W.P.(C)/87/2021 of TAPASH KUMAR SAMADDAR AND ANR Vs MINISTRY OF CORPORATE AFFAIRS AND ANR

*IN THE HIGH COURT OF DELHI AT NEW DELHIDate of Decision: 6[th]January, 2021

+W.P.(C) 87/2021 & CM APPLs. 271-72/2021

TAPASH KUMAR SAMADDAR AND ANR...... PetitionersThrough:Mr. Rahul Rai, Advocate.versus

MINISTRY OF CORPORATE AFFAIRS AND ANR.... Respondents

Through:Mr. N.K. Srivastava, Sr. counsel forUOI. (M:[REDACTED])

CORAM:JUSTICE PRATHIBA M. SINGH

Prathiba M. Singh, J. (Oral)

1.This hearing has been done by video conferencing.

2.The Petitioners were directors of two companies, namely, GoldenSaphire Shipping and Logistics (India) Pvt. Ltd. and Golden Horn ContainerServices Pvt. Ltd. The name of Golden Horn Container Services Pvt. Ltd.was struck off for non-filing of financial statements and annual returns forthree consecutive financial years. The Petitioners were disqualified and theirDirector Identification Number (hereinafter, “DIN”) and Digital SignatureCertificate (hereinafter, “DSC”) were also deactivated. It is submitted thatthe Petitioners now wish to start new business and accordingly, pray forreactivation of their DIN/DSC.

3.The legal aspects arising out of disqualification of directors underSection 164 and 167 of the Companies Act, 2013 and the deactivation oftheir DIN and DSC numbers have been dealt with in the followingjudgements:

i.Mukut Pathak & Ors. v. Union of India & Ors., 265 (2019)

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DLT 506,

ii.Sandeep Agarwal & Anr. v. Union of India & Anr.[W.P.(C)5490/2020, decided on 2[nd]September, 2020] and

iii.Radhika Byrne v. UOI & Anr. [W.P.(C) 5534/2020, decidedon 28[th]December, 2020].

4.There are four categories of Directors that are approaching Courtsseeking setting aside of disqualification and activation of DIN/DSCnumbers.

a)Directors who have been disqualified prior to 7[th]May 2018, quaother companies in addition to the defaulting company:

As per the proviso to Section 167 (1) (a) of the Companies Act, 2013, once adirector is disqualified qua one company i.e., the defaulting company, theoffice of the said director would become vacant in all companies. The saidproviso, has, however, come into effect only on 7[th]May, 2018. In MukutPathak (supra) it was held that this proviso cannot have retrospective effectand would only apply if the disqualification took place after 7[th]May 2018.Paragraph 98 of Mukut Pathak (supra) reads as under:

“98. In view of the above, the petitioners wouldnotdemittheirofficeonaccountofdisqualifications incurred under Section 164 (2) ofthe Act by virtue of Section 167(1)(a) of the Actprior to the statutory amendments introduced witheffect from 07.05.2018. However, if they suffer anyof the disqualifications under Section 164(2) on orafter 07.05.2018, the clear implication of theprovisos to Section 164(2) and 167(1)(a) of the Actare that they would demit their office in allcompanies other than the defaulting company.”

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Since there is no stay on the judgment in Mukut Pathak (supra), itcontinues to hold the field. Thus, in cases where directors have beendisqualified prior to 7[th]May, 2018, the proviso to Section 167(1)(a) wouldnot apply and the directors would continue to be directors in companiesother than the defaulting company. The disqualification of such directorsqua active companies would therefore be liable to be set aside and their DINand DSC’s reactivated.

b)Directors who have been disqualified post 7[th]May 2018, qua other`active’ companies:

As held in Mukut Pathak (supra), in all cases where the directors have beendisqualified on or after 7[th]May, 2018, the proviso to Section 167 (1) (a)would apply and such directors would cease to be directors in all companiesincluding 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 fresh start for defaultingcompanies and directors of such companies. This Court, in SandeepAgarwal (supra) has analyzed CFSS-2020 to conclude that the purpose ofthe scheme is to provide an opportunity for ‘active’ companies i.e.,companies whose names have not been struck off, who may have defaultedin filing of documents, to put their affairs in order. The relevant portion ofthe judgment is extracted below:

“12. The salient features of the Scheme are:i)It has been launched to facilitate freshstart, on clean slate, for companies registered inIndia;ii)Alleviative measures under the Scheme are

