Condonation of delayed returns waives penalties, not statutory disqualification: Kerala HC Declared SNDP Yogam directors disqualified [Read Order]

In a recent ruling, the Kerala High Court ruled that condonation of delayed filing of annual returns under the Companies Act only waives penalties and prosecution, but does not erase the statutory disqualification of Directors.

The matter arose after members of the Yogam challenged the continued tenure of its office bearers, including General Secretary V.K. Natesan and President Dr M.N. Soman, alleging that they remained in office despite failing to file annual returns for several years and overstaying their five-year term since 2015.

Petitioners argued that under Section 164(2) of the Companies Act, 2013, Directors of companies that fail to file returns for three consecutive years are disqualified for five years, and under Section 167(1)(a), they must vacate office.

It was also submitted that the Inspector General of Registration had earlier held that the Directors were not disqualified for 2014–2016, citing immunity granted under the Companies Fresh Start Scheme (CFSS) 2020. Petitioners contended that CFSS only waived penalties and prosecution but did not undo disqualification. They also pointed out that elections had not been conducted since 2015, leaving the Yogam without a validly elected board.

ITAT Upholds Reliefs for Reliance Retail, AJIO Marketing ExpenseAllowed as Revenue [Read Order]

On the other hand, the respondent argued that the delay was not intentional, as records were under court custody until 2019, and the Kerala Government condoned the delay in 2020, allowing returns to be filed.

It was also mentioned that directors already had valid DINs (Director Identification Numbers), and their tenure continued until new elections were held.

After considering the submission, the High Court observed that SNDP Yogam, incorporated in 1903, is deemed a public company and governed by the Kerala Non-Trading Companies Act, 1961, with provisions of the Companies Act, 2013, applying mutatis mutandis.

The bench, Justice T.R. Ravi, noted that the condonation of delay or immunity schemes cannot set aside statutory consequences under section 164(2). Once disqualification is imposed, there is no provision to reverse it.

The court observed that “Directors who are distinct from the Company and who are in control of the affairs of the Company are dealt with differently by the Act, by prescribing certain consequences if they fail to file the annual returns continuously for three financial years. They are not entitled to the benefit of the condonation of delay available to the Company.”

Received ‘Significant Transactions’ Emails under Advance Taxe-Campaign? CBDT Issues Clarification

The Court also pointed out that the Yogam, with over 32 lakh members and financial activities worth thousands of crores, must be governed transparently and lawfully, not at the discretion of office bearers. It directed steps toward conducting free and fair elections under judicial supervision.

Accordingly, the Court quashed the Inspector General of Registration’s order (Ext.P16) that had held the Directors were not disqualified and respondents 4 to 7 (current office bearers) were declared not eligible for re‑appointment as Directors due to non‑compliance with Section 164(2) of the Companies Act, 2013.

It was also held that no person can be appointed or re‑appointed as Director of SNDP Yogam unless they possess a valid Director Identification Number (DIN) issued by the State Government under the Kerala Act, read with the Companies Act, 2013. Also, the State Government was directed to take measures under Section 167(3) to appoint the required number of Directors to hold office until a new board is elected in the general meeting.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates