Ashish Gupta v. Union of India & Anr.

1. This hearing has been held through video conferencing.

2. The Petitioner - Mr. Ashish Gupta is a director in three companies namely (i) Delhi Control Devices Private Limited (hereinafter, “DCDPL”) (ii) ABMR Tradex Private Limited (hereinafter, “ABMR”), & (iii) DCD Grand Power India Private Limited (hereinafter, “DCD Grand”). He has been disqualified as a director under Section 164 of the Companies Act, 2013 (hereinafter the “Act”) with effect from 1st November 2017, due to the alleged non-compliance by DCDPL in filing its returns from 2014-2017. The Directors Identification Number (hereinafter, ‘DIN’) and Digital Signature Certificate (hereinafter, ‘DSC’) of the Petitioner have also been frozen, though the name of the company, DCDPL has not been struck off and it continues to be an active company.

3. The prayers in the writ petition are that the publication of the name of the Petitioner in the list of disqualified directors ought to be set aside and quashed and that the Petitioner should not be treated as a disqualified director under Section 164 of the Act. Mr. Nikhil Verma, ld. counsel for the Petitioner, relies upon the judgment of this Court in Mukut Pathak & Ors. v. Union of 2020:DHC:2814 India & Ors., 265 (2019) DLT 506, to argue that in so far as two of the Companies i.e. ABMR and DCD Grand are concerned, in terms of paragraph 98 of Mukut Pathak (supra), the Petitioner would not demit their office. In so far as DCDPL is concerned, since this is the defaulting company, they would also be permitted to continue as directors and file their records with the Companies Fresh Start Scheme (CFSS) 2020 (hereinafter, “Scheme”) dated 30th March, 2020 introduced by the Ministry of Corporate Affairs to argue that under the Scheme, if the defaulting company is active, the ROC has permitted the defaulting company to file its documents.

4. Mr. Baliyan, ld. counsel appearing for the Union of India, submits that the prayer sought by the Petitioner is quite broad. He also relies upon an order passed in The Registrar of Companies Maharashtra Mumbai & Anr. v. Shailendrajit Charanjit Rai & Ors. (SLP 18693-18703/2018), dated 6th August 2018, to argue that the order of the Bombay High Court, by which the DIN numbers were reactivated was stayed by the Supreme Court.

5. Mr. Santosh Kumar, the ROC has also joined the proceedings. As per the affidavit filed by the ROC, Delhi the Scheme applies for defaulting active companies and permits them to file belated documents. However, the same does not extend to cure the disqualification of the directors. The relevant paragraph of the affidavit is extracted below: -

6. In the present case, there are three aspects to be considered. i. Whether the DIN of the Petitioner is liable to be activated for the two companies ABMR and DCD Grand? ii. Whether the Petitioner can be considered as a Director of DCDPL? iii. Whether DCDPL ought to be permitted to avail of the Scheme and filed its documents and if so, can the company do the filings through the Petitioner, signing as a director?

7. On the first aspect, it is relevant to note that the ROC disqualified the Petitioner as a director w.e.f 1st November 2017. On the said date, the Proviso to Section 167 (1)(a) did not exist. The said Proviso came into effect only on 7th May 2018. It was by virtue of this Proviso that once a director was disqualified qua one company i.e., the defaulting company, the office of the said director would become vacant in all companies. The ld. Single judge in Mukut Pathak (supra) has categorically held that this Proviso cannot have retrospective effect and would only apply if the disqualification took place after 7th May 2018. A perusal of paragraph 98 of Mukut Pathak (supra) is clear to this effect. The same reads: “98. In view of the above, the petitioners would not demit their office on account of disqualifications incurred under Section 164 (2) of the Act by virtue of Section 167(1)(a) of the Act prior to the statutory amendments introduced with effect from 07.05.2018. However, if they suffer any of the disqualifications under Section 164(2) on or after 07.05.2018, the clear implication of the provisos to Section 164(2) and 167(1)(a) of the Act are that they would demit their office in all companies other than the defaulting company”. The judgment in Mukut Pathak (supra) is stated to have been appealed against, before the ld. Division Bench, however there is no stay against the judgment. Thus, as on date, the judgment would continue to hold the field.

8. Insofar as the order relied upon in the SLP relied upon by Mr. Baliyan above, the same arose from the Bombay High Court’s judgement in Shailendrajit Charanjit Rai & Anr. v. The Registrar of Companies, Maharashtra [W.P. 148 of 2018]. In the said case the question before the Bombay High Court was whether disqualified companies could avail of the benefit of the `Condonation of Delay Scheme, 2018’ (hereinafter, “COD Scheme”). The Bombay High Court, after considering the matter, held that the writ petitions would be disposed of in terms of the directives contained in the Delhi High Court’s order dated 21st December, 2017, in Trilokchand M. Kothari v. Union of India [W.P(C) 11381/2017]. The Bombay High Court also directed that the DIN and DSC of the Petitioners in the said cases would be activated. This judgment of the Bombay High Court has been stayed by the Supreme Court vide order dated 6th August 2018.

9. In Trilokchand M. Kothari (supra), the Delhi High Court was dealing with a case involving the disqualification of Directors and companies who intended to avail of the CODS Scheme. A perusal of the said order reveals that the same has been passed in the peculiar facts and circumstances of the said cases. A perusal of the said order also shows that the stay of disqualification was granted only to enable the company to file its returns. The decisions in Trilokchand M. Kothari (supra) as also in Shailendrajit Chiranjit Rai and Ors. (supra) were prior to the enactment of the Proviso to Section 167(1)(a) and also the decision in Mukut Pathak (supra).

10. The DIN of the Petitioner herein was deactivated and he was disqualified prior to the proviso to Section 167(1)(a) taking effect. Thus, qua ABMR and DCD Grand, the Petitioner’s disqualification is not sustainable in view of paragraph 98 of Mukut Pathak (supra).

11. Coming to the second aspect, i.e., whether the Petitioner can be considered as a Director in DCDPL, again in view of para 98 of Mukut Pathak (supra), the Petitioner would not demit his office in the defaulting company. The ROC’s stand that the shareholders can nominate a new director and approval for the same can be sought, would not be an answer, as the same could in effect result in dummy directors being appointed to Companies, which is exactly what the new provisions may have intended to avoid. In any event, so long as the present case is covered by the Mukut Pathak (supra) decision, the Petitioner does not demit office and would be entitled to act as a Director in DCDPL.

12. On the last aspect i.e., whether the Petitioner can file the Returns on behalf of the defaulting company DCDPL, which wishes to avail of the Scheme, the answer to the same would be in the affirmative. As held by this Court recently, vide order dated 2nd September 2020, in Sandeep Agarwal & Anr. Vs. Union of India & Anr (W.P.(C) 5490/2020), the purpose of the Scheme is to provide an opportunity for active companies, who may have defaulted in filing of documents, to put their affairs in order. The operative portion of the order is extracted below: