TaxTMI 
TaxTMI 
2021 (12) TMI 347
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....#39;). As the issues involved in all the petitions are similar, therefore, a common judgment and order is being passed. Writ Petition No.306 (M/B) of 2021 (Ram Kishor Verma & Anr. vs. Union of India & Ors.) has been heard as the leading writ petition. At the very outset, it needs to be mentioned that there is no order of the Registrar of Companies adjudicating or declaring the petitioners as disqualified under Section 164(2) read with Section 167 of the Companies Act, 2013 (in short 'the Act, 2013'). Instead, the requisite information has been uploaded on the web-portal and it is this action which is under challenge. The petitioners of Writ Petition No.306 (M/B) of 2021 have been disqualified for a period of five years w.e.f. 01.12.2017 to 30.11.2022 and their DINs have also been deactivated for the same period. In fact, the information uploaded on the e-portal of Ministry of Corporate Affairs mentions the DIN status of the petitioners as disqualified by the Registrar of Companies under Section 164(2) of the Act, 2013. The two petitioners of this petition were Directors of the companies, namely, M/s Pari Infra Builders Private Limited and M/s Pari Aqua Private Limited....
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....ther Directors is for the period 01.12.2017 to 30.11.2022. In Writ Petition No.1188 (M/B) of 2020, the sole petitioner is Director in two companies, namely, Vyom Agro Industries Pvt. Ltd. and Protiva Animal Nutrition Private Limited. The petitioner has resigned from the Directorship of the latter company on 04.06.2019. He has been disqualified as Director of the former company from 01.12.2017 to 30.11.2022 i.e. for a period of five years. Needless to say, all the Directors have been disqualified on the ground mentioned in Section 164(2)(a) read with Section 167(1)(a) of the Act, 2013 and the office of Director held by them is deemed to have fallen vacant. The contention of learned counsel for the petitioners was that no notice or opportunity of hearing was given to the petitioners prior to treating them as disqualified under the aforesaid provisions nor any order was passed by the Registrar of Companies in this regard. Secondly, Rule 11 of the Companies (Appointment and Qualification of Directors), Rules, 2014 which deals with cancellation or surrender or deactivation of DIN, permits such actions only on grounds specified therein none of which are attracted in the case of ....
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....eld whereas disqualification and consequential deactivation of DIN of the petitioners is by operation of law as per the mandate contained in Section 164(2)(a) read with Section 167 (1) of the Act, 2013. The respondents have only flagged the defaulters by publishing a list of disqualified Directors and simultaneously, blocked/deactivated their DIN and DSC for such period, during which they are not expected to use their DIN and DSC. DIN is necessary for a qualified Director and not for a disqualified Director. Non-disqualification is a continuous condition for having DIN. When a director becomes disqualified, he cannot use his DIN because he ceases to be a director in all companies by virtue of the aforesaid provision. It is necessary to restrain the disqualified directors from dealing/filing on MCA portal during the period of their disqualification under Section 164(2)(a) of the Act, 2013 due to vacation of the office as Director under Section 167(1)(a) of the Act, 2013 thereby the DINs of the disqualified Directors have been blocked they being disqualified directors. Such action is a consequence of vacation of the office of the director under the said provisions. He further subm....
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...., if - (a) he is of unsound mind and stands so declared by a competent court; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is pending; (d) he has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence: Provided that if a person has been convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a director in any company; (e) an order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force; (f) he has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; (g) he has been convicted of the offence dealing with related party transactions under section 188 at any time during t....
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.... by an order of a court or the Tribunal; (f) he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in respect thereof to imprisonment for not less than six months: Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)- (i) for thirty days from the date of convicting or order of disqualification; (ii) where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in sentence or order, until expiry of seven days from the date on which such appeal or petition is dispose of; or (iii) where any further appeal or petition is preferred against order or sentence within seven days, until such further appeal or petition is disposed of.] (g) he is removed in pursuance of the provisions of this Act; (h) he, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, ceases to hold such office or other employment in that company. (2) If a person, functions as a director even when he knows that th....
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....nual returns for any continuous period of three financial years incurs disqualification mentioned in clause (a) of sub-Section (2) of Section 164 and consequently, his office of director becomes vacant. By operation of proviso to Section 167 (1) on incurring of such disqualification under sub-Section (2) of Section 164 the office of director held by such person becomes vacant not only in the defaulting company but in all the companies other than the company which is in default under that sub-section. As per sub-Section (2) of Section 167 of the Act, 2013 if a person, functions as a director even when he knows that the office of director held by him has become vacant on account of any disqualifications specified in sub-Section (1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees, or with both. This shows that such a disqualified director cannot use his DIN during the period of disqualification. Most importantly, sub-Section (3) of Section 167 provides that where all the directors of a company vacate their offices under any of the disqualificati....
