Madras High Court
Khushru Dorab Madan vs Union Of India on 27 January, 2020
Equivalent citations: AIRONLINE 2020 MAD 91
Author: C.V.Karthikeyan
Bench: C.V.Karthikeyan
1
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 13/01/2020
DATED : 27.01.2020
CORAM
THE HONOURABLE MR.JUSTICE C.V.KARTHIKEYAN
WP. 13616, 13617, 13630, 18888, 21057, 21059, 21060, 23952,
23953, 31110, 31824, 34121, 34126, 34208, 34213,
34297/2018, 179, 181, 491, 496, 501, 505, 786, 798, 804, 815,
818, 859, 862, 864, 878, 881, 882, 883, 884, 885, 887, 1292,
1295, 1417, 1424, 1429, 1436, 1441, 1470, 1474, 1476, 1478,
1540, 1587, 1595, 1544, 1637, 1735, 1743, 1765, 1945, 1994,
1995, 2003, 2085, 2088, 2195, 3070, 3073, 2267, 2273, 2277,
2280, 2420, 2425, 2428, 2432, 2437, 2424, 2435, 2452, 2455,
2524, 2535, 2763, 2801, 2806, 2819, 2830, 2836, 2858, 2923,
2925, 2976, 3042, 3047, 3101, 3116, 3141, 3149, 3206, 3291,
3296, 3298, 3301, 3409, 3415, 3478, 3481, 3517, 3521, 3527,
3531, 3535, 3555, 3563, 3631, 3667, 3672, 3675, 3688, 3695,
3754, 3765, 3772, 3762, 3782, 3791, 3795, 3801, 3970, 3976,
3799, 3820, 3824, 3925, 3978, 3989, 4020, 4027, 4034, 4036,
4049, 4055, 4057, 4073, 4074, 4101, 4102, 4105, 4140, 4171,
4183, 4188, 4184, 4186, 4212, 4218, 4223, 4298, 4305, 4307,
4334, 4343, 4408, 4412, 4415, 4420, 4425, 4456, 4553, 4555,
4559, 4564, 4581, 4611, 4613, 4651, 4662, 4665, 4669, 4666,
4672, 4674, 4703, 4763, 4768, 4798, 4802, 4805, 4852, 4853,
4854, 4859, 4947, 4950, 4953, 4971, 5169, 5351, 5371, 5380,
5406, 5433, 5442, 5450, 5453, 5464, 5466, 5472, 5477, 5570,
5595, 5695, 5725, 5765, 5766, 5783, 5787, 5791, 5806, 5813,
5815, 5843, 5915, 5917, 5924, 5930, 5928, 6016, 6104, 6156,
6183, 6196, 6200, 6229, 6236, 6282, 6313, 6365, 6367, 6414,
6424, 6459, 6465, 6466, 6502, 6508, 6529, 6537, 6535, 6541,
6546, 6568, 6581, 6643, 6654, 6772, 6933, 6947, 7023, 7072,
7122, 7152, 7157, 7160, 7340, 7511, 7512, 7589, 7610, 7701,
7704, 7706, 7710, 7712, 7718, 7749, 7809, 7814, 7817, 7818,
7861, 7939, 7947, 7941, 7951, 7981, 7995, 8001, 8003, 8005,
8009, 8062, 8013, 8109, 8225, 8234, 8263, 8283, 8292, 8314,
8323, 8329, 8338, 8349, 8437, 8454, 8457, 8465, 8553, 8580,
8586, 8554, 8621, 8661, 8664, 8667, 8670, 8676, 8680, 8679,
8683, 8715, 8717, 8723, 8752, 8783, 8788, 8795, 8848, 8989,
9032, 9034, 9043, 9046, 9162, 9186, 9193, 9197, 9251, 9262,
9266, 9282, 9308, 9361, 9367, 9370, 9364, 9368, 9434, 9621,
9629, 9639, 9646, 9677, 9704, 9714, 9751, 9757, 9777, 9786,
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9901, 9919, 9975, 9990, 9992, 10021, 10042, 10045, 10046,
10061, 10069, 10095, 10105, 10111, 10135, 10140, 10144,
10147, 10226, 10237, 10271, 10274, 10276, 10277, 10279,
10280, 10360, 10349, 10407, 10410, 10412, 10417, 10419,
10472, 10478, 10488, 10546, 10549, 10560, 10579, 10587,
10596, 10588, 10637, 10702, 10836, 10856, 10921, 10925,
10940, 11006, 11010, 11008, 11015, 11018, 11021, 11040,
11049, 11051, 11054, 11116, 11201, 11204, 11241, 11282,
11345, 11347, 11356, 11436, 11499, 11500, 11504, 11546,
11556, 11559, 11562, 11567, 11596, 11600, 11602, 11615,
11646, 11708, 11790, 11824, 11829, 11832, 11833, 11839,
11889, 11892, 11890, 11893, 11905, 11912, 11964, 11965,
11966, 11968, 11969, 12028, 12026, 12038, 12101, 12104,
12109, 12112, 12103, 12115, 12129, 12137, 12139, 12142,
12153, 12155, 12156, 12157, 12196, 12222, 12240, 12267,
12269, 12273, 12278, 12285, 12307, 12312, 12320, 12308,
12313, 12319, 12333, 12334, 12376, 12382, 12398, 12409,
12442, 12430, 12452, 12459, 12462, 12469, 12505, 12595,
12601, 12597, 12622, 12645, 12626, 12650, 12689, 12692,
12698, 12708, 12726, 12744, 12739, 12746, 12770, 12820,
12831, 12841, 12849, 12887, 12905, 12920, 12939, 12951,
12958, 12967, 12980, 12975, 13003, 13011, 13024, 13038,
13042, 13094, 13112, 13117, 13126, 13162, 13201, 13208,
13231, 13237, 13312, 13317, 13330, 13339, 13292, 13350,
13354, 13353, 13387, 13402, 13436, 13438, 13440, 13465,
13477, 13494, 13484, 13543, 13491, 13535, 13589, 13667,
13711, 13729, 13731, 13732, 13750, 13752, 13756, 13763,
14235, 15154, 15253, 15354, 15419, 15423, 15505, 15550,
15552, 15604, 15637, 15840, 15645, 15712, 15722, 15730,
15737, 15740, 15749, 15812, 15824, 15829, 15914, 15916,
15990, 15998, 16053, 16057, 16070, 16107, 16115, 16186,
16083, 16200, 16219, 16321, 16337, 16546, 16548, 16602,
16606, 16634, 16717, 16757, 16760, 16763, 16835, 16831,
16842, 16843, 16952, 16958, 17001, 17009, 17019, 17067,
17081, 17082, 17124, 17234, 17312, 17767, 17876, 17924,
18201, 18202, 18206, 18242, 18259, 18279, 18282, 18361,
18379, 18511, 18521, 18526, 18573, 18574, 18615, 18795,
18928, 19047, 19072, 19074, 19085, 19111, 19126, 19156,
19465, 19611, 19619, 19691, 19694, 19773, 19874, 19880,
20093, 20238, 20363, 20375, 20444, 20453, 20731, 20741,
20746, 20835, 20857, 20859, 20881, 20885, 20923, 20936,
21012, 21074, 21078, 21080, 21083, 21088, 21191, 21194,
21297, 21310, 21312, 21313, 21331, 21783, 21820, 21866,
21906, 21908, 21909, 21910, 22116, 22118, 22214, 22255,
22262, 22306, 22315, 22375, 22743, 22747, 22751, 22748,
22753, 22756, 22790, 22961, 23022, 23144, 23137, 23349,
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23353, 23357, 23426, 23429, 23456, 23551, 24461, 24597,
24610, 24621, 24644, 24649, 24743, 24746, 24776, 24797,
24809, 24440, 24990, 24993, 25002, 25004, 25058, 25918,
25925, 25940, 26142, 26252, 26254, 26261, 26302, 26319,
26337, 26340, 26404, 26411, 26413, 26423, 26433, 26441,
26526, 26538, 26556, 26565, 26567, 26619, 26624, 26691,
26796, 26810, 26845, 26847, 26849, 26932, 27045, 27179,
27180, 27181, 27308, 27442, 27463, 27467, 27590, 27625,
27627, 27628, 27631, 27632, 27702, 27706, 27771, 27935,
27938, 27995, 28050, 28069, 28075, 28078, 28083, 28157,
28159, 28167, 28252, 28414, 28454, 28455, 28459, 28463,
28651, 28656, 28660, 28881, 28912, 28914, 28975, 29054,
