On October 9th, 2020, a two Judge bench comprising of Chief Justice A.P. Sahi and Justice Senthilkumar Ramamoorthy of the Madras High Court quashed the writ appeals sought by the Appellants which arose out of a common order dated on 13th January, 2020 in the case of Meethelaveetil Kaitheri Muralidharan v. Union of India*. The separate writ petitions filed by each appellant to quash the respective disqualification issued by the Registrar of Companies (“RoC”), and for consequential reactivation of the Director Identification Number (“DIN”) or permission for appointment/reappointment as director were dismissed.
The two main grounds on which the disqualification and deactivation were challenged are: First, prior notice was not issued to the appellants concerned calling upon them to show cause as to why he should not be disqualified as a director. Secondly, the ROC was not entitled to deactivate the DIN of these directors as per the Companies Act 2013 (“the Act”) and the (Appointment and Qualifications of Directors) Rules, 2014 (“AQD Rules”) framed thereunder.
Where the name of appellants was included in a list of disqualified directors on the grounds specified in section 164(2)(a) of the Act and the DINs of appellants/directors were consequently deactivated, it was held that AQD Rules do not empower the RoC to deactivate DIN and such deactivation would also be contrary to section 164 (2), read with section 167 (1) inasmuch as person concerned would continue to be a director of defaulting company and, therefore, publication of list of disqualified directors by RoC and deactivation of DIN of appellants was to be quashed. With regard to the question of prior notice, the learned Judges stated that the requirement was not an empty formality and would have to be complied with under section 164(2).
Accordingly, the High Court allowed the appeal while concurring with the decision of other High Courts to the effect that RoC is not empowered to deactivate the DIN under the relevant Rules, and lastly clarified that the ROC concerned could initiate action with regard to their disqualification, subject to an enquiry to decide the question of attribution of default to specific directors by taking into account observations and conclusions therein.
* [2020] 120 taxmann.com 152 (Madras)