High Court (India)

October 12, 2017

Notice issued on exclusion of private co. directors: Delhi HC to Centre

 delhi high court

On October 10, the Delhi High Court issued notice to the central government in a petition filed against two notifications, disqualifying directors of private limited companies for non-filing of financial statements for three continuous financial years.

Apart from the disqualification from the said companies, the directors would also be barred from being designated as directors in any other company for a period of 5 years.

The Bench of Acting Chief Justice Gita Mittal and Justice C Hari Shankar also stayed the impugned notifications with regard to the petitioners Sushen Mohan Gupta and other directors.

The petition sought the relief on the ground that the said disqualification of the directors under Section 164 (2)(a) of the Companies Act, 2013, without granting them the opportunity to be heard, was unreasonable, unjust, arbitrary, illegal and unconstitutional.

The petition, filed by Advocate Manish Jain, states,

“The gross effect of the said section is such that it can lead to a situation of vaccum within the various companies, as the directors disqualified would not be in a position to appoint a new director which in turn would lead to instant stalling of business activities in various companies that might severely affect the economy as a whole.”

Furthermore, it was contended that Section 274 of the Companies Act 1956 was limited to dealing with disqualification of directors of public limited companies. Only after the Companies Act, 2013 came into effect; the directors of private limited companies were brought within the ambit of disqualification for the first time. Therefore, the new provision ought to have a prospective effect and not a retrospective one.

The said company had become non-operational on account of failing to do any business, and thus could not file the statutory documents, as brought to the Court’s notice.

It is argued in the petition that the intent of the said notifications was to safeguard public interest and public money, whereas the petitioners are the directors of private limited companies, which does not involve public money.

The petition also stated that the government, on its mission to promote ease of doing business, has miserably failed to consider that some sort of mechanism should have been adopted to differentiate the genuine cases from ones that involve illegal activities.

The matter will be next heard on January 28, 2018.

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