29418, 29464, 29467, 29470, 29673, 29677, 30035, 30037,
30250, 30393, 30394, 30644, 30646, 30732, 30736, 30752,
30757, 30761, 30766, 30770, 30938, 30948, 31294, 31296,
32403, 32409, 10757, 12167, 12173, 17532, 18249, 32589,
32594, 32614, 32720, 32764, 32947, 32949, 33057, 34001,
34004, 34010, 34354, 34358, 34396, 18877, 18878, 33513,
33807, 33829, 33880, 34030, 34157, 34814, 35384, 35388,
35618, 35627/2019, 50, 78, 79, 82, 121, 179, 211, 367, 750,
806, 872/2020
And
Connected Miscellaneous Petitions
W.P.No. 13616 of 2018:
Khushru Dorab Madan ... Petitioner
Vs.
1. Union of India
Represented by its
Ministry of Corporate Affairs
Shastri Bhawan,
Dr.Rajendra Prasad Road
New Delhi – 110 001.
2. Registrar of Companies
Tamil Nadu, Chennai
Block No. 6, B Wing, 2nd Floor,
Shastri Bhawan 26,
Haddows Road,
Chennai – 600 006. ... Respondents
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PRAYER: Petition under Article 226 of the Constitution of India,
praying for the issue of a Writ of Certiorarified Mandamus calling for
the records of the second respondent relating to the impugned order
dated 01.11.2017 uploaded in the website of the first respondent in so
far as the petitioner herein is concerned, quash the same as illegal,
arbitrary and devoid of merit and consequentially direct the
respondents herein to permit the petitioner to get reappointed as
Director of any company or appointed as Director in any company
without any hindrance.
***
For Petitioner :: Mr.Aravind Pandian
Senior Counsel
for Mr.C.V.Shailendran
Mr.Dwarakesh Prabhakaran
M/s. R.Lakshmi Ratan
R.Rajesh
For Respondents :: Mr.G.Rajagopalan
Assistant Solicitor General
Mr.K.Ramamoorthy
Standing Counsel
Mr.P.Punniyakotti
Standing Counsel
for Mr.A.K.Manoj Kumar
COMMON ORDER
The Writ Petitions have been filed in the nature of Writ of Certiorarified Mandamus calling for the records of the second respondent, Registrar of Companies, Chennai with relation to the impugned order dated 01.11.2017 uploaded in the website of the first respondent, namely Ministry of Corporate Affairs New Delhi and quash the same.
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2. The issues raised in all the Writ Petitions and the grievance of the writ petitioners are similar. By consent of all the counsels, a common order is passed in all the Writ Petitions.
3. As an illustration, the facts in W.P.No. 13616 of 2018 as stated.
4. The writ petitioner therein Khushru Dorab Madan, was a Director bearing DIN No. 00464331 in M/s. Madan Shipping Private Limited. He was also occupying office of Directorship in (a) Federation of Motor Clubs of India Private Limited; (b) OSA Shipping Private Limited; (c) G & U Logistics (India) Private Limited; (d) Speedworks Trading Private Limited; and (e) Seawind Shipping Private Limited.
5. The petitioner was a promoter of M/s. Madan Shipping Private Limited. Owing to various circumstances, M/s.
Madan Shipping Private Limited was not carrying on any operations from the year 2008. The first respondent, namely, Ministry of Corporate Affairs, New Delhi, issued a show cause notice under Section 248(1) of the Companies Act 2013 for striking off the name of the Company from the Register of the Companies for non filing of annual returns for a continuous period of three years. The petitioner http://www.judis.nic.in 6 unfortunately, again owing to various circumstances, omitted to reply to the notice. Thereafter, the first respondent struck strike off the Company under the provisions of Section 248 of the Companies Act 2013 published by the second respondent in the Gazattee Notification.
The second respondent released a list of disqualified Directors, who had been disqualified under Section 164(2)(a) of the Companies Act 2013. The name of the petitioner found place in the list. By virtue of such disqualification, the petitioner was prohibited from being appointed or reappointed as a Director in any other Company. The petitioner claimed that he had not been given notice prior to such disqualification. Moreover, the Director Identification Number of the petitioner was also deactivated. It is under these circumstances that the Writ Petition had been filed.
6. The writ petitioners in all the other writ petitions also suffered the same fate. They all stood disqualified from the Company in which they were Directors wherein annual returns had not been filed for a continuous period of three years and as a consequence thereof, they had to vacate office in all the other companies where they held the office of Directorship. Their Director Identification numbers were also deactivated.
7. Heard extensive arguments advanced on behalf of the petitioners.
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8. Mr.Aravind Pandian, learned Senior Counsel who led the arguments, questioned the act of the respondents on the following grounds:-
(1) Lack of Jurisdiction; (2) Failure to issue notice before disqualification; (3) Impermissibility to deactivate the Director Identification Number; and (4) Sustainability of the order to vacate office of Directorship in all other Companies.
9. The above grounds were also broadly urged by other counsels, who also argued on behalf of the writ petitioners.
10. With respect to lack of jurisdiction, it had been stated that under Section 164(2) of the Companies Act 2013 (the Act), the company was duty bound to file form – DIR-9 to the Registrar of Companies furnishing the names and address of the Directors of the Company. If the form is not submitted, then disqualification would be attracted. The officers mentioned under Section 2(60) would be the officers in default. It was also pointed out that a disqualifying Director was bound to disclose that fact before his appointment or reappointment in any other company.
