2020 (10) TMI 1070 - HC - Companies Law

High Court Upholds Disqualification of Directors for Companies Act Violation

The Madhya Pradesh High Court upheld the disqualification of ex Independent Directors of a company for non-compliance with filing requirements under the ... Disqualification of Director - non-filing of financial statements and annual returns - Section 92 and Section 137 of the Companies Act, 2013 - HELD THAT:- Evident it is from the pleadings that the Company in question did not file its financial statements and annual return for the financial years 2015-16, 2016-17 and subsequent financial years. It is also an admitted fact that the petitioners were noticed on 25.5.2017, 23.4.2018 by the Registrar of Companies regarding non-filing of financial statements and annual returns for financial years 2015-16, 2016-17 and 2017-18. Section 92 and Section 137 of the Companies Act, 2013 mandates filing of Annual Return and the Financial Statements with the Registrar. These provisions also contemplate penal action for non-compliance thereof. The petitioners have duly accepted the fact of non-filing of Annual Return and Financial statement; however, attributes it to be officers of the Company. The Company has also been put under Corporate Insolvency Resolution Process w.e.f 20.7.2017 under Section 9 of the Code 2016 vide order passed by the National Company Law Tribunal, Ahmedabad. The petitioners having inhered the disqualification have resulted in alleged disqualification which in given facts cannot be faulted with - Furthermore the relief sought by the petitioners to drop all civil and criminal actions if any taken by the Registrar of Companies besides being preemptive are contingent in nature which cannot be granted in a petition under Article 226 of the Constitution as the petitioners fail to establish breach of any legal right. Petition dismissed. Issues:1. Disqualification of ex Independent Directors from being Directors of any Company.2. Declaration of disqualification as ultra vires Companies Act, 2013, Insolvency and Bankruptcy Code, 2016, and the Constitution of India.3. Prohibition on Registrar of Companies from withdrawing civil and criminal proceedings against the petitioners.4. Direction for necessary filings of annual return and financial statements for a Company undergoing corporate insolvency resolution process.5. Clarification under Sections 92 and 137 of the Companies Act, 2013.6. Action against respondent No. 2.Analysis:1. The petitioners, ex Independent Directors of a company, were disqualified due to non-filing of financial statements and annual returns for specific financial years. The Companies Act, 2013 mandates such filings with penal consequences for non-compliance. The petitioners accepted the non-filing but attributed it to the officers of the company. The company was put under Corporate Insolvency Resolution Process, further complicating the situation.2. Section 164 of the Companies Act, 2013 outlines disqualifications for Director appointment. The petitioners' disqualification falls within the ambit of this section due to non-compliance with filing requirements. Subsequent sections elaborate on specific scenarios leading to disqualification, reinforcing the legal basis for the petitioners' situation.3. The petitioners' request to prevent withdrawal of civil and criminal proceedings by the Registrar of Companies is deemed preemptive and contingent, lacking a clear legal breach to support such relief under Article 226 of the Constitution. As a result, this specific relief cannot be granted.4. The court notes that the petitioners' disqualification, based on the provided facts, is justified and cannot be disputed. The legal framework and non-compliance with filing obligations have led to the disqualification, making it a valid consequence in this context.5. Given the absence of grounds for granting relief, the petition is deemed unsuccessful and subsequently dismissed. The court's decision is based on the inability of the petitioners to establish a breach of legal rights warranting the relief sought, leading to the dismissal of the petition.This detailed analysis of the judgment from the Madhya Pradesh High Court provides a comprehensive overview of the issues raised, the legal framework applied, and the court's decision regarding the disqualification of the ex Independent Directors and related matters.