Possible Solution to Directors After Expiry of the CODS Scheme, 2018 By CS Shweta Gupta | Founder MUDS


Dear Readers,

In this Article, we will discuss about the solutions that can be provided to Aggrieved Persons (Directors) even after the expiry of the CODS Scheme, 2018, Grounds on which an appeal can be filed before the High Court, National Company Law Tribunal, Benefits available to the Directors after the expiry of the CODS Scheme, 2018 etc.

A Writ of Certiorari can be filed under Article 226 of the Constitution of India before the High Court for setting aside the Impugned List of Disqualified Directors published by the respondents under Section 164 (2) (a) of the Companies Act, 2013 pertaining to the petitioner herein and accordingly the names, position and status of the petitioner in all the companies may be restored. Also, an application under Section 151 of CPC, 1908 is filed along with the petition seeking a stay of operation of List of Disqualified Directors which is being published by the respondent through the official circular.
 
  • An Appeal can be filed under Section 252 of the Companies Act, 2013 before the National Company Law Tribunal by the aggrieved persons (directors) whose DIN had been disqualified and whose companies name had been struck off from the register of Companies by the Registrar.
 
  • The DIN of the Directors and the struck off Company can be revived/ restored by the National Company Law Tribunal if the defaulting company has paid the annual returns for the last 3 years in the Income Tax Department. It is true that the Companies that were struck off by the Circular dated 6.9.17 and 12.9.17 issued by the MCA was a bit arbitrary, illegal, unjust in nature and unconstitutional also.
 
  • Therefore, both the NCLT and the High Court can be approached by the aggrieved persons (directors) whose DIN had been disqualified by the MCA for the period of 5 years for non-filing of annual return for any continuous period of 3 financial years for restoration of their DIN numbers. And for the companies whose name had been struck off arbitrarily by the ROC under Section 248 of the Companies Act, 2013, the National Company Law Tribunal can be approached in such cases.
 
Get in touch with the professionals at http://www.muds.co.in or call at 9599653306 or mudsmanagement@gmail.com with regard to the applicability of provisions and compliance requirements of the company.

Grounds on which an Appeal can be filed before the High Court under Article 226 of the Constitution of India:-
 
  • In many cases filed before the Hon’ble Delhi High Court, the main ground that was regularly contented on behalf of the petitioners was that respondent (ROC) was neither served any notice upon the petitioner nor afforded an opportunity to the petitioner to present his case against its intention of disqualifying the petitioners u/s 164 (2) (a) and the said action is against the principles of natural justice.
 
It is stated that if the petitioners should have been served a notice in time before disqualifying them from their directorship by publishing a notice dated 6.9.17 and 12.9.17 respectively.
 
  • That the respondents failed to appreciate and evaluate the correct legal position concerning disqualification of directors. It is stated that the provisions of Section 164 (2) (a) of the Companies Act, 2013 came into effect from April 1, 2014, and accordingly, the corresponding section 274 (1) (g) of the Companies Act was repealed with a new Section coming into force. Whilst the old Section marking the disqualification of the director was only in the context of public companies, the new section i.e. 164 (2) added private companies to its ambit. Thus, private companies being outside the purview of Section 274 (1) (g) of the 1956 act, Directors thereof, failing to file annual returns or annual accounts for three years, should not have been disqualified to be appointed as directors of any other company.
 
  • That the respondents have failed to appreciate the corresponding rules to section 164 of the Companies Act, 2013 as prescribed under Rule 11 of the Companies (Appointment and Qualification of Directors), Rules 2014 which provides for the reasons for the cancellation or deactivation of DIN.
 
  • That the Notice issued by the respondents dated 6.917 and 12.9.17 violate the right of trade and profession guaranteed to the petitioner under article 19(1) (g) of the constitution of India as well as the right to equality as they were not granted opportunity to present their case.
 
  • Also, the Division Bench of this Hon’ble Court was pleased to pass an order dated 22.3.18/ 23.3.18 in a batch of similar petitions, where DIN and DSC of the directors of the struck off companies who had filed for revival.
 
Grounds on which Appeal can be filed before the National Company Law Tribunal under Section 252 of the Companies Act, 2013:

  • That the Struck off Company started a business after its incorporation. That the said financial statements and Bank statements are attached herewith for your perusal.
 
  • That the Petitioner has complied with all the laws applicable to the struck off Company, including preparation of Financial Statements, Conducting Annual general meetings etc. Also, the Petitioners had appointed auditors in every year who have conducted the annual Audit of the Company’s Accounts.
 
  • That the struck off company has also complied with the filing of its income tax returns and service tax returns.
Benefits available to the Directors even after the CODS Scheme, 2018:

  • That the revival/ restoration of the Companies under Section 252 of the Companies Act, 2013 can act as a mental booster and a ray of hope for lakhs of companies and its directors throughout India.
 
  • It will serve as an opportunity for the directors who are disqualified from their directorship and their DIN’s are deactivated after the said order. Also, Under Section 164(2) (a), the director can only be disqualified from their directorship if a defaulting company happens to be an active company and not a struck off Company.
 