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11. The learned Senior Counsel stated that the disqualified Director should have been put on notice and further stated that the Registrar of Companies did not have the jurisdiction to pass the impugned order. He stated that the non filing of returns would only attract penalty or punishments and disqualification is not answer. The learned senior counsel insisted that notice was an essential requirement. He further stated that the Registrar of Companies did not have the jurisdiction to deactivate the Director Identification Number and neither the Act nor the rules provided for such deactivation. The learned Senior Counsel finally stated that by virtue of such disqualification, the petitioners had to vacate the office of Directorship in all the companies in which they were holding the post of Directorship and stated that this has seriously affected their reputation.
12. The learned Senior Counsel pointed out Sections 164 and 167 of the Companies Act 2013 and also Rules 11 and 12 of the Companies (Appointment and Qualification of Directors) Rules 2014.
In this connection, reliance was placed on the Judgement of the Gujarat High Court in Gaurang Balvatlal Shah Vs. Union of India dated 18.12.2018, the order of the learned Single Judge of this Court reported in (2018) 6 MLJ 704 Bhagavan Das Dhananjaya Das Vs. Union of India and another, Judgment of the Delhi High http://www.judis.nic.in 9 Court in Mukut Pathak and others Vs. Union of India and Another dated 04.11.2019 and of Karnataka High Court in Yashodara Shroff Vs. Union of India, order dated 12.06.2019.
Strong reliance was placed on the Judgement dated 16.01.2020 of a Division Bench Judgment of the Allahabad High Court in Writ C.No. 12498 of 2019 batch Jai Shankar Agrahari and others Vs. Union of India and Other.
13. All the learned counsels, who advanced arguments substantially supported the stand taken by Mr.P.H.Aravind Pandian.
In addition, referrence was drawn to Section 92 which relates to Annual Returns, Section 137 which relates to Financial Statements and also to Section 403 of the Act. The learned counsels also pointed out the provisions of Section 248 and Section 252 of the Act. They stated that the Registrar of Companies has no jurisdiction to either pass the orders of disqualification or to deactivate the Director Identification Number and also primarily holding out that notice should have been given prior to such steps being taken urged the Court allow the Writ Petitions. Reference was also drawn to Rule 11 and Rule 14 of the Companies (Appointment and Qualification of Directors) Rules 2014 and to Rule 5 of the Company (Registration Offices and Fees) Rules 2014.
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14. Mr.G.Rajagopalan, learned Additional Solicitor General, refuted the arguments put forth on behalf of the petitioners.
The learned Solicitor General stated that the disqualification of the Directors was automatically attracted when the annual return or financial statements of the company were not filed for a consecutive period of three years. He stated that the list had been published on the basis of information available. He also pointed out that the disqualification was statutory in nature and consequently, notice was not required. The learned Solicitor General also pointed out Section 252 of the Act and Section 455 of the Act which relate to Dormant Companies and stated that none of the companies herein had claimed that right as a Dormant Company.
15. The learned Additional Solicitor General relied on the Judgement reported in AIR 1973 SC 974 [T.Govindaraja Mudaliar Vs. State of Tamil Nadu, since the petitioners pointed out that the Division Bench of this Court while deciding the vires of the proviso to Section 167(1)(a) in W.P.No. 32763 of 2019, [G.Vasudevan Vs. Union of India] had not answered the issue of non compliance of principles of natural justice, though raised.
16. I have carefully considered the arguments putforth.
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17. Before entering into a discussion on the facts of the case and on the reliefs sought, it would only be appropriate if reference is made to the following provisions under the Companies Act, 2013:-
“Section 2(20): “Company” means a company incorporated under this Act or under any previous company law.
Section 2(34): “Director” means a director appointed to the Board of a Company.
Section 2(40): “Financial Statement” in relation to a company, includes-
“(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the conviction and sentence of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and http://www.judis.nic.in 12
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause(iv);
provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement.” Section 2(51): “Key managerial personnel”, in relation to a company, means -
“(i) the Chief Executive Officer or the managing director or the manager;
(ii) the company secretary;
(iii) the whole-time director;
(iv) the Chief Financial Officer
(v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
(vi) such other officer as may be prescribed.” Section 2(59): “Officer” includes any director, manager or key managerial personnel or any person in http://www.judis.nic.in 13 accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act;
Section 2(75): “Registrar” means a Registrar, an Additional
Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act.
Section 92: “Annual Return”. It is as follows:- “92. Annual return.—(1) Every company shall prepare a return
(hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—
(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
http://www.judis.nic.in 14
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-
holders along with changes therein since the close of the previous financial year;
(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
http://www.judis.nic.in 15
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed, and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice:
Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
(2) The annual return, filed by a listed company or, by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice in the prescribed form, stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of this Act.
http://www.judis.nic.in 16 (3) An extract of the annual return in such form as may be prescribed shall form part of the Board‘s report.
(4) Every company shall file with the Registrar a copy of the annual return, within sixty days from the date on which the annual general meeting is held or where no annual general meeting is held in any year within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding the annual general meeting, with such fees or additional fees as may be prescribed, within the time as specified, under section 403.
(5) If a company fails to file its annual return under sub-section (4), before the expiry of the period specified under section 403 with additional fees, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakhs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or http://www.judis.nic.in 17 with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
(6) If a company secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made thereunder, he shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees. “ Section 129 of the Act relates to Financial Statement. It is as follows:-
“129. Financial statement.— (1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:
Provided that the items contained in such financial statements shall be in accordance with the accounting standards:
http://www.judis.nic.in 18 Provided further that nothing contained in this sub-section shall apply to any insurance or banking company or any company engaged in the generation or supply of electricity, or to any other class of company for which a form of financial statement has been specified in or under the Act governing such class of company:
Provided also that the financial statements shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose—
(a) in the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938 (4 of 1938), or the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999);
(b) in the case of a banking company, any matters which are not required to be disclosed by the Banking Regulation Act, 1949 (10 of 1949);
(c) in the case of a company engaged in the generation or supply of http://www.judis.nic.in 19 electricity, any matters which are not required to be disclosed by the Electricity Act, 2003 (36 of 2003);
(d) in the case of a company governed by any other law for the time being in force, any matters which are not required to be disclosed by that law.
(2) At every annual general meeting of a company, the Board of Directors of the company shall lay before such meeting financial statements for the financial year.
(3) Where a company has one or more subsidiaries, it shall, in addition to financial statements provided under sub-section (2), prepare a consolidated financial statement of the company and of all the subsidiaries in the same form and manner as that of its own which shall also be laid before the annual general meeting of the company along with the laying of its financial statement under sub-section (2):
Provided that the company shall also attach along with its financial statement, a separate statement containing the salient features of the financial statement of its subsidiary or http://www.judis.nic.in 20 subsidiaries in such form as may be prescribed:
Provided further that the Central Government may provide for the consolidation of accounts of companies in such manner as may be prescribed.
(4) The provisions of this Act applicable to the preparation, adoption and audit of the financial statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to in sub-
section (3).
(5) Without prejudice to sub-
section (1), where the financial statements of a company do not comply with the accounting standards referred to in sub-section (1), the company shall disclose in its financial statements, the deviation from the accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such deviation.
(6) The Central Government may, on its own or on an application by a class or classes of companies, by notification, exempt any class or classes http://www.judis.nic.in 21 of companies from complying with any of the requirements of this section or the rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.
