ANANT NARAIN & ANR.  Vs UNION OF INDIA & ANR.

W.P.(C) 7280/2020 Page 1 of 7$~28
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 6thJanuary, 2021
+ W.P.(C) 7280/2020 & CM APPLs. 24543-44/2020
ANANT NARAIN & ANR. ….. Petitioners
Through: Mr. Varun Jain, Advocate.
versus
UNION OF INDIA & ANR. ….. Respondents
Through: Mr. Manik Dogra, Adv. for ROC.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. This hearing has been done by video conferencing.
2. The Petitioners were directors in M/s Innowin Info Solutions Private
Limited, which company was struck off due to non-filing of the company’s
financial statements or annual returns for a continuous period of three
financial years. The Petitioners were disqualified and their Director
Identification Number (hereinafter, “DIN”) and Digital Signature
Certificate (hereinafter, “DSC”) were also deactivated. The Petitioners now
wish to start a new business and accordingly, pray for reactivation of their
DIN/DSC.
3. The legal aspects arising out of disqualification of directors under
Section 164 and 167 of the Companies Act, 2013 and the deactivation of
their DIN and DSC numbers have been dealt with in the following
judgements:
i. Mukut Pathak & Ors. v. Union of India & Ors., 265 (2019)
DLT 506,
ii. Sandeep Agarwal & Anr. v. Union of India & Anr.
2021:DHC:43W.P.(C) 7280/2020 Page 2 of 7[W.P.(C)5490/2020, decided on 2ndSeptember, 2020] and
iii. Radhika Byrne v. UOI & Anr. [W.P.(C) 5534/2020, decided
on 28thDecember, 2020] .
4. There are four categories of Directors that are approaching Courts
seeking setting aside of disqualification and activation of DIN/DSC
numbers.
a) Directors who have been disqualified prior to 7thMay 2018, qua
other companies in addition to the defaulting company:
As per the proviso to Section 167 (1) (a) of the Companies Act, 2013, once a
director is disqualified qua one company i.e., the defaulting company, the
office of the said director would become vacant in all companies. The said
proviso, has, however, come into effect only on 7thMay, 2018. In Mukut
Pathak (supra) it was held that this proviso cannot have retrospective effect
and would only apply if the disqualification took place after 7thMay 2018.
Paragraph 98 of Mukut Pathak (supra) reads as under:
“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.”
Since there is no stay on the judgment in Mukut Pathak (supra) , it
continues to hold the field. Thus, in cases where directors have been
disqualified prior to 7thMay, 2018, the proviso to Section 167(1)(a) would
2021:DHC:43W.P.(C) 7280/2020 Page 3 of 7not apply and the directors would continue to be directors in companies
other than the defaulting company. The disqualification of such directors
quaactive companies would therefore be liable to be set aside and their DIN
and DSC’s reactivated.
b) Directors who have been disqualified post 7thMay 2018, quaother
`active’ companies:
As held in Mukut Pathak (supra), in all cases where the directors have been
disqualified on or after 7thMay, 2018, the proviso to Section 167 (1) (a)
would apply and such directors would cease to be directors in all companies
including the defaulting company. In March, 2020, in light of the COVID-
19 pandemic, the Ministry of Corporate Affairs vide General Circular No.
12/2020 introduced CFSS-2020 to allow a fresh start for defaulting
companies and directors of such companies. This Court, in Sandeep
Agarwal (supra) has analyzed CFSS-2020 to conclude that the purpose of
the scheme is to provide an opportunity for ‘active’ companies i.e.,
companies whose names have not been struck off, who may have defaulted
in filing of documents, to put their affairs in order. The relevant portion of
the judgment is extracted below:
“12. The salient features of the Scheme are:
i) It has been launched to facilitate a fresh
start, on a clean slate, for companies registered in
India;
ii) Alleviative measures under the Scheme are
for the benefit of all companies. It gives an
opportunity to file belated documents in the MCA-
21 Registry in respect of annual filings, without
being subject to higher additional fee on account
of delay;
iii) It grants immunity from launch of
2021:DHC:43W.P.(C) 7280/2020 Page 4 of 7prosecution or of proceedings for imposition of
penalty on account of delay associated with
certain filings. For the said filings, only normal fee
would be payable;
iv) Any defaulting company can file the belated
documents, which were due for filing on any given
date, as per the Scheme. Normal fee would be
payable for such filing by the defaulting company
under the Companies (Registration Offices and
Fee) Rules, 2014 and no additional fee shall be
payable;
v) To the extent that any prosecution has been
launched or penalty has been imposed for the
delay associated with the filings of belated
documents, it provides that the same shall not be
launched and immunity has been provided;
vi) Applications can be made for seeking
immunity in respect of belated documents. Once
the documents are taken on file or approved by the
designated authority, such applications would
have to be filed within six months from the date of
closure of the Scheme;
vii) To avail benefit of the Scheme, the
defaulting company would have to withdraw any
appeal that it may have filed against prosecution
launched or orders passed by a court or
adjudicating authority under the Act;
viii) If a final notice of striking off of a company
has already been initiated or in certain other
situations as enumerated in Clause 6(ix), the
Scheme would not apply;
ix) If immunity is granted, the Scheme provides
that prosecution shall be withdrawn before the
concerned Court and the proceedings for penalties
shall also be closed.