  • That the Directors of the Struck-off Companies can revive/restore their Companies under Section 252 of the Companies Act, 2013 before the National Company Law Tribunal
 
  • The Directors can act or operate in other Companies as well in which they are directors after the revival of their DIN’s.
 
  • That the aggrieved persons (Directors) will be able to carry out their respective businesses fruitfully and will be able to grow them in future to come.

Several Writ Petitions had been filed to date both in the High Court by various Aggrieved Persons (Directors).

  • Bhavneesh Saigal vs. Union of India and OR’s [1]. :
The petitioners had filed a writ petition seeking quashing of the notices dated 6.9.17 and 12.9.17 issued by the Ministry of Corporate Affairs (MCA). The notices were issued under Section 164(2) (a) of the Companies Act, 2013 by the respondents disqualifying the petitioner as the Director in the Company for the reason that there was default in submitting returns with regard to affairs of the said Company which were statutorily required to be filed with the Registrar of Companies for a continuous period of 3 financial years [2].
An interim stay had been granted on the impugned notices by the Delhi High Court and as a result, their DIN numbers are restored. In as much as Form 32 was not received by the Registrar of Companies, the respondents are unable to make any submissions with regard to the resignations, stated to have been submitted by the petitioners [3].
 
  • Sunil Gupta and Anr. Vs Union of India and Anr.[4]:
 
A writ of Certiorari has been instituted by the Directors of the Company seeking quashing of the impugned notices issued by the respondents dated 6.91.7 and 12.9.17 under Section 164 (2) of the Companies Act, 2013 disqualifying their directorship.
 
The notices were issued under Section 164(2) (a) of the Companies Act, 2013 by the respondents disqualifying the petitioner as the Director in the Company for the reason that there was default in submitting returns with regard to affairs of the said Company which were statutorily required to be filed with the Registrar of Companies for a continuous period of 3 financial years[5]. The writ petitioner has stated that in purported exercise of power under Section 248(1) of the Companies Act, 2013, the Registrar of Companies has additionally struck off the name of the said company from the Register of Companies.[6]
 
A challenge has also been laid to the retrospective application of provisions of the Companies Act, 2013 especially given the fact that the consequences of the respondents’ action are in the nature of a penalty upon the petitioners as well as the companies concerned. In this regard, reliance has been placed on behalf of the petitioners on the pronouncements of the Constitution Bench of the Supreme Court reported at (2015) 1 SCC 1 Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Pvt. Ltd. and another pronouncement reported at (2018) SCC OnLine SC 59 Commissioner of Income Tax 5 Mumbai v. M/s Essar Teleholdings Ltd. through its Manager which relies on Vatika (supra). 8. Drawing our attention to the mandatory requirement under Section 248(1), upon the Registrar of Companies to send a notice to the company and all directors of the company, it has been contended by the petitioners that such notice had to be issued and served in the manner prescribed by law i.e. in compliance with Rule 3(2) of the Companies (Removal of Names of Companies from the Registrar of Companies) Rules, 2016.[7].
 
The petitioners contend that this has not been done and that the action of the respondents in disqualifying the petitioners in striking off the name of the company from the register of companies cannot be sustained for this reason as well. In the above cases, the DIN’s of all the directors had been restored and there has been a stay on the notices dated 6th September and 12th September 2017 by the High Court which are issued by MCA on the said date.

The aforesaid companies had not been revived yet by the High Court and said (Sunil Gupta vs Union of India and Ors.) matter is being listed for 24th July 2018 before the Hon’ble High Court of Delhi.

We have also filed Several Writ Petitions before the Hon’ble High Court of Delhi and their Orders are awaited before the Hon’ble Delhi High Court on 24.7.2018. Some of our few listed cases are:
 
  • Rajender Kumar vs Union of India and Ors.
  • Yashwin Singh Kadian vs Union of India and Ors.
  • Amit Sharma vs Union of India and Ors.
  • Dinesh Kumar and Anr. Vs Union of India and Ors.
Conclusion :

Recently, the Ministry of Corporate Affairs (MCA) has undertaken very significant steps by issuing various Circulars on its official website regarding the restoration of DIN of Directors and revival/ restoration of Companies after the Condonation of Delay Scheme, 2018. Therefore, now the need of the hour is to be aware of the provisions and recent developments in law about the same. Get in touch with the professionals at http://www.muds.co.in or call at 9599653306 or mudsmanagement@gmail.com with regard to the applicability of provisions and compliance requirements of the company.
 
 
[1] W.P.(C) 11396/2017 and CM No.46513/2017
[2] http://lobis.nic.in/ddir/dhc (last visited on 5.6.18)
[3] Supra Note 15
[4] W.P.(C) 5787/2018 & CM Nos.22539-40/2018
[5] Supra Note 15
[6] http://delhihighcourt.nic.in (last visited on 5.6.18)
[7] Supra Note 19

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