(7) If a company contravenes the provisions of this section, the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other person charged by the Board with the duty of complying with the requirements of this section and in the absence of any of the officers mentioned above, all the directors shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
Explanation.—For the purposes of this section, except where the context otherwise requires, any reference to the financial statement shall include any notes annexed to or forming part of such http://www.judis.nic.in 22 financial 82 statement, giving information required to be given and allowed to be given in the form of such notes under this Act.” Section 152 relates to Appointment of Directors. It provides as follows:-
Section 152: Appointment of directors:- (1) Where no provision
is made in the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed and in case of a One Person Company an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member in accordance with the provisions of this section.
(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.
(3) No person shall be appointed as a director of a company unless he has been allotted the Director http://www.judis.nic.in 23 Identification Number under section 154. (4) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act.
(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed: Provided that in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment.
(6) (a) Unless the articles
provide for the retirement of all
directors at every annual general
meeting, not less than two-thirds of the http://www.judis.nic.in 24 total number of directors of a public company shall—
(i) be persons whose period of office is liable to determination by retirement of directors by rotation; and
(ii) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
(b) The remaining directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable 101 to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
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(d) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto. Explanation.—For the purposes of this sub-section, -total number of directors? shall not include independent directors, whether appointed under this Act or any other law for the time being in force, on the Board of a company.
(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place. http://www.judis.nic.in 26
(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re- appointment of such director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re- appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
(v) section 162 is applicable to the case.
http://www.judis.nic.in 27 Explanation.—For the purposes of this section and section 160, the expression -retiring director? means a director retiring by rotation. “ Section 153: Application for allotment of Director Identification Number.— Every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed.
[provided that the Central
Government may prescribe any
identification number which shall be treated as Director Identification number for the purposes of this Act and in case any individual holds or acquires such identification number, the requirement of this section shall not apply or apply in such manner as may be prescribed.] Section 154: Allotment of Director Identification Number.— The Central Government shall, within one month from the receipt of the http://www.judis.nic.in 28 application under section 153, allot a Director Identification Number to an applicant in such manner as may be prescribed.
Section 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;
(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:
Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven http://www.judis.nic.in 29 years or more, he shall not be eligible to be appointed as a director in any company;
(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 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 http://www.judis.nic.in 30
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-
appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
(3) A private company may by its articles provide for any disqualifications for appointment as a director in addition to those specified in sub-sections (1) and (2):
[Provided that the disqualifications referred to in clauses
(d), (e) and (g) of sub-section (1) shall not take effect— (i) for thirty days from the date of conviction or order of disqualification].
Section 166: Duties of directors.— http://www.judis.nic.in 31 (1) Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company.
(2) A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.
(3) A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he http://www.judis.nic.in 32 shall be liable to pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any assignment so made shall be void.
(7) If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.
Section 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;
[Provided that where he incurs disqualification under sub-section (2) of Section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub- section;]
(b) he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without seeking leave of absence of the Board;
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(c) he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements in which he is directly or indirectly interested;
(d) he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested, in contravention of the provisions of section 184;
(e) he becomes disqualified by an order of a court or the Tribunal;
(f) he is 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:
[Provided that the office shall be vacated by the director in case of orders referred to in clauses (e) and (f)-
(i) for thirty days from the date of conviction or order of disqualification;
(ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or
(iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.
(g) he is removed in pursuance of the provisions of this Act;
(h) he, having been appointed a director by virtue of his holding any office or other employment in the http://www.judis.nic.in 34 holding, subsidiary or associate company, ceases to hold such office or other employment in that company.
(2) If a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any of the disqualifications specified in subsection (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both.
(3) Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-
section (1), the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.
(4) A private company may, by its articles, provide any other ground for the vacation of the office of a director in addition to those specified in sub-section (1).
Section 248: Power of
Registrar to remove name of
company from register of
companies.—
(1) Where the Registrar has
reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its incorporation; [or] http://www.judis.nic.in 35 2*****
(c) a company is not carrying on any business or operation for a period of two immediately preceding financial years and has not made any application within such period for obtaining the status of a dormant company under section 455, he shall send a notice to the company and all the directors of the company, of his intention to remove the name of the company from the register of companies and requesting them to send their representations along with copies of the relevant documents, if any, within a period of thirty days from the date of the notice.
(2) Without prejudice to the provisions of sub-section (1), a company may, after extinguishing all its liabilities, by a special resolution or consent of seventy-five per cent. members in terms of paid-up share capital, file an application in the prescribed manner to the Registrar for removing the name of the company from the register of companies on all or any of the grounds specified in sub-section (1) and the Registrar shall, on receipt of such application, cause a public notice to be issued in the prescribed manner:
Provided that in the case of a company regulated under a special Act, approval of the regulatory body constituted or established under that Act shall also be obtained and enclosed with the application.
(3) Nothing in sub-section (2) shall apply to a company registered under section 8.
(4) A notice issued under sub-
section (1) or sub-section (2) shall be http://www.judis.nic.in 36 published in the prescribed manner and also in the Official Gazette for the information of the general public.
(5) At the expiry of the time mentioned in the notice, the Registrar may, unless cause to the contrary is shown by the company, strike off its name from the register of companies, and shall publish notice thereof in the Official Gazette, and on the publication in the Official Gazette of this notice, the company shall stand dissolved.
(6) The Registrar, before passing an order under sub-section (5), shall satisfy himself that sufficient provision has been made for the realisation of all amount due to the company and for the payment or discharge of its liabilities and obligations by the company within a reasonable time and, if necessary, obtain necessary undertakings from the managing director, director or other persons in charge of the management of the company:
Provided that notwithstanding the undertakings referred to in this sub- section, the assets of the company shall be made available for the payment or discharge of all its liabilities and obligations even after the date of the order removing the name of the company from the register of companies.
(7) The liability, if any, of every director, manager or other officer who was exercising any power of management, and of every member of the company dissolved under sub-
section (5), shall continue and may be enforced as if the company had not been dissolved.
http://www.judis.nic.in 37 (8) Nothing in this section shall affect the power of the Tribunal to wind up a company the name of which has been struck off from the register of companies.
“ Section 403: Fee for filing, etc.— (1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed: Provided that any document, fact or information may be submitted, filed, registered or recorded, after the time specified in relevant provision for such submission, filing, registering or recording, within a period of two hundred and seventy days from the date by which it should have been submitted, filed, registered or recorded, as the case may be, on payment of such additional fee as may be prescribed: Provided further that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso on payment of fee and additional http://www.judis.nic.in 38 fee specified under this section. (2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default. “ Section 455: Dormant Companies. It provides as follows:-
“455. Dormant company.— (1) Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company. 224 Explanation.—For the purposes of this section,— (i) -inactive company? means a company which has http://www.judis.nic.in 39 not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years; (ii) -significant accounting transaction? means any transaction other than— (a) payment of fees by a company to the Registrar; (b) payments made by it to fulfil the requirements of this Act or any other law; (c) allotment of shares to fulfil the requirements of this Act; and (d) payments for maintenance of its office and records. (2) The Registrar on consideration of the application shall allow the status of a dormant company to the applicant and issue a certificate in such form as may be prescribed to that effect. (3) The Registrar shall maintain a register of dormant companies in such form as may be prescribed. (4) In case of a company which has not filed financial statements or annual returns for two financial years consecutively, the Registrar shall issue a notice to that company and enter the name of such company in the register maintained for dormant companies. (5) A dormant company shall have such minimum http://www.judis.nic.in 40 number of directors, file such documents and pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the register and may become an active company on an application made in this behalf accompanied by such documents and fee as may be prescribed. (6) The Registrar shall strike off the name of a dormant company from the register of dormant companies, which has failed to comply with the requirements of this section.”
