Mr Yenugu Krishna Murthy vs Union Of India on 26 February, 2018

[Cites 7, Cited by 1]

Karnataka High Court

Mr Yenugu Krishna Murthy vs Union Of India on 26 February, 2018

The petitioners-Mr.Yenugu Krishna Murthy in W.P.No.7819/2018, Mr.Devarunda Manjegowda Purnesh in W.P.No.7820/2018 and Mr.Manjunath Krishnarajanagar Manikyam in W.P.No.7821/2018 have approached this Court by filing the present writ petitions on 15.02.2018 with the following prayers:

"i) Issue appropriate Writ, Order or Direction, declaring that Section 164(2)(a) of the Companies Act, 2013 and the press release dated 06.09.2017 at Annexure-A, qua directors of Private Limited Company is unconstitutional, is in violation and in contravention of the provisions of Part III of the Constitution of India; and/or

(ii) Issue appropriate writ, order or direction for removal of the name of the Petitioner from the list of disqualified directors at Annexure C, issued by the Respondents Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 4/15 and permit the Petitioner to act as director in any company without any hindrance;

(iii) Issue appropriate writ, order or direction directing the Respondents to unblock the DIN (Directors Identification Number) of the petitioner and remove the disqualification shown at Annexure-B;

(iv) Issue appropriate Writ, Order or Direction, thereby directing the Respondents to give opportunity and / or relief to make default good;


           (v)       Direct the Respondents to permit
     the   Petitioners           to     apply        under         the

"Condonation of Delay Scheme, 2018" and

(vi) Pass such other and/or further orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case."

2. Learned counsel for the petitioners Mr.S.Vivekananda submitted before the Court that the Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 5/15 Ministry of Corporate Affairs, Government of India, on their website vide Annexure-B while giving the DIN (Directors Identification Number) status qua the petitioners they were shown as 'Disqualified' by the Registrar of Companies U/s.164(2) of the Companies Act, 2013. The said computer status sheet only has been produced before this Court to the writ petitions as Annexures-B and C, gives the list of other such several Directors of the Limited Companies including the names of the present petitioners, who have been Disqualified as Directors of the Board of Directors of the Limited Companies for having incurred disqualification and one of the Column in Annexure-C indicates the reason for Disqualification of five years in brief viz., "Violated Section 164(2)(a)" of the Act and the period of such Disqualification is also mentioned in the said Annexure-C. Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 6/15 Learned counsel also submitted that U/s.164(2)(a) of the Act, if a Company has not filed the financial statements or Annual Returns of the Company for continuous period of three financial years, the 'Director' of such Company incurs the 'Disqualification' U/s.164(2)(a) of the Act. The relevant portion of Section 164(2)(a) of the Act is quoted below for ready reference:

"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;

Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 7/15

(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 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:

(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 Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 8/15 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 director of a company which-

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or"

He further submitted that as per Section 167 of the Act, such Director who has incurred Disqualification U/s.164(2)(a) of the Act is Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 9/15 automatically deemed to have vacated the office of the Director of any Company in which he is a Director. The said relevant portion of Section 167 of the Act is also quoted below for ready reference:

"167. Vacation of office of director - (1) The office of a director shall become vacant in case-

(a) he incurs any of the disqualifications specified in section 164;"

Learned counsel therefore urged that the present petitioners were put in a very piquant and irreparable situation and even if, Disqualification on account of non-filing of financial statements and Annual Returns in one company happens for which they may not be personally liable, they incur the 'Disqualification' U/s.164(2)(a) of the Act and they are deemed to have vacated the office of the Director in other such Companies also as per Section 167 of the Act and Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 10/15 therefore this drastic provision of law deserves to be struck down by this Court and therefore the vires of the provision of the Act have been challenged in the present writ petitions.

