Director's disqualification under Section 164 doesn't prevent filing Section 7 application for financial creditor

NCLAT Principal Bench dismissed appeals challenging rejection of Section 7 application signed by director of financial creditor. Appellant argued director was disqualified under Section 164 due to non-filing of financial statements by another company where he served as director. NCLAT held that striking off of one company (Airwill Infracon) did not disqualify the director from continuing in other companies. Section 164(2) disqualification was not proven, and proviso to Section 167(1) was inapplicable. Director remained competent to file Section 7 application on behalf of financial creditor. Appeals dismissed with no merit found.

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Issues Involved:

1. Authority of Vinod Sachdeva to file Section 7 Application.
2. Disqualification of Vinod Sachdeva under Section 164(2) of the Companies Act, 2013.
3. Applicability of Section 167(1) proviso regarding vacation of office by disqualified directors.
4. Grounds for striking off Airwill JKM Infracon Pvt. Ltd.

Issue-wise Detailed Analysis:

1. Authority of Vinod Sachdeva to file Section 7 Application:

The core issue was whether Vinod Sachdeva had the authority to file Section 7 Applications on behalf of the Financial Creditor. The Corporate Debtor argued that Vinod Sachdeva, being disqualified as a director of a sister company, Airwill JKM Infracon Pvt. Ltd., lacked the authority to file the application. However, the Financial Creditor contended that the striking off of Airwill Infracon was due to its failure to commence business operations, not due to non-filing of financial statements, which would invoke disqualification under Section 164(2). The tribunal concluded that Vinod Sachdeva was authorized by a board resolution dated 23.02.2022 to sign and verify the Section 7 Application, thus affirming his authority.

2. Disqualification of Vinod Sachdeva under Section 164(2):

The Appellant argued that Vinod Sachdeva was disqualified under Section 164(2)(a) because Airwill Infracon did not file financial statements for three consecutive years. However, the tribunal found that Airwill Infracon was struck off not for non-filing of financial statements but for not carrying on business for two years, as per Section 248(1)(c). Therefore, the disqualification under Section 164(2) was not applicable, as the conditions for such disqualification were not met.

3. Applicability of Section 167(1) proviso regarding vacation of office by disqualified directors:

The Appellant contended that under the proviso to Section 167(1)(a), Vinod Sachdeva should vacate his office in all companies due to the disqualification incurred under Section 164(2). However, the tribunal found that since there was no disqualification under Section 164(2), the proviso to Section 167(1) was not applicable. Moreover, the tribunal noted that the proviso was inserted on 07.05.2018, and there was no evidence of disqualification occurring after this date.

4. Grounds for striking off Airwill JKM Infracon Pvt. Ltd.:

The tribunal examined the grounds for striking off Airwill Infracon and found that it was not due to non-compliance with Section 164(2) but rather due to the company not carrying on any business for two years, as per Section 248(1)(c). The tribunal referred to public notices issued by the Registrar of Companies, confirming that the company was struck off for not carrying on business, not for failing to file financial statements. This distinction was crucial in determining the applicability of disqualification provisions.

Conclusion:

The tribunal dismissed the appeals, affirming that Vinod Sachdeva was not disqualified under Section 164(2) and was competent to file the Section 7 Applications. The tribunal upheld the Adjudicating Authority's decision to reject the applications for dismissal filed by the Corporate Debtor. The tribunal requested the Adjudicating Authority to expeditiously consider the Section 7 Applications filed by the Financial Creditors. Both parties were directed to bear their own costs.

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