18. Rule 11 of the Companies (Appointment and Qualification of Directors) Rules 2014 is as follows:-
“11. Cancellation or surrender or Deactivation of DIN.- The Central Government or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received 11alongwith fee as specified in Companies (Registration Offices and Fees) Rules, 2014 from any person, cancel or deactivate the DIN in case - (a) the DIN is found to be duplicated in respect of the same person provided the http://www.judis.nic.in 41 data related to both the DIN shall be merged with the validly retained number; (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) if the concerned individual has been adjudicated an insolvent: Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; (f) on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN:
Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation.- For the purposes of clause
(b) - (i) the term “wrongful manner” means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of http://www.judis.nic.in 42 material information or on the basis of wrong certification or by making misleading or false information or by misrepresentation; 10 Inserted vide Amendment in Rules, G.S.R. 671 (E), dated 18.09.2014 11 Inserted vide Amendment in Rules, G.S.R. 671 (E), dated 18.09.2014 8 (ii) the term “fraudulent means” means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Government. ”
19. Rule 14 of the said Rules is as follows:-
“14. Disqualification of directors sub-section (2) of section 164.- (1) Every director shall inform to the company concerned about his disqualification under subsection (2) of section 164, if any, in Form DIR-8 before he is appointed or re- appointed. (2) 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 addresses of all the directors of the company during the relevant financial years. (3) When a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the disqualification http://www.judis.nic.in 43 under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of the Act shall be the officers in default. (4) Upon receipt of the Form DIR-9 under sub-rule (2), the Registrar shall immediately register the document and place it in the document file for public inspection. (5) Any application for removal of disqualification of directors shall be made in Form DIR-10. ”
20. The powers and duties of Registrars had been given in the Companies (Registration Offices and Fees) Rules 2014.
Rule 5 relating to Powers and Duties of Registrars is as follows:-
“5. Powers and duties of Registrars.-
(1) The Registrars shall exercise such powers and discharge such duties as are conferred on them by the Act or the rules made thereunder or delegated to them by the Central Government, wherever the power or duty has been conferred upon the Central Government by the Act or the rules made there under.
(2) Whenever according to the Act, any function or duty is to be discharged by the Registrar, it shall, until the Central Government otherwise directs, be done http://www.judis.nic.in 44 by the Registrar , or in his absence, by such person as the Central Government may for the time being authorise:
Provided that in the event of the Central Government altering the constitution of the existing registry offices or any of them, any such function or duty shall be discharged by such officer and at such place, with reference to the local situation of the registered offices of the companies concerned, as the Central Government may appoint.”
21. Even before entering into any discussion, it must be mentioned that the vires of the proviso under Section 167(2)(a) of the Act which was inserted to the Companies (Amendment Act 2017) had been challenged and a Division Bench of this Court in W.P.No. 32763 of 2019 G.Vasudevan Vs. Union of India had upheld the vires of the said provision.
22. The Companies Act 2013 had come into effect from 12.09.2013. It had brought about sweeping changes with respect to the filing of Annual Returns and Financial Status, brining strict compliance thereof. The equivalent provision to Section 164 of the 2013 Act was Section 274 of the Companies Act 1956. One important change which had been brought about was that under Section 274 of the Company Act 1956, it was provided that there would be http://www.judis.nic.in 45 disqualification with respect to Directorship of 'Public' companies and it would be attracted when annual returns and financial statements were not filed. In the Act of 2013, disqualification was attracted even for Directors of all Companies, not just public companies, and disqualification was attracted for non filing of financial statements or annual returns.
23. The provisions are clear. There is no scope for ambiguity for the same. This Court had not been called to give a ruling on the vires of Section 164(2)(a). According to this provision, if a person, who is a Director of a Company which had not filed financial statements or annual returns for a continuous period of three financial years, then he/she was not eligible to be reappointed as a Director on that Company or can be appointed in other Company for a period of five years.
24. A proviso was inserted in Section 167(1)(a) with effect from 07.05.2018, which stated that if disqualification is incurred then the office of Director shall become vacant in all other companies where the individual was a Director. As stated above, the vires of this proviso was questioned and challenged before a Division Bench of this Court.
http://www.judis.nic.in 46
25. In a Judgment dated 02.12.2019, the First Bench of this Court (A.P.Sahi, CJ and Subramonium Pradad, J) in W.P.No. 32763 of 2019 [ G.Vasudevan Vs. Union of India and others had after examining the scope, object and sweep of the proviso, had finally stated as follows:-
“28. A perusal of the above extract from the judgment of the Hon'ble Karnataka High Court in Yashodhara Shroff Vs. Union of India (supra), reveals that the Court has found that the proviso to Section 167(1)(a) must be interpreted in ordinary terms and would apply to the entirety of Section 164 including sub-section 2. The Court has further held that this proviso can be justified on two grounds. Firstly, it has been reiterated that the exclusion of Directors from vacating their posts in the defaulting company while doing so in all other companies where they hold Directorship has been done in order to prevent the anomalous situation wherein the post of Director in a company remains vacant in perpetuity owing to automatic application of Section 167(1)(a) to all newly appointed Directors. Secondly, the underlying object behind the proviso to Section 167(1)(a) is seen to be the same as that of Section 164(2) both of http://www.judis.nic.in which exist in the interest of transparency and 47 probity in governance. Owing to these justifications, the Court thus holds that the proviso to Section 167(1)(a) is neither manifestly arbitrary nor does it offend any of them in W.P.No.32763 of 2019 fundamental rights guaranteed under Part III of the Constitution of India.
29. We are persuaded to agree with the views of the Hon'ble Single Judge of the Karnataka High Court that present an accurate interpretation of the impugned law. The impugned provisions are intravires for all the reasons herein above. The writ petition is accordingly dismissed. No Costs.”
