Activation of DIN Of Disqualified Directors: Writ Petition And Interim Stay Order

In the year 2017, Ministry of Corporate Affairs by taking the ambit of Section 248 which talks about “Power of Registrar to remove name of company from register of companies” struck off more than 2 lakh companies which were not filing its returns for the last many years and the Government was of the view that such companies were not carrying on their business for more than 2 years. And Marked the Directors of such companies as “DISQUALIFIED DIRECTORS”

However, those companies were given a chance by the ROC to reply to the notices issued to them before striking them off. Since no reply was given, the companies ultimately were struck off by the concerned ROCs.

Also, thereafter, Ministry of Corporate Affairs marked a large no. of directors as “DISQUALIFIED” by taking the ambit of Section 164 (2)(a) of the Companies Act, 2013 which states that

(2) No person who is or has been a director of a company which—

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or

shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Following above provisions, all the directors of the companies which have not filed their returns for the last 3 Financial Years were declared Disqualified by the Ministry. The list of all such director is available at the MCA Site at following link

http://www.mca.gov.in/MinistryV2/disqualifieddirectorslist.html

The main reason behind issuing Disqualified Director List was also that the Government was of the view that there are a large no. of SHELL Companies which are converting their black money into white whereas they were not complying any law and were not filing their returns. Hence, all the directors of such shell companies were declared Disqualified.

Now, there were three types of companies in which there were DISQUALIFIED DIRECTORS after the clean up mission of the Government.

1. Defaulting Companies: having Active Status but Directors Disqualified because of Non Filing of their return
2. Genuine Active Companies having genuine business but having disqualified status: Since the directors of these active companies were also directors of any other struck off or disqualified companies.
3. Strike Off Companies, the directors of which ultimately got disqualified on getting struck off.

For the First two classes of companies, Government launched the CODS Scheme 2018 whereby such companies were given one time option to file their annual return and balance sheets with ROC and get the status of their Directors APPROVED FROM DISQUALIFIED.

But the problem still persist for the directors who were declared Disqualified on account of STRUCK OFF Companies. Then such Directors moved to the HIGH COURT requesting the court to put STAY on their DISQUALIFICATION since they were facing difficulty in carrying business in their genuine companies.

On the request of Disqualified Directors and the genuine companies, High Court in many cases, pronounced judgements for INTERIM STAY on Disqualification of Directors. However, in no case any order has been passed by the Court for removal of Disqualification since the disqualification can only be removed after the completion of 5 years from the date when the director was disqualified by complying with provisions of the Act.

Conclusion:

So, if any director of any struck off Company want to get interim stay on disqualification can file a writ petition in Hon’ble High Court. However, it is suggested by the author that it is better to get such directors removed from the companies till the completion of their Disqualified Period. Since, Section 167 (1) (a) is clear that the office of Director shall stands vacant in case, he incurs any disqualification specified in Section 164.

Disclaimer: The information contained in this write up is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Authors recommend that professional advice is sought before taking any action on specific issues. The author can be however contacted for further clarification at 99145-58709 or via mail at csmohitsaluja@gmail.com