2021 (2) TMI 59 - HC - Companies Law

Court Orders Reactivation of Director Identification Numbers for Petitioners

The court ruled in favor of the petitioners, directing the authorities to reactivate their Director Identification Numbers (DINs) for use in other ... De-activation of the Director Identification Number - Section 164(2) of the Companies Act, 2013 - HELD THAT:- Similar controversy was raised in other High Courts and after considering the issue at length, the Gujarat High Court decided batch of petitions in [2019 (1) TMI 27 - GUJARAT HIGH COURT] where it was held that the Court is of the opinion that the action of the respondents in deactivating the DINs of the petitioners- Directors along with the publication of the impugned list of Directors of 'struck off' companies under Section 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR-3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules. The writ petition for challenge to the de-activation of the Director Identification Number are allowed. It was de-activated on account of dis-qualification in one company effecting Director Identification Number for the other companies. The opposite parties are directed to activate the Director Identification Number for use for other company. Issues Involved:1. Deactivation of Director Identification Number (DIN) under Section 164(2) of the Companies Act, 2013.2. Prospective vs. Retrospective application of Section 164(2).3. Validity of the impugned list of disqualified directors.4. Legal grounds for cancellation or deactivation of DIN.5. Reliance on the Condonation of Delay Scheme.Analysis:1. Deactivation of Director Identification Number (DIN) under Section 164(2) of the Companies Act, 2013:The petitioner challenged the deactivation of their DIN, arguing that the disqualification in one company should not affect their DIN for other companies. The court noted that similar issues had been addressed by other High Courts, including the Gujarat High Court, which had ruled in favor of reactivating the DINs.2. Prospective vs. Retrospective application of Section 164(2):The court examined the application of Section 164(2) of the Companies Act, 2013, which disqualifies directors for not filing financial statements or annual returns for three consecutive financial years. The court referenced the Gujarat High Court's interpretation that the provision should be applied prospectively from April 1, 2014. Therefore, the relevant financial years for disqualification would be 2014-15, 2015-16, and 2016-17. The court emphasized that applying the section retrospectively would be unfair and contrary to established legal principles.3. Validity of the impugned list of disqualified directors:The court found the impugned list dated September 12, 2017, showing the petitioners as disqualified from November 1, 2016, to October 31, 2021, to be premature and legally untenable. The disqualification under Section 164(2) could only take effect after the defaults occurred post-April 1, 2017, making the list published by the respondents unjustified.4. Legal grounds for cancellation or deactivation of DIN:The court analyzed Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014, which outlines the grounds for cancellation or deactivation of DIN. The rule does not provide for the suo motu deactivation of DINs by the authorities for directors of 'struck off' companies or those disqualified under Section 164. The court held that once a DIN is allotted, it remains valid for the lifetime of the applicant and cannot be deactivated unless specific conditions under Rule 11 are met.5. Reliance on the Condonation of Delay Scheme:The respondents relied on the Condonation of Delay Scheme introduced by the Ministry of Corporate Affairs, which allowed directors of 'struck off' companies to rectify defaults. However, the court noted that this scheme could not justify the premature publication of the impugned list. The scheme was applicable for defaults from financial years 2013-14 to 2015-16, while the court held that Section 164(2) should apply prospectively from 2014-15 to 2016-17. Additionally, the deactivation of DINs prevented the petitioners from benefiting from the scheme.Conclusion:The court allowed the writ petition, directing the respondents to reactivate the petitioners' DINs for use in other companies. The respondents were granted liberty to take legal action against the petitioners for any statutory defaults or non-compliance with the Companies Act, 2013, in accordance with the law.