26. After the arguments had concluded, the learned Senior counsel for the petitioners drew attention of this Court to the Division Bench Judgement of the Allahabad High Court dated 16.01.2020 in Jaishankar Agrahari Vs. Union of India and other , Writ-C.No. 12498 of 2019 (batch); wherein also the very same issue had been agitated. The Allahabad High Court by order dated 16.01.2020 had struck down disqualification as Directors of the petitioners. A careful reading of the Judgement of the Allahabad High Court shows that as in the previous Judgement Bhagavan Das Dhananjaya Das (supra) of this Court with relation to the similar http://www.judis.nic.in 48 notification issued in the year 2017, they were concerned with the fact that three consecutive years had not been completed from and after 01.04.2014. The three financial consecutive years after which the Companies Act 2013 came into force would be 2014-2015, 2015- 2016 and 2016-2017. It is under these circumstances since the provisions can only be prospective in nature that the Allahabad High Court had expressed its views that disqualification can be attracted only if those three financial years are completed and annual return/financial statements had not been filed. When the three financial years had not been completed, the Division Bench of the Allahabad High Court had stated that notice is essential. A similar view had also been taken by the learned Single Judge of this Court in (2018) 6 MLJ 704 Bhagavan Das Dhananjaya Das Vs. Union of India and another, and the Judgement of the Gujarat High Court in Gaurang Balvatlal Shah Vs. Union of India dated 18.12.2018, and the Judgment of the Delhi High Court in Mukut Pathak and others Vs. Union of India and Another dated 04.11.2019 and of Karnataka High Court in Yashodara Shroff Vs. Union of India, order dated 12.06.2019. In all those cases, notifications issued in the year 2017 were struck down both on the ground that the provision was prospective in nature and three financial years had not been completed and notice had not been given prior to disqualification.
When due respects the facts in the Writ Petitions on hand is different.
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27. In the present batch of writ petitions, the three financial years, 2014-15, 2015-16 and 2016-17 have been completed.
The Companies have not filed the annual returns / financial statements. They have defaulted in such filing of annual returns / financial statements. The Act very clearly states that if there is such a default then the Directors would be disqualified. This Court cannot extend the time for filing of annual returns or financial statements.
When a period of time is stipulated in a statute, it has to be strictly interpreted. In the earlier batch, leverage was granted because the annual general meeting should be called within a period of six months namely on or before 30th September of each succeeding year and thereafter a further period of 30 days / 60 days is given to file the annual returns. Here the three financial years had come to an end.
The said period of six months had also been completed. The further period of 30 days/60days had also been completed and when annual returns or financial statements have not been filed, a plain reading of the provision of law would indicate that disqualification automatically follows. There cannot be any alternate interpretation of the said provision. It is clear – crystal clear. Issuance of notice would be of no avail since only one conclusion is possible.
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28. The principle of natural justice cannot be stretched to extreme limits when issue of notice would be an empty formality. The law is clear. The three financial years are 2014-2015; 2015-2016 and 2016-2017. If annual returns are not filed for the said three consecutive years, then disqualification is the only option available.
The other provisions relating to penalty /punishment relied on by the petitioners would be attracted when for a single year annual returns/financial statements are not filed. But when they are not filed for three consecutive years then the Directors are automatically disqualified.
29. In (2000) 7 SCC 529 { Aligarh Muslim University and Others Vs. Mansoor Ali Khan} , the Hon'ble Supreme Court had an ocassion to consider the effect of a “ useless formalities” - a theory which is an exemption to the principles of natural justice.
“21.As pointed recently in M.C. Mehta Vs. Union of India (1999 (6) SCC 237), there can be certain situations in which an order passed in violation of natural justice need not be set aside under Article 226 of the Constitution of India. For example where no prejudice is caused to the person concerned, interference under http://www.judis.nic.in Article 226 is not necessary. Similarly, if 51 the quashing of the order which is in breach of natural justice is likely to result in revival of another order which is in itself illegal as in Gadde Venkateswara Rao vs. Government of Andhra Pradesh [1966 (2) SCR 172 = AIR 1966 SC 828], it is not necessary to quash the order merely because of violation of principles of natural justice.
22. In M.C.Mehta {1999} 6 SCC 237 it was pointed out that at one time, it was held in Ridge vs. Baldwin ( 1964 AC 40) that breach of principles of natural justice was in itself treated as prejudice and that no other 'defacto' prejudice needed to be proved. But, since then the rigour of the rule has been relaxed not only in England but also in our country. In S.L. Kapoor Vs. Jagmohan ( 1980 (4) SCC 379), Chinnappa Reddy, J. followed Ridge vs. Baldwin and set aside the order of supercession of the New Delhi Metropolitan Committee rejecting the argument that there was no prejudice though notice was not given. The proceedings were quashed on the ground of violation of principles of http://www.judis.nic.in natural justice. But even in that case 52 certain exceptions were laid down to which we shall presently refer.
23. Chinnappa Reddy, J. in S.L.Kapoor's case [(1980) 4 SCC 379], laid two exceptions (at p.395) namely, " if upon admitted or indisputable facts only one conclusion was possible", then in such a case, the principle that breach of natural justice was in itself prejudice, would not apply. In other words if no other conclusion was possible on admitted or indisputable facts, it is not necessary to quash the order which was passed in violation of natural justice. Of course, this being an exception, great care must be taken in applying this exception.
24. The principle that in addition to breach of natural justice, prejudice must also be proved has been developed in several cases. In K.L. Tripathi Vs. State Bank of India ( 1984(1) SCC 43), Sabyasachi Mukherji, J. ( as he then was) also laid down the principle that not mere violation of natural justice but de facto prejudice (other than non-issue of http://www.judis.nic.in notice) had to be proved. It was 53 observed: quoting Wade Administrative Law, (5th Ed.PP.472-475) as follows:
( para 31) "....it is not possible to lay down rigid rules as to when principles of natural justice are to apply, nor as their scope and extent ....There must have been some real prejudice to the complainant; there is no such thing as a merely technical infringement of natural justice. The requirements of natural justice must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter to be dealt with and so forth".
Since then, this Court has consistently applied the principle of prejudice in several cases. The above ruling and various other rulings taking the same view have been exhaustively referred to in State Bank of Patiala Vs. S.K. Sharma ( 1996(3) SCC 364). In that case, the principle of 'prejudice' has been further elaborated. The same principle has been reiterated again in Rajendra Singh Vs. State of M.P. ( 1996(5) SCC 460).
http://www.judis.nic.in 54
25. The 'useless formality' theory, it must be noted, is an exception.
Apart from the class of cases of "admitted or indisputable facts leading only to one conclusion" referred to above,- there has been considerable debate of the application of that theory in other cases. The divergent views expressed in regard to this theory have been elaborately considered by this Court in M.C. Mehta referred to above. This Court surveyed the views expressed in various judgments in England by Lord Reid, Lord Wilberforce, Lord Woolf, Lord Bingham, Megarry, J.
and Straughton L.J. etc. in various cases and also views expressed by leading writers like Profs. Garner, Craig, De. Smith, Wade, D.H. Clark etc. Some of them have said that orders passed in violation must always be quashed for otherwise the Court will be prejudging the issue. Some others have said, that there is no such absolute rule and prejudice must be shown. Yet, some others have applied via-media rules. We do not think it necessary, in this case to go deeper into these issues. In the ultimate analysis, it may depend on the facts of a particular case.” http://www.judis.nic.in 55
30. The same position had been reiterated in 2006 (8) SCC 647 [Punjab National Bank and Others]:
“In an industrial dispute referred to by the Central Government which has an all- India implication, individual workman cannot be made parties to a reference. All of them are not expected to be heard. The Unions representing them were impleaded as parties. They were heard. Not only the said Unions were heard before the High Court, as noticed hereinbefore from a part of the judgment of the High Court, they had preferred appeals before this Court, Their contentions had been noticed by this Court. As the award was made in presence of the Unions, in our opinion, the contention of Respondents that the award was not binding on them cannot be accepted. The principles of natural justice were also not required to be complied with as the same would have been an empty formality. The court will not insist on compliance of the principles of natural justice in view of the binding nature of the award. Their application would be limited to a situation where the factual position or legal implication http://www.judis.nic.in 56 arising thereunder is disputed and not where it is not in dispute or cannot be disputed. If only one conclusion is possible, a writ would not issue only because there was a violation of the principles of natural justice.”
