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An Easy Resolution To A Grim Situation!

Quite a few positive news, from various Courts, has trickled in regarding the removal of Directors disqualification. In a major victory for the aggrieved Directors, in December 2018, the Gujarat High Court quashed the MCA list of September 12, 2017, and in addition, started granting interim relief leading to activation of DINs. Likewise, High Courts of Karnataka, Delhi, Jaipur and Hyderabad are following the same stand, till clarity comes on the matter, and according instant relief to the Directors approaching them.  

The Crux of the Case:

The implementation of Companies Act, 2013, witnessed a significant number of Directors’ being disqualified by the Ministry of Corporate Affairs (MCA) citing provisions under Section 164(2)A of the Act. Lakhs of Directors’ DIN was deactivated leaving their future in jeopardy, furthermore, hampering the smooth running of numerous Companies in which they were directors.

MCA’s reasoning that the said companies have defaulted in filing Annual Returns that led to automatic disqualification of Directors, has been contested by the affected Directors. The Companies Act, 2013, is perspective in nature, and was implemented from April 1, 2014, by this, Section 164(2)A was not violated by any of the companies, that were labelled as defaulters. The Courts are of also on the same page as the petitioners that a retrospective implementation of 164(2) is incorrect.

The Gujarat High Court very rightly pointed out that application of Section 164(2)A of the Act retrospectively violated the rights of the Directors of private Companies under the existing Act of 1956, in which there was no such provision.

The Subsequent Steps:

MCA initially took note of the hue and cry that erupted over its decision and as a result, opened a window, Condonation of Delay Scheme, 2018, in addition to the right to appeal to the NCLT. Many companies and their directors took advantage of this scheme and availed relief but many directors who could not, took the legal route and approached respective High Courts. The High Courts took cognizance of the plea and except Bombay and Kolkata, most of them are granting interim relief to disqualified directors. As a result, the directors are able to activate their DIN from the respective Registrar of Companies (ROC) and save their careers from stagnating for five long years.

The Present Scenario:

With more and more petitions being heard in various High Courts all over the country and their subsequent stand, one point clearly comes to the fore; the MCA and the legal experts are not at the same page. The regulator needs to provide clarity on the prevailing ambiguities in the Act, so that genuine companies and directors don’t feel insecure or threatened unnecessarily. The govt. has time and again reiterated that it wants to fight against black money and target shell companies; it has no intention to harass genuine businesses.

Put an End to Your Standstill Career:

If you are one among many, suffering the destiny of having been disqualified and forced to vacate all offices as a Director, then take heart that you don’t need to face five years of exile. Taking legal recourse by approaching your respective High Court, is an option that may bring relief instantaneously.

In the meanwhile, there is lot of pressure on the govt. and the regulators to work towards an amicable solution to a problem that has brought bitter criticism from the Industry. The ambiguities pointed by the Courts and other legal experts should be looked into minutely and rectified, if need be. Reviewing such clauses and their implementation, is the demand of the time, otherwise an adverse impact will be witnessed in overall performance of the Industry.

“The stand taken by most of the High Courts regarding this matter gives a clear indication that there is obscurity and vagueness in the Companies Act, 2013, which needs immediate attention from the regulators, for the better health of Companies.”


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Shweta Gupta Online
on 08 February 2019
Published in Corporate Law
Views : 690
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