SHARAD KUMAR SINHA  Vs UNION OF INDIA & ANR.

W.P.(C) 721/2021 Page 1 of 5$~39
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 18thJanuary, 2021
+ W.P.(C) 721/2021
SHARAD KUMAR SINHA ….. Petitioner
Through: Abhishek Aggarwal & Mr. Ayush
Aggarwal, Advocates.
versus
UNION OF INDIA & ANR. ….. Respondents
Through: Ms. Arti Bansal, Advocate.
CORAM:
JUSTICE PRATHIBA M. SINGH
Prathiba M. Singh, J. (Oral)
1. This hearing has been done by video conferencing.
2. The Petitioner is a Director in Mafcons Buildwell Private Limited. The
said company was struck off on 8thAugust, 2018. Due to alleged
non-compliance/default in Mafcons Buildwell Private Limited under Section
164(2) of the Companies Act, 2013 i.e., non-filing of financial statements or
annual returns for any continuous period of three financial years, the
Petitioner was disqualified as a director from 1stNovember, 2017 to 31st
October, 2022 and his DIN and DSC was also de-activated. The Petitioner
now also wishes to start a fresh business.
3. This Court has considered the legal position relating to activation of
DIN/DSC numbers of directors of defaulting companies in Anjali Bhargava
& Anr. v. UOI & Anr. [W.P.(C) 11264/2020, decided on 6thJanuary, 2021].
The relevant portion of the said order reads:
“4. There are four categories of Directors that are
approaching Courts seeking setting aside of
2021:DHC:198W.P.(C) 721/2021 Page 2 of 5disqualification and activation of DIN/DSC
numbers.
(a)Directors who have been disqualified prior to 7th
May 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 7th May, 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 7th May 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
not apply and the directors would continue to be
directors in companies other than the defaulting
company. The disqualification of such directors qua
active companies would therefore be liable to be set
aside and their DIN and DSC’s reactivated.
2021:DHC:198W.P.(C) 721/2021 Page 3 of 5(b)Directors who have been disqualified post 7th
May 2018, qua other `active’ companies:
As held in Mukut Pathak (supra), in all cases where
the directors have been disqualified on or after 7th
May, 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.
…
Applying the scheme to the facts of the case, this Court
inSandeep 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
qua the 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, CFSS-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.
2021:DHC:198W.P.(C) 721/2021 Page 4 of 5(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, ought
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
2021:DHC:198W.P.(C) 721/2021 Page 5 of 5or 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.”
4. Accordingly, in terms of the judgment in Anjali Bhargava (supra) the
Petitioner would fall in category ‘d’. In view of the above and in terms of the
judgment of this Court in Mukut Pathak & Ors. v. Union of India & Ors.,
265 (2019) DLT 506 the DIN/DSC numbers are directed to be reactivated
within a period of one week, in order to enable him to start new companies.
5. The petition is disposed of in the above terms. All pending applications
are also disposed of.
PRATHIBA M. SINGH
JUDGE
JANUARY 18, 2021
Rahul/T
2021:DHC:198