3. On the Court question, as to whether the petitioners approached the Registrar of Companies seeking a copy of the order passed by him U/s.164(2) of the Act based on the relevant facts or not, the learned counsel for the petitioners fairly submitted that no order has been obtained by the petitioners in the present cases from the Registrar of Companies. He has further submitted that the petitioners did not approach the Registrar of Companies at all nor they were served with any show cause notice or adjudication order U/s.164(2) of the Act and only on the basis of the DIN status shown on the website of the Ministry of Corporate Affairs Annexure-B and the Computer List Annexure-

Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 11/15 C, the petitioners have directly filed the present writ petitions in this Court on 15.02.2018.

4. Having heard the learned counsel for the petitioners, this Court is of the opinion that the present petitions are pre-mature and are liable to be dismissed as such. The petitioners were not prevented by any provision of law or otherwise to approach the Registrar of Companies in the first instance and seek the order passed by him U/s.164(2) of the Act. The said order would have revealed the facts of the case and the reasons for which the petitioners were disqualified to be the Directors of Limited Companies U/s.164(2) of the Act. It is also not borne out from the record as to whether the petitioners admit their fault U/s.164(2) of the Act or not. If they deny their fault, they are free to explain the matter before the Registrar of Companies, which they could have and should have raised before the Registrar of Companies in the first instance, who Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 12/15 could adjudicate the matter and pass appropriate orders U/s.164(2) of the Act which basic and primary exercise having not been undertaken by the petitioners is fatal to maintain the present writ petitions in the Court straightaway.

5. There is no factual scenario or application of the provisions on the facts of the case, the validity or justification of which, the Court could apply its mind in the present cases. Merely on the basis of DIN status shown on the website of Ministry of Corporate Affairs that the petitioners to be Disqualified to act as Directors do not entitle the petitioners to invoke the extraordinary jurisdiction under Article 226 of the Constitution of India. The operation of law cannot be stalled, diverted or made non-operative and the petitioners cannot be allowed to continue as Directors on the Board of Directors in defaulting company or even other companies and the illegality in the form of non-

Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 13/15 compliance on the part of the company in which the petitioners were admittedly the Directors, cannot be perpetuated by invoking the extraordinary jurisdiction of this Court.

6. As far as the question of constitutional validity of provision U/s.164(2) of the Act is concerned, this Court does not find any illegality, unconstitutionality or ultra vires in the provisions of Section 164(2)(a) or Section 167 of the Act. Merely because the provisions may operate harshly against the Directors of the defaulting company, it does not render a provision enacted with an avowed purpose of ensuring the due compliance of the provisions of the Act, foundationless or ultra vires. Such challenges raised in the courts of law, just to maintain the writ petitions under Article 226 of the Constitution of India without any factual foundation, do not deserve to be entertained at all. The academic questions or the legislative Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 14/15 wisdom is not the subject matter to be decided by the Courts of law unless such questions are raised in properly instituted cases, based on proper factual foundation of the case.

7. In the present cases, this Court does not find any such thing. The petitioners have not even tried to approach the appropriate authority under the Act, namely, the Registrar of Companies, seeking even a copy of the order U/s.164(2)(a) of the Act, which might have been passed by the Registrar of Companies in the matter. One does not know whether the petitioners were at fault or not; whether they have brought the relevant facts to the notice of the Registrar of Companies or not. If the petitioners had approached the Registrar of Companies with the relevant facts, a reasoned and speaking order by the Registrar of Companies could be very well expected from such Authority who, needless to add as the quasi-judicial Date of order:26.02.2018 W.P.No.7819/2018 C/W W.P.No.7820/2018, W.P.NO.7821/2018 Mr.Yenugu Krishnamurthy & Others vs. Union of India & Another 15/15 powers and an obligation under the Act to pass such appropriate orders in the matter.

8. This Court therefore does not have the benefit of the reasons from the side of the Respondents as to see whether such reasons is justifiable or not or whether at the instance of the petitioners they are required to be examined upon a judicial review at the hand under Article 226 of the Constitution of India.

9. The writ petitions are premature and without any foundation. The same are therefore liable to be dismissed as such and accordingly the writ petitions are dismissed. No costs.

Copy of this order be sent to the Respondents forthwith.

Sd/-

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Karnataka High Court