Court Upholds Companies Act Section 164(2)(a) & 167(1)(a): Disqualifications Not Retroactive

The Court held that Section 164(2)(a) of the Companies Act, 2013 is not ultra vires Articles 14 or 19(1)(g) and is not manifestly arbitrary. It clarified that disqualification does not operate retrospectively and quashed arbitrary disqualifications. Section 167(1)(a) was also upheld as not violating constitutional provisions. The proviso to Section 167(1)(a) was deemed partly prospective and clarificatory. The Court emphasized that directors of struck-off companies under Section 248 do not automatically get disqualified under Section 164(2)(a).

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Here are the key points from the judgment:

Issues Involved:
1. Whether Section 164(2)(a) of the Companies Act, 2013 is ultra vires Articles 14 and 19(1)(g) of the Constitution for being manifestly arbitrary or disproportionateRs.
2. Whether Section 164(2)(a) violates principles of natural justice by not providing hearing before disqualificationRs.
3. Whether Section 164(2)(a) has retrospective operation making it unreasonable/arbitraryRs.
4. Whether there was illegal exercise of power in publishing list of disqualified directors under Section 164(2)(a)Rs.
5. Whether Section 167(1)(a) is ultra vires Articles 14 and 19(1)(g)Rs.
6. Whether proviso to Section 167(1)(a) is ultra vires Articles 14 and 19(1)(g)Rs.

Conclusions:

1. Section 164(2)(a) is not ultra vires Articles 14 or 19(1)(g). It is not manifestly arbitrary or disproportionate.

2. Section 164(2)(a) does not violate natural justice by not providing hearing as the disqualification operates by law.

3. Section 164(2)(a) does not have retrospective operation as interpreted by the Court.

4. There was arbitrary exercise of power in disqualifying directors by considering period prior to 1.4.2014 for reckoning 3 financial years under Section 164(2)(a). Such disqualification is quashed.

5. Section 167(1)(a) is not ultra vires Articles 14 or 19(1)(g).

6. Proviso to Section 167(1)(a) is partly prospective - it applies prospectively for vacating office in other companies, but clarificatory and retrospective for not vacating in defaulting company.

7. Directors of struck off companies under Section 248 don't automatically get disqualified under Section 164(2)(a).

The Court has provided a detailed interpretation of Sections 164(2)(a) and 167(1)(a) along with the proviso, keeping in mind principles against retrospective operation of law.

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