Court overturns director disqualification, orders DIN reactivation under Companies Act.

The court set aside the disqualification of directors under Section 164(2)(a) of the Companies Act, 2013, and directed the reactivation of their Director Identification Numbers (DINs). It held that the provision should have prospective effect from 1.4.2014 and that violations occurring after this date could be addressed. The court clarified that Section 252 does not provide an alternative remedy for director disqualifications or DIN deactivations. The writ petitions were allowed, and interlocutory applications were closed without costs.

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Issues Involved:
1. Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013.
2. Deactivation of Director Identification Numbers (DINs).
3. Applicability of retrospective effect to Section 164(2)(a).
4. Violation of principles of natural justice.
5. Availability of alternative remedy under Section 252 of the Companies Act, 2013.

Detailed Analysis:

1. Disqualification of Directors under Section 164(2)(a) of the Companies Act, 2013:
The petitioners, who were directors of struck-off companies, were disqualified under Section 164(2) of the Companies Act, 2013, for not filing financial statements or annual returns for a continuous period of three years. The disqualification also made them ineligible to be re-appointed as directors of any company for five years from the date of default. The petitioners argued that the provision should have prospective operation from 1.4.2014, and not be applied retrospectively.

2. Deactivation of Director Identification Numbers (DINs):
The DINs of the petitioners were deactivated following their disqualification. The petitioners contended that DINs, granted for a lifetime under Rule 10(6) of the Companies (Appointment and Qualification of Directors) Rules, 2014, could not be deactivated for the reasons provided under Section 164(2)(a). They argued that Rule 11 of the Rules does not include disqualification under Section 164 as a ground for deactivation.

3. Applicability of Retrospective Effect to Section 164(2)(a):
The court examined whether Section 164(2)(a) should be applied retrospectively. The petitioners argued that the provision should only apply prospectively from 1.4.2014. The court referred to the General Circular No.08/14 dated 4.4.2014 issued by the Ministry of Corporate Affairs, which clarified that financial statements for periods before 1.4.2014 should be governed by the Companies Act, 1956. The court held that applying Section 164(2)(a) retrospectively was impermissible and contrary to the circular and the law laid down by the Supreme Court in Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited.

4. Violation of Principles of Natural Justice:
The petitioners argued that the disqualification orders were passed without issuing notices, violating principles of natural justice. The court noted that Section 164(2)(a) is a deeming provision that does not require prior notice or hearing, as it operates automatically upon default. The court concurred with judgments from the High Courts of Karnataka, Gujarat, and Madras, which held that Section 164(2)(a) does not violate principles of natural justice.

5. Availability of Alternative Remedy under Section 252 of the Companies Act, 2013:
The respondents argued that the petitioners had an alternative remedy under Section 252 of the Act. However, the court clarified that Section 252 provides a remedy for challenging the dissolution and striking off of companies, not for disqualification of directors or deactivation of DINs. Therefore, the court rejected the contention that Section 252 was an alternative remedy for the petitioners.

Conclusion:
The court set aside the impugned orders disqualifying the petitioners as directors under Section 164(2)(a) and deactivating their DINs, directing the 2nd respondent to activate the DINs. The court clarified that the provision should have prospective effect from 1.4.2014 and that the respondents could take appropriate action for violations occurring after this date. The court also noted that the petitioners could seek alternative remedies under Section 252 if aggrieved by the striking off of their companies. The writ petitions were allowed to the extent indicated, and interlocutory applications, if any, were closed without costs.

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