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....on of learned counsel for the petitioner that no notice or opportunity of hearing was given and reliance placed by them in this regard upon the judgment of a Co-ordinate Bench of this Court in the case of Jay Shankar Agrahari (supra), on perusal of the said judgment we find that a specific issue in this regard was framed and considered by this Court in the said case and the question was as under:- "Whether principles of natural justice are applicable before holding a Director disqualified under Section 164(2) or holding that Office of Director has become vacant under Section 167(1) (a)?" The Division Bench answered the aforesaid question as under:- "59. From perusal of provisions quoted above there is no scope of doubt that as soon as disqualifications stated therein are incurred, Director concerned shall stand disqualified by operation of law and/or Office of Director shall become vacant by operation of law, under Section 164 and 167, respectively, as the case may be. Therefore, to attract the consequences, if eventuality which attracts disqualification or vacation of Office of Director has occurred, being automatic, it cannot be said that principles of natura....
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....irement of notice to such Directors would be necessary to verify, whether such condition exists or not. .. 74. Thus, we reiterate that the fact whether there is such failure as contemplated and provided by Section 164(2)(a) of Act, 2013 to attract disqualification thereunder and also to incur consequences provided under Section 167 (1) (a) of Act, 2013, it has to. be established, as a matter of fact, that there is such failure. For this purse, in our view, a notice would be ecessary to find out whether the alleged disqualification which according to ROC has been incurred by any Director is an undisputed fact or if disputed, opportunity to concerned person has to be given to establish otherwise. 75. We may also notice that if any Director, despite having incurred disqualification, continues to work as Director, such an act of Director has not been allowed to remain immune from any action, instead it is provided in Section 167 of Act, 2013 that any person, if continuing to function as Director though office of Director has become vacant on account of any disqualification specified under Section 167 (1) of Act, 2013, shall be punished with imprisonment for a....
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....een required to make such a declaration. Instead, statute itself makes declaration. The effect and consequence of attracting disqualification is automatic. It requires no order or declaration by any authority. The list issued by the Registrar of Companies of such unqualified directors is only a ministerial act. It further opined that every provision which excludes principles of natural justice cannot be said to be per se arbitrary. What is contemplated in Section 164(2)(a) is certain statutory duty which if failed by a director concerned, the disqualification would stand attracted. Similar is the position in respect of Section 167(1)(a), hence it held,-'We find no reason to hold that principles of natural justice must be read in Section 164(2)(a) and Section 167(1)(a) before attracting consequences'. Now this far there is no difficulty as the dictum of the Division Bench is categorical that the principles of natural justice are not to be read into the aforesaid provisions before attracting the consequences which is disqualification and vacation of the office of director, but, thereafter, as already quoted hereinabove, the Division Bench went on to hold that if condition ....
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....filed or not can be ascertained from records of Registrar of Companies as also the website of the company itself wherein they are required to be uploaded and as they are also required to be delivered or served to the Registrar of Companies in computer recordable electronic form through the e-portal maintained by the Central Government on its website and the Central Government is required to maintain a secured centralized electronic registry for storing of such documents electronically as is evident from Section 398 of the Act, 2013 and Rule 7 and 9 of the Companies (Registration Offices and Fees) Rules, 2014. Nevertheless, as in this case, it is an admitted factual position of all the petitioners that the companies, in which they were Directors, had not filed their annual returns/ financial statements for a continuous period of three years, therefore, as, even as per the decision of the Division Bench in Jay Shankar Agrahari (supra), it being an undisputed fact in these cases, principles of natural justice are not attracted for ascertaining it, as such, for this reason we refrain ourselves from going into this question of application of principles of natural justice any further lea....
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....es before us, in Writ Petition No.24797 (M/B) of 2020 the disqualification has been published after 07.05.2018 and the period of disqualification is from 01.11.2018 to 31.10.2023, therefore, clearly the proviso applies in this case. As regards Writ Petition No.24799 (M/B) of 2020, here again, the situation is the same and the period of disqualification is 01.11.2018 to 31.10.2023, therefore, in this case also, the proviso clearly applies. Now, when we consider Writ Petition No.1188 (M/B) of 2020 in this regard, we find that though the period of disqualification is from 01.12.2017 to 30.11.2022, although it has been notified on 29.11.2018 as claimed from the pleadings of the writ petition, we find that the petitioner claims to be Director in two companies, namely Vyom Agro Industries Private Limited and Protiva Animal Nutrition Private limited, however, he has resigned from the latter company on 04.06.2019 as such on the relevant date he was Director in only one company as referred hereinabove, in respect to which, he has been disqualified. As such, the question of application of proviso of Section 167(1) does not arise in this case, especially as, in view of the disqualification he....
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....n the case of a private company, and one director in the case of a One Person Company. Other provisions with regard to appointment of directors and their maximum numbers are also contained in the said provisions. Section 152 deals with appointment of directors. According to sub-Section (4) of Section 152 every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number (DIN) or such other number as may be prescribed under section 153 and a declaration that he is not disqualified to become a director under this Act. Section 153 deals with application for allotment of Director Identification Number, according to which, every individual intending to be appointed as director of a company shall make an application for allotment of Director Identification Number to the Central Government in such form and manner and along with such fees as may be prescribed. Proviso to said provision is not very relevant for this case. Section 154 deals with allotment of Director Identification Number. Section 155 prohibits obtaining more than one DIN for an individual. Section 156 and 157 deal with obligation of t....
