Quashing of disqualification of directors and deactivation of DIN by order of High Court of Madras – Eshwars
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Quashing of disqualification of directors and deactivation of DIN by order of High Court of Madras

Authored by Lakshmi Rengarajan

The High Court of Madras passed an order dated 09th October 2020, setting aside the order (‘Impugned Order’) passed by the Single Bench dismissing the writs that were filed to quash the respective disqualification by the Registrar of Companies (‘ROC’) vide list uploaded by ROC on 17.12.2018 and for consequential reactivation of the DIN or permission for appointment/reappointment as a director.

Section 164(2)(a) of the Companies Act, 2013 prescribes that a person who is or has been a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years is not eligible to be re-appointed as a director of the company or appointed as a director of any other company for five years from the date of default. Relying on the aforesaid provision, the ROC has published multiple lists containing the details of the directors disqualified for a period of five years pursuant to the non-filing of the financial statements or annual returns of a Company for a continuous period of three years and consequently, the DIN of such disqualified directors were also deactivated.

The Division Bench of the Hon’ble High Court of Madras after considering the submissions made by the appellants and respondent, set aside the Impugned Order on the following reasons:

1. That prior notice is required to be issued by the ROC to the director of the defaulting company before taking actions against the disqualification under section 164(2) of the Companies Act, 2013 for the purpose of determining whether the Company has committed the default and for the attribution of the default to particular set of directors and that the prior notice requirement will not be an empty formality as held in the Impugned Order.

2. That the ROC is not empowered to deactivate the DIN as:

(a)  the relevant Companies [Appointment and Qualifications of Directors] Rules, 2014 (‘AQD Rules’) do not provide for the cancellation or deactivation upon disqualification under section 164(2) of the Companies Act, 2013; and

(b)  the same would be in contrary to Section 164 (2) read with section 167(1) of the Companies Act, 2013, which states that the director of the defaulting company will cease to be a director in all other companies wherein he is a director except in the defaulting Company for the purpose of making the requisite filings which would necessarily require the use of his DIN.

In light of the above, the Division Bench allowed the appeals and consequently quashed the publication of the list of disqualified directors by the ROC and deactivation of the DIN. Further, the court directed reactivation of DIN within a period of 30 days from receipt of the order.

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