An Insight Into Provisions Of Section 164(2)!
Section 164 (1&2) of the Companies Act, 2013, enumerates the factors which give rise to disqualification of a director of a company.
164(1) lists reasons which are individualistic in nature and therefore the disqualification under this is wholly on the acts committed by the director himself, be it insolvency, crime, unsound mind, etc.
164(2) in contrast, triggers director disqualification altogether due to the mistake/s committed by the company. It states:-
No Person Who Is or Has Been a Director of a Company Which-
- has not filed financial statements, or annual returns for a continuous period of three financial years; or
- has failed to repay the deposits accepted by it, or pay interest thereon; or
- to redeem any debentures on the due date or pay the 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.
Even more, Section 164 read along with Section 167, leads to the automatic disqualification of the directors of such companies for five years.
Why Were Companies Struck Off?
Implementation of the Companies Act, 2013, ushered in a lot of changes as new sections were introduced. One such Section is 248 of the Companies Act, 2013, mandates that companies which default on financial compliance for three consecutive years, shall see strike off by the Registrar of Companies (ROC).
In 2017, the Ministry of Corporate Affairs (MCA) struck off 2.4 lakh companies, in an act to eradicate wrongful practices in the companies. As a spillover effect, 3.4 lakh directors faced automatic disqualification owing to provisions under Section 164(2).
Revival of Company: Be A Director Again
One effective remedy towards the restoration of DIN shall be the revival of strike off company, then move ahead and get it activated.
In the initial phases, some of the aggrieved companies took advantage of Con-donation of Delay Scheme, 2018, others took the NCLT route and many of them were able to restore the status to ‘Active’.
It was then easy for directors of such companies to work towards the removal of director disqualification through the ROCs office.
The problem lies with those companies who have not taken any steps to revive themselves and their directors are stuck.
As the disqualification has not occurred due to any personal wrongdoing of the director but has triggered because of the company defaulting on compliance, therefore, if the struck off company gets restored, then the director’s disqualification can be removed.
Companies Act, 2013, has no remedial measure for directors whose company does not want revival for some reason. They are supposed to face five years of exile, which will surely jeopardize their career.
Writ Petition: A Sure Shot Relief
Beware of your right as an Indian Citizen!
The Indian Constitution under Article 226 grants you the right to file a writ petition in the concerned High Courts and seek relief from your disqualification.
Since 2017, many directors like you have taken this legal course of action and ended up reviving their career. You need to file a writ petition in the respective High Court at the earliest and seek relief like others.
The chances of being awarded a positive verdict are almost a certainty as there are many similar cases where the Courts have awarded a favorable judgement.
Cases With Positive Results
In the case of Srinivasan Sandilya & Others Vs. Union of India, in October 2017, the Delhi High court-ordered stay on the matter and in the process awarded a new lease of life to the aggrieved directors.
The case of Bhagavan Das Dhananjaya Das Vs. Union of India was no different as the Madras High Court took a very strong stand against the ROC and called his order to be illegal, arbitrary and devoid of merit and hence, quashed it.
In yet another case of a similar petition, the Gujarat High Court, last December, shot down MCA’s list of September 2017, leading to the restoration of DINs.
Almost all High Courts have delivered on similar lines, thus giving hope to many like you!
Merits Seen In The Case Favouring Directors
Based on the facts presented in various High Courts, three factors predominantly came in favor of the petitioners, that is, the directors.
- Denied Natural Justice:- The petitioners in almost all cases pleaded that they were not served the Notice, which is a mandatory clause in the Act. This denied them the opportunity to explain themselves or resolve the issue within the mandated period. This stands against the principle of Natural Justice, which has been declared as a basic structure of the Indian Constitution by the Supreme Court.
- Misunderstood The Act:- The non-compliance Section has been erroneously applied in the year 2017 and therefore, the Courts commented that a prospective Act like Companies Act, 2013, cannot be retrospectively applied.
- Contradictory Interpretation:- Another crucial point that went against the ROC was that the Companies Act of 1956 which governed the Companies before the implementation of the 2013 Act, had no such provision as removal of directors for non-compliance.
How To Draft & File A Writ Petition?
Being a legal process, it is essential for you to seek the help of an experienced consulting firm which will take charge of the entire process. They have the required infrastructure and human resources which will ensure that the matter is put up with details of all facts and figures. They will expedite matters and bring it to a positive conclusion in an efficient and cost-effective manner.
“We have a professionally competent team that has already helped 450+ directors to overcome their disqualification successfully, giving them back their career, prosperity and mental peace!”
-Shweta Gupta, Founder, and CEO, MUDS