The Allahabad High Court has quashed the order of the Uttar Pradesh Registrar of Companies(ROC) where it declared directors of various companies to be disqualified to continue as directors of the companies where they were holding such positions, cancelled their DIN numbers and barred them from being directors for a period of 5 years.
The Petitioners in these writs were accused of committing default by not submitting financial statements and returns for a consecutive period of three years and therefore stood disqualified under sections 164(2) of Companies Act, 2013. This disqualification was later applied to all other companies in which the petitioner was a director though those companies were not at default.
It was alleged that before disqualifying petitioner, no show cause notice or opportunity was given, facts not verified and mechanically, petitioners’ status was shown as a “disqualified Director” and his DIN was made inactive or suspended. It was further alleged that Section 164 (2) (a), which not only disqualifies a “Director” in respect of Defaulting Companies but extends the same to other companies which have not committed default, as such was irrational and unreasonable and in violation of fundamental right of petitioner under Article 19 (1) (g) and therefore arbitrary and ultra vires of the Constitution.
It was further contended by the petitioners that for cancellation, surrender or deactivation of DIN, provision has been made in Rule 11 of Companies (Appointment and Qualification of Directors) Rules,2014 but none of the conditions mentioned therein is attracted in a case covered by Section 164 (2) is patently illegal and without jurisdiction.
The directors, 161 in number, had also sought a mandamus directing the ROC to reactivate their Director Identification Numbers (DIN) and restore their name in the roll of directors.
The division bench comprising of Justice Sudhir Agarwal and Justice Rajeev Misra while quashing the DIN cancellation order and partly allowing the writ petitions held, “The above discussion leads to the consequence that all writ petitions have to be allowed partly and action of respondents in deactivating DIN of petitioners is to be quashed. We accordingly allow writ petitions partly. We also quash the list published by ROC, declaring petitioners in all these writ petitions as disqualified to be Directors of companies and debarment of being Director for a period of five years. Uttar Pradesh ROC, now, shall be at liberty to give notice to petitioners to verify and establish the facts whether disqualification alleged to have been suffered by petitioners-Directors so as to attract Section 164 (2) of Act, 2013, actually exists or not. After giving them the opportunity and being satisfied that such disqualification has occurred, it will proceed further in accordance with the law.”