Whether ROC has power to deactivate DIN of any person on incurred the disqualification under Section 164(2) of the Companies Act, 2013?

Whether, the Director Identification Number (DIN) and Digital Signature Certificate (DSC) of directors that have incurred the disqualification under Section 164(2) of the Companies Act, 2013 can be cancelled on account of them incurring such disqualification?

 The aforesaid question was raised and discussed before the Hon’ble Delhi High Court in the matter of Mukut Pathak & Ors. vs Union of India & Anr. In the present case, Registrar of Companies (‘ROC’) have sought to cancel/deactivate the DIN of directors disqualified under Section 164(2) of the Companies Act, 2013 (‘the Act, 2013’). This has been done to enforce the provisions of Section 167(1) of the Act, 2013.

The Court has taken view that the Central Government having framed the rules specifying the conditions in which a DIN may be cancelled, cannot cancel the same on any other ground and without reference to such rules. It is also mentioned that clearly, this is not supported by any statutory provision regarding cancelation of DIN and DSC, therefore, action of the ROC is unsustainable.

Now, we would like to submit the court’s observations taken by the Hon’ble Court in the aforesaid matter as under-

1. Sub-Section (3) of Section 152 of the Act, 2013 proscribes any person from being appointed as a director of a company unless he has been allotted the Director Identification Number (DIN) under Section 154 of the Act, 2013. Section 153 of the Act, 2013 contains provisions regarding the application for allotment of a DIN.

The said Section is set out below: –

“153. Application for allotment of Director Identification Number.- 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.”

2. It is apparent from the above that the application for a DIN is required to be made by any person who intends to be appointed as a director. There is no impediment for a person who has been temporarily disqualified from acting as a director, to apply for a DIN.

3. It is at once clear that the 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.

4. The Central Government had notified the Companies (Directors Identification Numbers) Rules 2006. The said rules came into force on 01.11.2006. It is relevant to note that the said rules did not provide for deactivation of DIN of any individual irrespective of whether he was a director or not. On 15.03.2013 the Central Government notified the Companies (Directors Identification Number) (Amendment) Rules 2013, whereby the Companies (Directors Identification Number) Rules, 2006 were amended. The amendments, inter alia, introduced Rule 8 in the said Rules relating to cancellation or de-activation of DIN.

Rule 8 of the said Rules as introduced with effect from 15.03.2013, reads as under:-

“8. Cancellation or Deactivation of DIN.- The Central Government or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director, upon being satisfied on verification of particulars of proof attached with the application received from any person seeking cancellation or deactivation of DIN, in case –

(a) the DIN is found to be duplicate;

(b) the DIN was obtained by wrongful manner or fraudulent means;

(c) of the death of the concerned individual;

(d) the concerned individual has been declared as lunatic by the competent Court;

(e) if the concerned individual has been adjudicated an insolvent;

then the allotted DIN shall be cancelled or deactivated by the Central Government or

Regional Director (NR), Noida or any other officer authorised by the Regional Director (NR):

Provided that before cancellation or deactivation of DIN under clause (b), an opportunity of being heard shall be given to the concerned individual.”

5. The Central Government also notified the Companies (Appointment and Qualification of Directors) Rules, 2014 which superseded the earlier Rules framed under the Companies Act, 1956. These Rules also included certain rules pertaining to the Directors Identification Number and included certain provisions similar to those provided in Companies (Directors Identification Number) Rules, 2006.

Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014 is relevant and is set out below:-

11. Cancellation or surrender or Deactivation of DIN.- The Central Government or Regional Director (Northern Region), Noida or any officer authorised by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received 11alongwith fee as specified in Companies (Registration Offices and Fees) Rules, 2014 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 purposes of clause (b) –

(i) the term “wrongful manner” means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by misrepresentation;

(ii) the term “fraudulent means” means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Government.”

6. Neither any of the provisions of the Companies Act nor the Rules framed thereunder stipulate cancellation or deactivation of DIN on account of a director suffering a disqualification under Section 164(2) of the Act, 2013. It is relevant to note that Rule 11 of the Company (Appointment and Qualification of Directors) Rules, 2014 was amended with effect from 05.07.2018 to provide for deactivation of DIN in the event of failure to file Form DIR-3-E-KYC within the period as stipulated under Rule 12A of the said Rules. The amendment so introduced also does not empower the Central Government to cancel or deactivate the DIN of disqualified directors.

7. It is also material to refer to Rule 14 of the said Rules. In terms of Rule 14(1) of the said Rules, every director is obliged to inform the company concerned, about his disqualification under sub-section (2) of Section 164 of the Act in Form DIR-8. In terms of Sub-rule (2) of Rule 14 of the said Rules, a company, which has committed the defaults as stated in clauses(a) or (b) of section 164(2) of the Act, is required to file Form DIR-9 furnishing the names and addresses of all its directors, with the Registrar of Companies. Sub-rule (5) also contemplates filing of an application for removal of the disqualification of directors. None of the provisions of Rule 14 of the said Rules indicates that the DIN of directors incurring the disqualification under section 164(2) of the Act, is required to be deactivated.

8. It is important to note that whereas a DIN is necessary for a person to act as a director; it is not necessary that a person who has a DIN be appointed as a director. Section 164(2) of the Act, 2013 only provides for temporary disqualification for a period of five years for a person to be appointed/re-appointed as a director. Thus, it is not necessary that the DIN of such person to be deactivated.

9. It is also material to note that sub-section (2) of section 167of the Act, 2013 provides for a punishment for any person who functions as a director knowing that his office has become vacant on account of his disqualification as specified in Section 167(1) of the Act, 2013. Thus, Section 167 of the Act, 2013 includes a mechanism for enforcing the rigors of Section 167(1) of the Act, 2013. In the present case, the respondents have sought to cancel/deactivate the DIN of directors disqualified under Section 164 (2) of the Act, 2013. This has been done to enforce the provisions of Section 167 (1) of the Act, 2013. Clearly, this is not supported by any statutory provision.

 10. This Court is of the view that the Central Government having framed the rules specifying the conditions in which a DIN may be cancelled, cannot cancel the same on any other ground and without reference to such rules. Similarly, there is also no provision supporting the respondents’ action of cancelling the DSC of various directors. The said action is therefore unsustainable.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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