31. A Division Bench of this Court in a Judgement reported in 2006 4 LLN 358 [Dr.C.Chendroyaperumal Vs. National Institute of Port Management] had also expressed their views on this aspect.
“9. Coming to the legal aspects canvassed by the learned counsel for the appellant, it is seen that they revolve around violation of the principles of natural justice. Even at the outset, we are not impressed with the said argument, since in our opinion, “Principles of natural justice is for thoroughbred horses and not wild horses.” Wild horses understand only the language of the whip and hence there is no use trying to tame them with persuasion. The principles of natural justice themselves have traversed a long way from the stage at which they were treated as a “tharaka manthra” or http://www.judis.nic.in 57 panacea for all diseases, to the present stage where the Courts have started looking at the credentials of the person using them as a shield or sword and accepting the fact that they are not indispensable.”
32. The march of law expanding the interpretation of the principles of natural justice and examining exceptions to the same shows that where the issuance of notice is a futile exercise since only one conclusion can be reached, then the petitioners cannot turn around and seek a relief on the ground that notice was not issued prior to disqualification. The petitioners cannot plead ignorance of law or innocence of fact and seek indulgence of the Court.
33. In the Judgment relied on by the petitioners Gaurang Balvatlal Shah Vs. Union of India (supra), a learned Single Judge of the Gujarat High Court by Judgment dated 18.12.2018 had questioned the authority of the Registrar to deactivate the DIN number. This was based on a reading of Rule 11 of the Companies (Appointment and Qualification of Directors) Rules 2014. There can be no quarrel with the rule.
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34. However, whenever law holds that if for three consecutive years, the annual returns or financial statements has not been filed, then disqualification of the Directors would be automatically attracted, then, as a corollary it naturally follows that the Director Identification Number has to be deactivated. The said Director Identification Number co-exists with the office of Directorship. Reliance was placed on the term that it shall be for 'life'. Interpretation of this term 'life' can only mean that the life of the DIN can exist only for till the life of the office of Directorship survives and not for the entire life of the individual Director. Holding that an individual who was a Director in a company and had been allotted DIN and would be able to hold on to it till his life, even though he relinquishes the office of Directorship, defines logic. The Director Identification Number can be exist only during the period when an individual holds office of Directorship. It may be reactivated when the individual resumes the office of Directorship. During his/her lifetime only on Director Identification Number can be allotted.
35. An irrational interpretation cannot be given that the Director Identification Number can still attach itself to the individual even after he resigns, or is disqualified from the post of Directorship or vacates the office. Consequently, when a Director is disqualified, it follows that the DIN should be deactivated.
http://www.judis.nic.in 59
36. I am concious of the fact that I have followed the ratio laid down in Bhagavan Das Dhananjaya Das (supra) struck down the notification issued in the year 2017. On facts, the impugned notifications in the instant Writ Petition stand on a totally different footing in the sense that in the instant writ petitions three financial years have been completed and annual returns/financial statements from the financial year 2014-2015 have not been filed by the defaulting companies. Therefore, the claim of the petitioners that prior notice should have been given is rejected as notice would have been an empty formality.
37. To reiterate, the conclusion, the Judgments relied on by the petitioners pertain to a fact situation where the three financial years commenced prior to 2014-2015 and since the Act is prospective in nature, the Courts have held that the notification has to be struck down and prior notice has to be given.
38. In the present writ petition, the three financial years 2014-2015, 2015-16 and 2016-17 have been completed and since annual returns / financial statements have not been filed, disqualification automatically follows and when disqualification is incurred, deactivation of Director Identification Number also automatically follows. The DIN number can exist only during the life http://www.judis.nic.in 60 time of post of Directorship and not for the entire life of the individual. Issuing a prior notice would be of no avail and would only be an empty formality since the provision of law is clear on this aspect.
39. Consequently, I am of the considered view that there are no merits in the Writ Petitions. The Writ Petitions will have to be dismissed.
40. Accordingly, all the Writ Petitions are dismissed. No costs. Consequently, connected Miscellaneous Petitions are closed.
27.01.2020 vsg Index: Yes/No Internet: Yes/No Speaking / Non Speaking Order To
1. Ministry of Corporate Affairs Union of India Shastri Bhawan, Dr.Rajendra Prasad Road New Delhi – 110 001.
2. Registrar of Companies Tamil Nadu, Chennai Block No. 6, B Wing, 2nd Floor, Shastri Bhawan 26, Haddows Road, Chennai – 600 006.
