HC Setting aside the disqualification of director and reactivating the director identification number (DIN) and digital signature certificate (DSC)

The Hon’ble HC of Delhi in the case of Sandeep Agarwal & Anr. Vs. Union of India & Anr set aside the disqualification of the Directors and ordered for reactivation of their respective Director Identification Number (DIN) and Digital Signature Certificate (DSC), to avail the benefit of MCA’s Companies Fresh Start Scheme-2020(CFSS 2020). 

Brief Synopsys

The Petitioners X and Petitioner Y were the common directors of Company A and Company B.

On June 30, 2017, 

Company B was struck off from the Registers of the Companies, due to the non-filing of financial statements and annual return. X and Y being the Directors of Company B, became disqualified for 5 years u/s 164(2)(a) of the Companies Act 2013 (the “Act”). The DINs and DSCs of both the Directors (X and Y) were also cancelled. On account of which X and Y were not able to file returns of Company A (an active company).

A Proviso

to Section 167(1)(a) was inserted on May 7, 2018, by the Companies Amendment Act, 2018, which provides that where the director incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section”.

On March 30, 2020,

MCA introduced Companies Fresh Start Scheme 2020(“CFSS 2020”) to condone the delay in filing with the Registrar on payment of normal fees.

In respect of Company A,

both the Directors intended to make good of default and seek immunity from disqualification under the CFSS 2020, however, they could not avail of the benefits of the CFSS 2020, as they were disqualified and their respective DINs and DSCs were deactivated.

Submission

was made by the Petitioner’s Counsel that since the Company was struck off due to the above-stated reason in the year 2017 and the proviso to Section 167 (1)(a) came into effect in 2018, it shall not be given a retrospective effect and that the Petitioners would not demit their office on account of disqualifications incurred under Section 164 (2) of the Act, 2013,by virtue of Section 167(1)(a) of the Act prior to the statutory amendments introduced with effect from 07.05.2018.

The Hon’ble High Court  

asserted that “the Petitioners are Directors of two companies – one whose name has been struck off and one, which is still active. In such a situation, the disqualification and cancellation of DINs would be a severe impediment for them in availing remedies under the Scheme, in respect of the active company. The purpose and intent of the Scheme is to allow a fresh start for companies which have defaulted. In order for the Scheme to be effective, Directors of these companies ought to be given an opportunity to avail of the Scheme”

Finally,

the Court after considering the facts of the case directed the MCA to reactivate the DINs and DSCs of both the Petitioner, within 3 days, so as to enable them to avail of the benefits of the CFSS 2020.

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