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Delhi High Court

Sunil Kumar Jain vs Union Of India & Anr. on 15 January, 2021

Author: Prathiba M. Singh

Bench: Prathiba M. Singh

                                                                                              Signature Not Verified
                                                                                              Digitally Signed By:DINESH
                                                                                              SINGH NAYAL
                                                                                              Signing Date:19.01.2021
                                                                                              22:01:49

                                $~37
                                *    IN THE HIGH COURT OF DELHI AT NEW DELHI
                                                                Date of Decision: 15th January, 2021
                                +                         W.P.(C) 582/2021
                                     SUNIL KUMAR JAIN                                  ..... Petitioner
                                                   Through: Mr. Abhishek Aggarwal, Advocate
                                                               (M: 9650760027)
                                                   versus
                                     UNION OF INDIA & ANR.                        ..... Respondents
                                                   Through: Mr. Avdesh Singh, Advocate.
                                                               Mr. Santosh Kumar, Registrar of
                                                               Companies, Delhi
                                     CORAM:
                                     JUSTICE PRATHIBA M. SINGH
                                Prathiba M. Singh, J. (Oral)

1. This hearing has been done by video conferencing.

2. The Petitioner was a director in Zed Com Limited, which has been struck off from the Register of Companies. Due to alleged non-compliance/default in Zed Com Limited under Section 164(2)(a) of the Companies Act, 2013 i.e., non-filing of financial statements or annual returns for any continuous period of three financial years, the said Petitioner was also disqualified as a director from 1st November, 2014 to 31st October, 2019 and his DIN and DSC were de-activated. The Petitioner now wishes to start a fresh business.

3. This Court has considered the legal position relating to activation of DIN/DSC numbers of directors of defaulting companies in Anjali Bhargava & Anr. v. UOI & Anr. [W.P.(C) 11264/2020, decided on 6th January, 2021]. The relevant portion of the said order reads:

"4. There are four categories of Directors that are approaching Courts seeking setting aside of disqualification and activation of DIN/DSC Signature Not Verified Digitally Signed By:PRATHIBA M SINGH W.P.(C) 582/2021 Page 1 of 5 Signing Date:19.01.2021 20:08 Signature Not Verified Digitally Signed By:DINESH SINGH NAYAL Signing Date:19.01.2021 22:01:49 numbers.

(a) Directors who have been disqualified prior to 7th May 2018, qua other companies in addition to the defaulting company:

As per the proviso to Section 167 (1) (a) of the Companies Act, 2013, once a director is disqualified qua one company i.e., the defaulting company, the office of the said director would become vacant in all companies. The said proviso, has, however, come into effect only on 7th May, 2018. In Mukut Pathak (supra) it was held that this proviso cannot have retrospective effect and would only apply if the disqualification took place after 7th May 2018.

Paragraph 98 of Mukut Pathak (supra) reads as under:

"98. In view of the above, the petitioners would not demit their office on account of disqualifications incurred under Section 164 (2) of the Act by virtue of Section 167(1)(a) of the Act prior to the statutory amendments introduced with effect from 07.05.2018. However, if they suffer any of the disqualifications under Section 164(2) on or after 07.05.2018, the clear implication of the provisos to Section 164(2) and 167(1)(a) of the Act are that they would demit their office in all companies other than the defaulting company."

Since there is no stay on the judgment in Mukut Pathak (supra), it continues to hold the field. Thus, in cases where directors have been disqualified prior to 7th May, 2018, the proviso to Section 167(1)(a) would not apply and the directors would continue to be directors in companies other than the defaulting company. The disqualification of such directors qua active companies would therefore be liable to be set aside and their DIN and DSC's reactivated.

(b) Directors who have been disqualified post 7th May 2018, qua other `active' companies:

As held in Mukut Pathak (supra), in all cases where the directors have been disqualified on or after 7th May, 2018, the proviso to Section 167 (1) (a) would apply and such directors would cease to be directors in all companies including the defaulting company. In March, 2020, in light of the COVID- 19 pandemic, the Ministry of Corporate Affairs vide General Circular No. 12/2020 introduced CFSS-2020 to allow a fresh start for defaulting companies and directors of such companies. This Court, in Sandeep Agarwal (supra) has analyzed CFSS-2020 to conclude that the purpose of the scheme is to provide an opportunity for 'active' companies i.e., companies whose names have not been struck off, who may have defaulted in filing of documents, to put their affairs in order.