http://www.judis.nic.in 61 C.V.KARTHIKEYAN, J., vsg Pre-delivery Orders made in WP. 13616, 13617, 13630, 18888, 21057, 21059, 21060, 23952, 23953, 31110, 31824, 34121, 34126, 34208, 34213, 34297/2018, 179, 181, 491, 496, 501, 505, 786, 798, 804, 815, 818, 859, 862, 864, 878, 881, 882, 883, 884, 885, 887, 1292, 1295, 1417, 1424, 1429, 1436, 1441, 1470, 1474, 1476, 1478, 1540, 1587, 1595, 1544, 1637, 1735, 1743, 1765, 1945, 1994, 1995, 2003, 2085, 2088, 2195, 3070, 3073, 2267, 2273, 2277, 2280, 2420, 2425, 2428, 2432, 2437, 2424, 2435, 2452, 2455, 2524, 2535, 2763, 2801, 2806, 2819, 2830, 2836, 2858, 2923, 2925, 2976, 3042, 3047, 3101, 3116, 3141, 3149, 3206, 3291, 3296, 3298, 3301, 3409, 3415, 3478, 3481, 3517, 3521, 3527, 3531, 3535, 3555, 3563, 3631, 3667, 3672, 3675, 3688, 3695, 3754, 3765, 3772, 3762, 3782, 3791, 3795, 3801, 3970, 3976, 3799, 3820, 3824, 3925, 3978, 3989, 4020, 4027, 4034, 4036, 4049, 4055, 4057, 4073, 4074, 4101, 4102, 4105, 4140, 4171, 4183, 4188, 4184, 4186, 4212, 4218, 4223, 4298, 4305, 4307, 4334, 4343, 4408, 4412, 4415, 4420, 4425, 4456, 4553, 4555, 4559, 4564, 4581, 4611, 4613, 4651, 4662, 4665, 4669, 4666, 4672, 4674, 4703, 4763, 4768, 4798, 4802, 4805, 4852, 4853, 4854, 4859, 4947, 4950, 4953, 4971, 5169, 5351, 5371, 5380, 5406, 5433, 5442, 5450, 5453, 5464, 5466, 5472, 5477, 5570, 5595, 5695, 5725, 5765, 5766, 5783, 5787, 5791, 5806, 5813, 5815, 5843, 5915, 5917, 5924, 5930, 5928, 6016, 6104, 6156, http://www.judis.nic.in 62 6183, 6196, 6200, 6229, 6236, 6282, 6313, 6365, 6367, 6414, 6424, 6459, 6465, 6466, 6502, 6508, 6529, 6537, 6535, 6541, 6546, 6568, 6581, 6643, 6654, 6772, 6933, 6947, 7023, 7072, 7122, 7152, 7157, 7160, 7340, 7511, 7512, 7589, 7610, 7701, 7704, 7706, 7710, 7712, 7718, 7749, 7809, 7814, 7817, 7818, 7861, 7939, 7947, 7941, 7951, 7981, 7995, 8001, 8003, 8005, 8009, 8062, 8013, 8109, 8225, 8234, 8263, 8283, 8292, 8314, 8323, 8329, 8338, 8349, 8437, 8454, 8457, 8465, 8553, 8580, 8586, 8554, 8621, 8661, 8664, 8667, 8670, 8676, 8680, 8679, 8683, 8715, 8717, 8723, 8752, 8783, 8788, 8795, 8848, 8989, 9032, 9034, 9043, 9046, 9162, 9186, 9193, 9197, 9251, 9262, 9266, 9282, 9308, 9361, 9367, 9370, 9364, 9368, 9434, 9621, 9629, 9639, 9646, 9677, 9704, 9714, 9751, 9757, 9777, 9786, 9901, 9919, 9975, 9990, 9992, 10021, 10042, 10045, 10046, 10061, 10069, 10095, 10105, 10111, 10135, 10140, 10144, 10147, 10226, 10237, 10271, 10274, 10276, 10277, 10279, 10280, 10360, 10349, 10407, 10410, 10412, 10417, 10419, 10472, 10478, 10488, 10546, 10549, 10560, 10579, 10587, 10596, 10588, 10637, 10702, 10836, 10856, 10921, 10925, 10940, 11006, 11010, 11008, 11015, 11018, 11021, 11040, 11049, 11051, 11054, 11116, 11201, 11204, 11241, 11282, 11345, 11347, 11356, 11436, 11499, 11500, 11504, 11546, 11556, 11559, 11562, 11567, 11596, 11600, 11602, 11615, 11646, 11708, 11790, 11824, 11829, 11832, 11833, 11839, 11889, 11892, 11890, 11893, 11905, 11912, 11964, 11965, 11966, 11968, 11969, 12028, 12026, 12038, 12101, 12104, 12109, 12112, 12103, 12115, 12129, 12137, 12139, 12142, 12153, 12155, 12156, 12157, 12196, 12222, 12240, 12267, 12269, 12273, 12278, 12285, 12307, 12312, 12320, 12308, 12313, 12319, 12333, 12334, 12376, 12382, 12398, 12409, 12442, 12430, 12452, 12459, 12462, 12469, 12505, 12595, 12601, 12597, 12622, 12645, 12626, 12650, 12689, 12692, 12698, 12708, 12726, 12744, 12739, 12746, 12770, 12820, 12831, 12841, 12849, 12887, 12905, 12920, 12939, 12951, 12958, 12967, 12980, 12975, 13003, 13011, 13024, 13038, 13042, 13094, 13112, 13117, 13126, 13162, 13201, 13208, 13231, 13237, 13312, 13317, 13330, 13339, 13292, 13350, 13354, 13353, 13387, 13402, 13436, 13438, 13440, 13465, 13477, 13494, 13484, 13543, 13491, 13535, 13589, 13667, 13711, 13729, 13731, 13732, 13750, 13752, 13756, 13763, 14235, 15154, 15253, 15354, 15419, 15423, 15505, 15550, 15552, 15604, 15637, 15840, 15645,15712, 15722, 15730, 15737, 15740, 15749, 15812, 15824, 15829, 15914, 15916, 15990, 15998, 16053, 16057, 16070, 16107, 16115, 16186, 16083, 16200, 16219, 16321, 16337, 16546, 16548, 16602, 16606, 16634, 16717, 16757, 16760, 16763, 16835, 16831, http://www.judis.nic.in 63 16842, 16843, 16952, 16958, 17001, 17009, 17019, 17067, 17081, 17082, 17124, 17234, 17312, 17767, 17876, 17924, 18201, 18202, 18206, 18242, 18259, 18279, 18282, 18361, 18379, 18511, 18521, 18526, 18573, 18574, 18615, 18795, 18928, 19047, 19072, 19074, 19085, 19111, 19126, 19156, 19465, 19611, 19619, 19691, 19694, 19773, 19874, 19880, 20093, 20238, 20363, 20375, 20444, 20453,20731, 20741, 20746, 20835, 20857, 20859, 20881, 20885, 20923, 20936, 21012, 21074, 21078, 21080, 21083, 21088, 21191, 21194, 21297, 21310, 21312, 21313, 21331, 21783, 21820, 21866, 21906, 21908, 21909, 21910, 22116, 22118, 22214, 22255, 22262, 22306, 22315, 22375, 22743, 22747, 22751, 22748, 22753, 22756, 22790, 22961, 23022, 23144, 23137, 23349, 23353, 23357, 23426, 23429, 23456, 23551, 24461, 24597, 24610, 24621, 24644, 24649, 24743, 24746, 24776, 24797, 24809, 24440, 24990, 24993, 25002, 25004, 25058, 25918, 25925, 25940, 26142, 26252, 26254, 26261, 26302, 26319, 26337, 26340, 26404, 26411, 26413, 26423, 26433, 26441, 26526, 26538, 26556, 26565, 26567, 26619, 26624, 26691, 26796, 26810, 26845, 26847, 26849, 26932, 27045, 27179, 27180, 27181, 27308, 27442, 27463, 27467, 27590, 27625, 27627, 27628, 27631, 27632, 27702, 27706, 27771, 27935, 27938, 27995, 28050, 28069, 28075, 28078, 28083, 28157, 28159, 28167, 28252, 28414, 28454, 28455, 28459, 28463, 28651, 28656, 28660, 28881, 28912, 28914, 28975, 29054, 29418, 29464, 29467, 29470, 29673, 29677, 30035, 30037, 30250, 30393, 30394, 30644, 30646, 30732, 30736, 30752, 30757, 30761, 30766, 30770, 30938, 30948, 31294, 31296, 32403, 32409, 10757, 12167, 12173, 17532, 18249, 32589, 32594, 32614, 32720, 32764, 32947, 32949, 33057, 34001, 34004, 34010, 34354, 34358, 34396, 18877, 18878, 33513, 33807, 33829, 33880, 34030, 34157, 34814, 35384, 35388, 35618, 35627/2019, 50, 78, 79, 82, 121, 179, 211, 367, 750, 806, 872/2020 And Connected Miscellaneous Petitions 27.01.2020 http://www.judis.nic.in