2020 (9) TMI 750 - HC - Companies Law

Court grants urgent relief to directors by reactivating DINs & DSCs for Companies Fresh Start Scheme

The court addressed the disqualification of directors under Section 164(2)(a) of the Companies Act, the cancellation of their DINs and DSCs, the ... Disqualification of directors under Section 164(2) of the Companies Act - Retrospective application of the proviso to Section 167(1)(a) of the Companies Act - Cancellation and reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC) - Restoration of struck-off company and compliance with NCLT directions - Right to avail Companies Fresh Start Scheme 2020Disqualification of directors under Section 164(2) of the Companies Act - Retrospective application of the proviso to Section 167(1)(a) of the Companies Act - The proviso to Section 167(1)(a) of the Companies Act, which came into force on 07.05.2018, cannot be applied retrospectively to cause vacation of office or cancellation of DIN/DSC in respect of defaults that occurred prior to that date. - HELD THAT: - The Court applied the ratio of Mukut Pathak and held that the amendments introducing the provisos to Section 164(2) and Section 167(1)(a) (effective 07.05.2018) impose punitive consequences and therefore cannot be read to operate retrospectively. Where the company's and directors' defaults occurred prior to 07.05.2018 (as admitted here, with the company struck off on 30.06.2017 and restoration on 22.10.2019), the proviso cannot be invoked to vacate office or to cancel DINs/DSCs. The Court noted that the respondents did not dispute the timing of defaults or the applicability of Mukut Pathak and that no stay of that decision's operation had been granted by the appellate court; accordingly the legal principle in Mukut Pathak applies to the petitioners and precludes retrospective cancellation of their DINs/DSCs. [Paras 10, 11]The proviso to Section 167(1)(a) cannot be applied retrospectively; the petitioners' DINs/DSCs could not validly have been cancelled on the basis of defaults that occurred before 07.05.2018.Cancellation and reactivation of Director Identification Number (DIN) and Digital Signature Certificate (DSC) - Right to avail Companies Fresh Start Scheme 2020 - Restoration of struck-off company and compliance with NCLT directions - Petitioners were entitled to immediate reactivation of their DINs and DSCs so as to enable them to comply with NCLT restoration directions and to avail the Companies Fresh Start Scheme 2020 within its prescribed window. - HELD THAT: - Given the Court's conclusion that the proviso to Section 167(1)(a) could not be applied retrospectively to the petitioners, and noting that the NCLT had restored the company subject to filing outstanding statutory documents and that the CFSS had a limited window (until 30.09.2020), the Court found that failure to reactivate DINs/DSCs would cause grave prejudice by denying the petitioners the opportunity to comply and to avail the Scheme. In the circumstances and in exercise of writ jurisdiction, the respondents were directed to reactivate the petitioners' DINs and DSCs within three days to enable compliance with NCLT directions and application under the CFSS. [Paras 12]Respondents directed to reactivate the petitioners' DINs and DSCs within three days to enable compliance with restoration directions and to apply under the CFSS.Final Conclusion: The petition is allowed: the court applied the ratio in Mukut Pathak to hold that the proviso to Section 167(1)(a) is not retrospective and, to prevent prejudice and permit compliance with NCLT directions and availing of the CFSS, directed reactivation of the petitioners' DINs and DSCs within three days; the petition is disposed of. Issues:1. Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013.2. Cancellation of Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs).3. Application of the proviso to Section 167(1)(a) of the Act retrospectively.4. Petition seeking relief for reactivation of DINs and DSCs to avail the Companies Fresh Start Scheme 2020 (CFSS).Issue 1: Disqualification of directors under Section 164(2)(a) of the Companies Act, 2013:The petitioners were disqualified as directors of a company due to non-filing of statutory returns, leading to their names being included in the 'List of Disqualified Directors.' The disqualification was for a period of five years, from 01.11.2016 to 31.10.2021, as per Section 164(2)(a) of the Act. The restoration of the company's name by the National Company Law Tribunal (NCLT) did not automatically lift the disqualification of the petitioners.Issue 2: Cancellation of Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs):The cancellation of the petitioners' DINs and DSCs was a consequence of their disqualification as directors under Section 164(2)(a) of the Act. This cancellation hindered their ability to comply with the NCLT's directions for filing requisite documents to restore the company's name and to avail the benefits of the Companies Fresh Start Scheme 2020 (CFSS).Issue 3: Application of the proviso to Section 167(1)(a) of the Act retrospectively:The petitioners argued that the cancellation of their DINs and DSCs was done without legal authority as the proviso to Section 167(1)(a) of the Act, which allows such cancellations, cannot be applied retrospectively. The court referred to a previous judgment that clarified the non-retrospective application of this provision and held that the cancellation of DINs and DSCs in this case was not valid.Issue 4: Petition seeking relief for reactivation of DINs and DSCs to avail the Companies Fresh Start Scheme 2020 (CFSS):The petitioners sought the reactivation of their DINs and DSCs to participate in the CFSS, which provided an opportunity for defaulting companies to file overdue documents without additional fees. The urgency arose from the impending deadline of 30.09.2020 to avail of the scheme. The court allowed the petition, directing the reactivation of the DINs and DSCs within three days to enable the petitioners to apply for the CFSS before the deadline.In conclusion, the judgment addressed the disqualification of directors under the Companies Act, the cancellation of their DINs and DSCs, the non-retrospective application of relevant legal provisions, and the urgent relief sought by the petitioners to participate in the CFSS. The court granted the requested relief by ordering the reactivation of the DINs and DSCs to facilitate the petitioners' compliance with statutory requirements and scheme deadlines.