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....ttached with the application received from any person, cancel or deactivate the DIN in case - (a) the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be merged with the validly retained number; (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death of the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) if the concerned individual has been adjudicated an insolvent: Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; (f) on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN: Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation.- For the ....
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....ually and independently whereas in a case of deactivation of DIN consequent to disqualification of a director under Section 164(2)(a) read with Section 167(1)(a), the fact as to whether the annual returns/ financial statements have been filed by the company for a period of three continuous years or not can be readily ascertained from the information available with the Registrar of Companies as these returns/ statements are required to be filed with him and can also be ascertained from the e-portal of the company itself where they are required to be uploaded, as such, not much of an exercise is required involving a rowing inquiry instead this fact would get reflected from the e-portal itself and by operation of law if the condition mentioned in clause (a) of Section 164(2) read with Section 167 (1)(a) is reflected or found then the consequence would be disqualification. Furthermore, as per sub-rule (3) of Rule 11, the deactivated DIN shall be re-activated only after e-form DIR-3-KYC is filed along with fee as prescribed under Companies (Registration Offices and Fees) Rules, 2014. Therefore, this provision indicates that deactivated DIN can be re-activated also in cases covered un....
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....vides that, where a person appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment can very well take recourse to Item (D) of table referred above prescribing the additional fees for belated filing of annual returns/ financial statements read with Rule 12 of the Companies (Registration Offices and Fees), Rules, 2014 and Section 403 of the Act, 2013. The provisions of Section 403 of the Act, 2013, Rule-12 of the Regulation and Fees Rules of 2014 and the table referred therein have to be read harmoniously with other provisions of the Act, 2013 and on such reading, we are of the opinion that belated filing of returns/ statements being permissible does not mean that DIN of a disqualified director cannot be deactivated for this reason, what it means is that the same is permissible, before any such disqualification under Section 164(2)(a), as, the disqualification occurs only after non-filing of the said documents for any continuous period of three financial years. Secondly, assuming otherwise, in view of sub-Section (3) of Section 167, such belated filing ....
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....f his functioning as a director of a company or appointment as director in any company and for no other purposes. Once such an individual is disqualified under Section 164(2)(a) then by virtue of Section 167(1) his office becomes vacant. It being so, he cannot function as a director of the company and by virtue of the proviso to Section 167 (1) which has come into effect from 07.05.2018 the office of director held by such an individual in other companies i.e. companies other than the defaulting companies also become vacant. Clause (a) of sub-Section (1) of Section 167 deals with vacation of office of a director in the defaulting company whereas the proviso deals with vacation of the office held by him as a director in other companies also. Once this happens and he is not permitted in law to function as a director then the very purpose of having DIN ceases. He cannot use the DIN. Therefore, as a natural and logical corollary of disqualification, deactivation of the DIN takes place. The disqualification is by operation of law and the deactivation of DIN is merely a consequential action naturally and logically flowing from the disqualification incurred by the Director, as, the very pu....
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....er High Courts wherein it has been held that deactivation of DIN consequent to disqualification of a director is impermissible in law in the absence of any such provision in Rule 11 of the Rules, 2014 or under any other provision of the Act, 2013 or rules made thereunder. In Gaurang Balvantial Shah (supra), it was held in this context that rule 11 of the Rules, 2014 does not contemplate any suo-moto powers either with the Central Government or with the authorized officer or with regional director to cancel or deactivate the DIN allotted to the director nor any of the clauses mentioned in the said rule contemplates cancellation or deactivation of DIN of the director of 'the struck off company' or of the director having become ineligible under Section 164 of the Act, 2013. It has further observed that the reason in this regard appears to be that once an individual who is intending to be the director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the lifetime of the applicant and on the basis of such DIN, he could become director in other companies also. With respect, we are of the opinion that the Gujarat High Court failed to appreciate....
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....h office, it would not become vacant and he would not be disqualified in the defaulting company itself. As regards Rule-11, we have already given our reasons in this regard, which do not need any reiteration. We may now refer to decision of the Delhi High Court in the case of Mukut Pathak (supra). In this case, it has been, inter alia, held that provisions pertaining to DIN are only to ensure that any person acting as a director has a unique identity to identify him. Plainly, this is for purposes of administering the Act in an efficient manner. He is not required to give up this identification number only because he is temporarily disqualified for being appointed as a director. With respect, we are unable to agree with this reasoning also. The DIN number is to be used for various purposes by an individual functioning as a director under the Act, 2013 and once he is disqualified and is unable to function as a director then he will not be able to use it, therefore, to avoid any mischief involving misuse of DIN for uploading documents, deactivation is permissible and there is a rationale for the same. Deactivation of a DIN does not amount to giving up the identification number. It ....