Relief to Disqualified directors by Madras High Court

Companies Act

RoC had disqualified him on Sept 8 for being on the board of some other companies that hadn’t filed return continuously for three years:

Madras HC stays RoC order disqualifying individual director:

The Madras High Court has issued an interim stay against an order of the Registrar of Companies (RoC), Chennai, disqualifying an individual from being director under the Companies Act, 2013, for five years till 2021. The court has also issued notice of motion to the Centre and the Registrar of Companies, in a  petition filed by an individual director. 

Facts of the Case: The petition was filed by R Ganapathi, who has been the director at RSG Engineering and Constructions Pvt Ltd, Deccan Softlab Pvt Ltd and Projelec Marketing and Management Pvt Ltd, which weren’t operative and were struck off from the Register of Companies prior to 2010. However, he was named in RoC’s list of disqualified directors in an order dated September 8, 2017, for being a director in some other companies that had not filed annual returns continuously for three years. 

Ganapathi argued that RoC order had to be quashed as illegal, arbitrary and devoid of merit, and also sought direction from the Court to the Ministry and the Registrar to permit him to get re-appointed or appointed as director of any company in any company without any hindrance.

Legal Grounds: He argued that the new regulation disqualifying a company if it fails to file annual returns for three financial years, as per Section 164 of the Companies Act, 2013, came into effect only on April 1, 2014 and the time limit to diqualify companies under this would start only after October 30, 2017. The argument is that the three years from April 2014, would fall only by the end of March 31, 2017 and that the last date for filing annual return for the fiscal 2016-17 — the third year from implementation of the new Act — is October 30, 2017.

High Court Order: The order of Registrar of Companies, Chennai, disqualifying the director without giving him any opportunity of being heard is against the provisions of the Act, argued Kumarpal R Chopra, corporate lawyer and partner of Mitraa Legal, Ganapathi’s counsel. Chopra said around 45,000 inviduals/directors in Chennai alone were affected due to the Registrar’s action in similar matters.

Hearing the petition, Justice M Duraiswamy issued an order to issue a notice of motion returnable in four weeks.

The Central Government had called for disqualifying various companies and directors for misuse of books of accounts, non-filing of returns for continuous three years, among others. Some of the companies approached various forums against such disqualification.

In mid-September, the Securities and Exchange Board of India (Sebi) revoked the actions taken by the Board and the Stock Exchanges against Lotys Eye Hospital and Institute Ltd, which was named by the Ministry of Corporate Affairs as one of 331 shell companies. An order by Sebi observed that the company is a going concern for the last 20 years and there is no evidence of misrepresentation on its part, misuse of books of accounts or funds or violation of Listing Obligation and Disclosure Requirements (LODR) Regulations.

Delhi High Court

The Delhi High Court has also issued notice to the Ministry of Corporate Affairs and Registrar of Companies (RoC) on a petition challenging the disqualification of more than one lakh directors of shell companies.

Advocate Manish Jain, counsel for the petitioners, challenged the vires, Latin for powers, of Section 164 (2) of Companies Act, 2013 which was notified in the year 2014.

Jain said that the section was wholly ambiguous, as it is unclear as to whether it is applicable only to existing directors or extends to all those who no longer are directors of the disputed shell companies.

However the final order is still awaited…

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