...

Applying the scheme to the facts of the case, this Court in Sandeep Agarwal (supra) directed reactivation of the DINs and DSCs of directors of two companies - one whose name had been struck off and one, which was still active. Thus, the DINs and DSCs of disqualified directors of struck off companies, who are also directors in active companies, may be reactivated qua the active companies, in line with the spirit of the CFSS-2020.

(c) Directors of 'active' companies who have been disqualified:

In cases where directors of 'active' companies have been disqualified, CFSS-2020 would squarely apply. Such directors would be entitled to avail of CFSS-2020 and file documents of the defaulting company. In Radhika Byrn (supra), the Court permitted reactivation of the DINs and DSCs of the directors of active companies under CFSS-2020.

(d) Disqualified directors of struck off companies seeking appointment as directors in other/new companies:

The purpose of CFSS-2020 has been elucidated in the circular of the Ministry of Corporate Affairs as follows:

"In furtherance of the Ministry's Circular No 11/2020, dated 24th March, 2020 and in order to facilitate the companies registered in India to make a fresh start on a clean slate, this Ministry has decide to take certain alleviative measures for the benefit of all companies."

This scheme has been introduced in view of the COVID-19 pandemic with the aim to enable a fresh start to defaulting companies and directors of such companies. The disqualification of defaulting companies was a step which was taken sometime in 2016-17 in order to ensure that filing of regular returns and compliances are undertaken strictly as per the provisions of the Act. It was also meant to be a measure to ensure that entities that are not conducting businesses are not misused as `shell companies' for any improper activities. A substantial part of the disqualification period has already been completed. The introduction of the CFSS is itself a step for `providing a fresh start'. Under such circumstances, continuation of the disqualification would defeat the Scheme and its purpose.

5. In furtherance of the purpose of this scheme, directors of struck off companies who seek to be appointed as directors of other/new companies, ought to be provided an opportunity to avail of this scheme, provided that they have undergone a substantial period of their disqualification. The scheme clearly seeks to provide a fresh start for directors of defaulting companies who seek appointment in other companies Signature Not Verified Digitally Signed By:PRATHIBA M SINGH W.P.(C) 582/2021 Page 4 of 5 Signing Date:19.01.2021 20:08 Signature Not Verified Digitally Signed By:DINESH SINGH NAYAL Signing Date:19.01.2021 22:01:49 or wish to start new businesses. Therefore, if a substantial period has passed since the disqualification of such directors, they ought to be given an opportunity to avail of the scheme."

4. Mr. Santosh Kumar, Registrar of Companies, Delhi was requested to join the proceedings. He has joined the proceedings today. On a specific query from the Court, he has informed the Court that the Companies Fresh Start Scheme-2020 has expired as on 31st December, 2020. However, he submits that in case struck off companies are willing to file their annual returns and balance sheets, the restoration of these companies is being considered by the ROC. He further informs the Court that in the case of more than 2000 companies, restoration of the struck off companies has been permitted by the NCLT and the jurisdiction for restoring struck-off companies rests with the NCLT.

5. As per the judgment in Anjali Bhargava (supra) the Petitioner would fall in category 'd'. In terms of the judgement in Mukut Pathak & Ors. v. Union of India & Ors., 265 (2019) DLT 506 and Anjali Bhargava (supra), the DIN and DSC of the Petitioner shall be re-activated within a period of ten days. If, in addition, the Petitioner wishes to seek restoration of the struck off company, the Petitioner is permitted to seek his remedies in accordance with law before the NCLT.

6. The petition is disposed of in the above terms.

7. The digitally signed copy of the order shall be treated as the certified copy of the order for being filed before the ROC.

PRATHIBA M. SINGH JUDGE JANUARY 15, 2021/Rahul/T (corrected and released on 19th January, 2021) Signature Not Verified Digitally Signed By:PRATHIBA M SINGH W.P.(C) 582/2021 Page 5 of 5 Signing Date:19.01.2021 20:08