It has also been held above that such a consequence cannot be held to be arbitrary or in violation of Article 14 and 19(1) of the Constitution, but the proviso having come into force on 07th May 2018 cannot have a retrospective operation so as to affect the petitioners herein who were all disqualified on 01.11.2016 i.e., prior to 07th May 2018.

The proviso to Section 167(1)(a) of the Act is not ultra vires Articles 14 and 19(1)(g) of the Constitution. The words “provided that where he incurs disqualification under sub-Section (2) of Section 164, the office of the director shall become vacant…………. , other than the company which is in default under that sub-Section” being clarificatory in nature has retrospective operation, while the words “in all the companies” being introduced for the first time by way of proviso, pursuant to Amendment Act, 2017, has prospective operation and the proviso would apply only to those directors who sustain a disqualification pursuant to 07.05.2018. While saying so, the doctrine of severability as applicable to interpretation of statutes is applied.


Under the proviso to Section 167(1) (a) of the Act, the director of a defaulting company continues to hold the office of Director despite disqualification, his DIN cannot be cancelled. On the issue of cancellation of DIN, reference was made to Companies (Appointment and Qualification of Directors) Rules, 2014. Under Rule 14, the consequences of disqualification of directors under Section 164(2) of the Act are mentioned. That every director shall inform to the company concerned about his disqualification under sub-Section (2) of Section 164 of the Act in Form DIR-8 before he is appointed or re-appointed. Further, whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest, dividend, or fails to redeem its debentures, as specified in sub-Section (2) of Section 164, the company shall immediately file Form DIR-9, to the Registrar furnishing therein the names and address of all the directors of the Company during the relevant financial year.



That cancellation or surrender or deactivation of DIN is stipulated in Rule 11. It is contended that Rule 11 does not permit cancellation of or deactivation of DIN on account of disqualification of a director under Section 164(2) of the Act at all. That DIN could be cancelled on account of the death of a director or a director being declared as a person of unsound mind by a competent Court or being adjudicated as a insolvent or for other reasons, but, not for suffering a disqualification under Section 164(2) of the Act.


DIN cannot be cancelled on account of a disqualification sustained under Section 164(2) of the Act, but at the same time the company must comply with filing Form DIR-9.

 

It is, therefore, held that deactivation of the DIN of the petitioners is not automatic.


In view of the above the DIN of the petitioners shall be revived subject to the company having filed DR-9 within prescribed or extended tidme. The said DIN shall not be applied to entitle the petitioners to act as directors in any other company.

Judgement copy

https://acrobat.adobe.com/link/review?uri=urn:aaid:scds:US:c39708e9-2616-3249-8619-d657f26d4bbf

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