x) The Scheme also extends to inactive
companies who can file the requisite documents
and get themselves declared as dormant
2021:DHC:43W.P.(C) 7280/2020 Page 5 of 7companies under Section 455 or apply for striking
off the name of the company.
13. This Scheme provides an opportunity for
active companies who may have defaulted in filing
of documents, to put their affairs in order. It thus
provides Directors of such companies a fresh
cause of action to also challenge their
disqualification qua the active companies. In the
present case, 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. The launch of
the Scheme itself constitutes a fresh and a
continuing cause of action. Under such
circumstances, the question of delay or limitation
would not arise. The ld. Division Bench did not
have an occasion in the case of Anamika Devi
(supra) and Gaurav Kumar (supra) to consider
this Scheme.”
Applying the scheme to the facts of the case, this Court in Sandeep Agarwal
(supra) directed reactivation of the DINs and DSCs of directors of two
companies – one whose name had been struck off and one, which was still
active. Thus, the DINs and DSCs of disqualified directors of struck off
companies, who are also directors in active companies, may be reactivated
quathe active companies, in line with the spirit of the CFSS-2020.
c) Directors of ‘active’ companies who have been disqualified:
In cases where directors of ‘active’ companies have been disqualified,
2021:DHC:43W.P.(C) 7280/2020 Page 6 of 7CFSS-2020 would squarely apply. Such directors would be entitled to avail
of CFSS-2020 and file documents of the defaulting company. In Radhika
Byrn (supra) , the Court permitted reactivation of the DINs and DSCs of the
directors of active companies under CFSS-2020.
d) Disqualified directors of struck off companies seeking
appointment as directors in other/new companies:
The purpose of CFSS-2020 has been elucidated in the circular of the
Ministry of Corporate Affairs as follows:
“In furtherance of the Ministry’s Circular No
11/2020, dated 24th March, 2020 and in order to
facilitate the companies registered in India to
make a fresh start on a clean slate, this Ministry
has decide to take certain alleviative measures for
the benefit of all companies.”
This scheme has been introduced in view of the COVID-19 pandemic with
the aim to enable a fresh start to defaulting companies and directors of such
companies. The disqualification of defaulting companies was a step which
was taken sometime in 2016-17 in order to ensure that filing of regular
returns and compliances are undertaken strictly as per the provisions of the
Act. It was also meant to be a measure to ensure that entities that are not
conducting businesses are not misused as `shell companies’ for any
improper activities. A substantial part of the disqualification period has
already been completed. The introduction of the CFSS is itself a step for
`providing a fresh start’ . Under such circumstances, continuation of the
disqualification would defeat the Scheme and its purpose.
5. In furtherance of the purpose of this scheme, directors of struck off
companies who seek to be appointed as directors of other/new companies,
2021:DHC:43W.P.(C) 7280/2020 Page 7 of 7ought to be provided an opportunity to avail of this scheme, provided that
they have undergone a substantial period of their disqualification. The
scheme clearly seeks to provide a fresh start for directors of defaulting
companies who seek appointment in other companies or wish to start new
businesses. Therefore, if a substantial period has passed since the
disqualification of such directors, they ought to be given an opportunity to
avail of the scheme.
6. The CFSS-2020 was last extended till 31stDecember 2020. If the
scheme is extended beyond 30thDecember, 2020, directors who fall in any
of the categories mentioned above ought to be given an opportunity to avail
of the same.
7. The Petitioners in the present petition satisfy condition (d). Since the
Petitioners wish to start a new business, their DIN/DSC ought to be
reactivated within a period of one week to enable them to conduct their fresh
business in accordance with law. Insofar as M/s Innowin Info Solutions
Private Limited is concerned, the Petitioners are permitted to file the
relevant documents and seek condonation of delay in accordance with the
applicable laws and regulations, if the same is permissible.
8. With these observations, the present petition, along with all pending
applications, is disposed of.
PRATHIBA M. SINGH
JUDGE
JANUARY 6, 2021
dj/T/Ak/Ap
corrected & released on 12thJanuary, 2021
2021:DHC:43