2022 (10) TMI 643 - HC - Companies Law

Court rules deactivation of Director Identification Numbers without authorization illegal

ABBAS Maru And Another Versus Union of India And Another

The court held that the deactivation of Director Identification Numbers (DINs) under Section 164(2) of the Companies Act, 2013, without explicit ... Disqualification of Director under section 164(2) of the Companies Act, 2013 - HELD THAT:- From the perusal of the Act of 2013 and Rules of 2014, it appears that Section 152 of the Act of 2013 deals in respect of Appointment of Director whereas Section 153 is in respect of Application for allotment of DIN and Section 154 is in respect of Allotment of DIN. It is pertinent to mention here that as per Section 152(3), allotment of DIN under Section 154 ( or any other number as may be prescribed under Section 153) is a prerequisite for appointment as director of a company. From perusal of said rule, it appears that cancellation or deactivation of DIN can be done at the instance of any person while moving an application along with fee as specified in the Rules of 2014 and that too after affording of opportunity of hearing (if cancellation or deactivation of DIN is made pursuant to clause (b) of sub-rule 1 of rule 11) - Here, prima facie no application has been moved by any person to reach to a conclusion regarding cancellation or deactivation of DIN at the hands of Registrar. In Rules, incorporation of requirement of moving application is obvious, because allotment of DIN number is prerequisite for appointment of directors, therefore, moving application by person assumes more significance because it is identity which is carried by the director over his shoulder during his stint as director of the company, therefore, such important identification cannot be sacrificed suo motu or at the instance of any misrepresentation. It needs verification of e-record and affording opportunity of hearing in some contingencies especially when the matter pertains to obtaining DIN in a Wrongful Manner or by Fraudulent Means. So far as application of Sections 164 and 167 of the Act of 2013 is concerned from the Act of 2013 itself it appears that Section 164 of the Act of 2013 was made applicable from 1st May, 2014 whereas Section 167 of the Act of 2013 was made applicable w.e.f. 7th May, 2018 and it is settled in lay that unless statute is made applicable retrospectively, its application would be prospective in nature. In some of the cases, alleged default appears to be of 2015-16 and 2016-17, therefore, three consecutive years have not been lapsed so as to attract the liability or rigours of Section 164(2) of the Act of 2013. Different High Courts have taken same stand that DIN cannot be cancelled or deactivated resorting to Section 164 or 167 of the Act of 2013 and for the reasons assigned into their orders - looking to the legal position and the judgments passed by different High Courts from time to time, this Court intends to allow the writ petitions preferred by petitioners and set aside the impugned orders passed by Registrar of Companies against the petitioners whereby DIN has been cancelled/deactivated - Petition allowed. Issues Involved:1. Validity of the deactivation of Director Identification Numbers (DIN) under Section 164(2) of the Companies Act, 2013.2. Applicability of the principles of natural justice in the deactivation process.3. Retrospective versus prospective application of Sections 164 and 167 of the Companies Act, 2013.4. Jurisdiction and authority of the Registrar of Companies (ROC) in deactivating DINs without an application.5. Consistency with judgments from other High Courts on similar matters.Issue-wise Detailed Analysis:1. Validity of the deactivation of DIN under Section 164(2) of the Companies Act, 2013:The petitioners challenged the deactivation of their DINs by the ROC under Section 164(2) of the Companies Act, 2013, arguing that this section only disqualifies directors in the defaulting company and not in other companies. The court agreed, noting that Sections 164 and 167 of the Act do not explicitly authorize the deactivation of DINs. The court held that the deactivation of DINs based on these sections was 'arbitrary and illegal,' and only rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides for such deactivation under specific conditions.2. Applicability of the principles of natural justice in the deactivation process:The petitioners contended that the principles of natural justice were violated as no opportunity for a hearing was provided before deactivating their DINs. The court found merit in this argument, emphasizing that rule 11(e) of the Rules of 2014 mandates an opportunity for hearing before deactivation. The court noted that the show cause notices issued did not mention deactivation of DINs, and the final orders were based on different grounds, thus violating the principles of natural justice.3. Retrospective versus prospective application of Sections 164 and 167 of the Companies Act, 2013:The petitioners argued that Sections 164 and 167 should be applied prospectively, not retrospectively. The court concurred, stating that unless a statute explicitly provides for retrospective application, it should be applied prospectively. The court noted that Section 164 became effective on 1st May 2014 and Section 167 on 7th May 2018. Therefore, defaults occurring before these dates should not attract disqualification under these sections.4. Jurisdiction and authority of the ROC in deactivating DINs without an application:The court examined rule 11 of the Rules of 2014, which requires an application for deactivation of DINs. The court found that no such application was made in this case, and the ROC acted suo motu. The court held that the ROC's action was beyond its jurisdiction and authority, as rule 11 does not contemplate suo motu deactivation of DINs without an application and verification process.5. Consistency with judgments from other High Courts on similar matters:The petitioners cited several judgments from other High Courts, which had set aside similar orders of deactivation of DINs. The court acknowledged these precedents, noting that different High Courts had consistently held that DINs cannot be deactivated under Sections 164 and 167 of the Companies Act, 2013. The court listed several such judgments, including those from the Madras, Gujarat, Delhi, Karnataka, Allahabad, and Calcutta High Courts, and aligned its decision with these rulings.Conclusion:The court allowed the writ petitions, setting aside the impugned orders passed by the ROC that deactivated the petitioners' DINs. The court directed that any necessary follow-up action be taken to restore the DINs. The judgment emphasized adherence to statutory provisions, principles of natural justice, and consistency with judicial precedents.