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for the benefit of all companies. It gives anopportunity to file belated documents in the MCA-21 Registry in respect of annual filings, withoutbeing subject to higher additional fee on accountof delay;

iii)Itgrantsimmunityfromlaunchofprosecution or of proceedings for imposition ofpenalty on account of delay associated withcertain filings. For the said filings, only normal feewould be payable;

iv)Any defaulting company can file the belateddocuments, which were due for filing on any givendate, as per the Scheme. Normal fee would bepayable for such filing by the defaulting companyunder the Companies (Registration Offices andFee) Rules, 2014 and no additional fee shall bepayable;

v)To the extent that any prosecution has beenlaunched or penalty has been imposed for thedelayassociatedwiththefilingsofbelateddocuments, it provides that the same shall not belaunched and immunity has been provided;vi)Applicationscanbemadeforseekingimmunity in respect of belated documents. Oncethe documents are taken on file or approved by thedesignated authority, such applications wouldhave to be filed within six months from the date ofclosure of the Scheme;

vii)ToavailbenefitoftheScheme,thedefaulting company would have to withdraw anyappeal that it may have filed against prosecutionlaunchedororderspassedbyacourtoradjudicating authority under the Act;viii)If final notice of striking off of companyhas already been initiated or in certain othersituations as enumerated in Clause 6(ix), theScheme would not apply;

ix)If immunity is granted, the Scheme provides

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that prosecution shall be withdrawn before theconcerned Court and the proceedings for penaltiesshall also be closed.x)TheSchemealsoextendstoinactivecompanies who can file the requisite documentsandgetthemselvesdeclaredasdormantcompanies under Section 455 or apply for strikingoff the name of the company.13.This Scheme provides an opportunity foractive companies who may have defaulted in filingof documents, to put their affairs in order. It thusprovides Directors of such companies freshcauseofactiontoalsochallengetheirdisqualification qua the active companies. In thepresent case, the Petitioners are Directors of twocompanies – one whose name has been struck offand one, which is still active. In such situation,the disqualification and cancellation of DINswould be severe impediment for them in availingremedies under the Scheme, in respect of the activecompany. The purpose and intent of the Scheme isto allow fresh start for companies which havedefaulted. In order for the Scheme to be effective,Directors of these companies ought to be given anopportunity to avail of the Scheme. The launch ofthe Scheme itself constitutes fresh and acontinuingcauseofaction.Undersuchcircumstances, the question of delay or limitationwould not arise. The ld. Division Bench did nothave an occasion in the case of Anamika Devi(supra) and Gaurav Kumar (supra) to considerthis 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 twocompanies – one whose name had been struck off and one, which was stillactive. Thus, the DINs and DSCs of disqualified directors of struck off

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companies, who are also directors in active companies, may be reactivatedqua 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 availof CFSS-2020 and file documents of the defaulting company. In RadhikaByrn (supra), the Court permitted reactivation of the DINs and DSCs of thedirectors of active companies under CFSS-2020.

d)Disqualifieddirectorsofstruckoffcompaniesseekingappointment as directors in other/new companies:

The purpose of CFSS-2020 has been elucidated in the circular of theMinistry of Corporate Affairs as follows:

“In furtherance of the Ministry’s Circular No11/2020, dated 24th March, 2020 and in order tofacilitate the companies registered in India tomake fresh start on clean slate, this Ministryhas decide to take certain alleviative measures forthe benefit of all companies.”

This scheme has been introduced in view of the COVID-19 pandemic withthe aim to enable fresh start to defaulting companies and directors of suchcompanies. The disqualification of defaulting companies was step whichwas taken sometime in 2016-17 in order to ensure that filing of regularreturns and compliances are undertaken strictly as per the provisions of theAct. It was also meant to be measure to ensure that entities that are notconducting businesses are not misused as `shell companies’ for anyimproper activities. substantial part of the disqualification period hasalready been completed. The introduction of the CFSS is itself step for

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`providing fresh start’. Under such circumstances, continuation of thedisqualification would defeat the Scheme and its purpose.

5.In furtherance of the purpose of this scheme, directors of struck offcompanies who seek to be appointed as directors of other/new companies,ought to be provided an opportunity to avail of this scheme, provided thatthey have undergone substantial period of their disqualification. Thescheme clearly seeks to provide fresh start for directors of defaultingcompanies who seek appointment in other companies or wish to start newbusinesses. Therefore, if substantial period has passed since thedisqualification of such directors, they ought to be given an opportunity toavail of the scheme.

6.The CFSS-2020 was last extended till 31[st]December 2020. If thescheme is extended beyond 30[th]December, 2020, directors who fall in anyof the categories mentioned above ought to be given an opportunity to availof the same.

7.The Petitioners in the present petition fall in categories (a) and (d).Let the DIN/DSC numbers of the Petitioners be reactivated so as to enablethem continue to act as directors in M/s. Golden Saphire Shipping andLogistics (India) Pvt. Ltd., and also to enable the Petitioners set up any newcompany in accordance with law. The reactivation be done within one week.

8.With these observations, the present petition, along with all pendingapplications, is disposed of.

PRATHIBA M. SINGHJUDGE

JANUARY 6, 2021dj/T/Ak/Ap

corrected & released on 12[th]January, 2021

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