Court rules CFSS 2020 applies prospectively; directors' disqualifications set aside

The Court held that the amendments to Sections 164(2) and 167(1)(a) of the Companies Act, 2013 should not be applied retrospectively. Recognizing the Companies Fresh Start Scheme (CFSS) 2020 as a fresh cause of action, the Court set aside the disqualification of directors and directed the reactivation of their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) within three working days. The petitioners were allowed to benefit from the CFSS 2020, enabling them to rectify defaults and continue their business activities.

---

---

Issues Involved:
1. Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013.
2. Retrospective application of amendments to Sections 164(2) and 167(1)(a) of the Companies Act, 2013.
3. Impact of the Companies Fresh Start Scheme (CFSS) 2020 on disqualified directors.
4. Delay in filing the writ petition challenging the disqualification.

Detailed Analysis:

1. Disqualification of Directors under Section 164(2)(a) of the Companies Act, 2013:
The petitioners, directors of two companies, were disqualified due to non-filing of financial statements and annual returns, leading to the striking off of one company from the Register of Companies on 30th June 2017. Their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) were also cancelled, preventing them from carrying on business activities in the active company.

2. Retrospective Application of Amendments to Sections 164(2) and 167(1)(a) of the Companies Act, 2013:
The petitioners argued that the amendments introduced by the Companies Amendment Act, 2018, effective from 7th May 2018, should not apply retrospectively. They relied on the judgment in Mukut Pathak & Ors. v. Union of India & Ors., which held that the proviso to Section 167(1)(a) being a punitive measure, cannot be applied retrospectively unless expressly provided by the statutory amendment. The Court in Mukut Pathak stated that disqualifications incurred under Section 164(2) prior to 7th May 2018 should not lead to vacation of office in other companies.

3. Impact of the Companies Fresh Start Scheme (CFSS) 2020 on Disqualified Directors:
The petitioners sought to benefit from the CFSS 2020, introduced to allow companies to rectify defaults in filing documents without facing disqualification. The scheme, launched on 30th March 2020, provides immunity from penalties and prosecution for belated filings and aims to facilitate a fresh start for companies. The petitioners argued that their disqualification and deactivation of DINs and DSCs hindered their ability to avail of the scheme for the active company, Koksun Papers.

4. Delay in Filing the Writ Petition Challenging the Disqualification:
The respondents contended that the petition was filed belatedly, as the disqualification list was published in 2017. The Division Bench in Anamika Devi v. Union of India & Anr. and Gaurav Kumar v. Union of India & Anr. dismissed similar petitions on the grounds of delay. However, the Court noted that the CFSS 2020 constitutes a fresh cause of action, and the pandemic situation necessitated giving full effect to the scheme.

Judgment:
The Court found the judgment in Mukut Pathak applicable, asserting that the amendments to Sections 164(2) and 167(1)(a) cannot be applied retrospectively. The Court recognized the CFSS 2020 as a fresh cause of action, allowing directors of active companies to rectify defaults and continue business operations. Given the pandemic and the scheme's intent, the Court set aside the petitioners' disqualification and directed the reactivation of their DINs and DSCs within three working days.

Conclusion:
The writ petition was allowed, and all pending applications were disposed of, enabling the petitioners to continue their business activities under the CFSS 2020.

---