Justice Suraj Govindaraj, Karnataka High Court
Karnataka High Court: Restriction Of Disqualification Of Director U/S. 164 Companies Act Is Reasonable Restriction To Article 19(1)(g) Of Constitution
|The Karnataka High Court held that a director can be disqualified from being a director in the company as regards which the allegations are made, as well as regarding any other company in which he or she is a director, for which no allegations are made.
The Karnataka High Court held that Section 164 of the Companies Act, 2013 is a reasonable restriction to the fundamental right guaranteed under Article 19(1)(g) of the Constitution of India.
The Court held thus in a Writ Petition preferred by the directors of a company, challenging their disqualification and blocking of DINs (Director Identification Numbers).
A Single Bench of Justice Suraj Govindaraj observed, “This restriction of disqualification and practice of trade and profession as a director being imposed by Section 164 and 167 of the Companies Act 2013, the reasons for the same have been expounded hereinabove, I am of the considered opinion that Section 164 and 167 are reasonable restrictions to the fundamental right guaranteed under Article 19(1)(g) of the Constitution of India. Thus, the claim under this head of account by the petitioner is not sustainable.”
The Bench further held that under Section 164 of the Companies Act, a director can be disqualified from being a director in the company as regards which the allegations are made, as well as regarding any other company in which he or she is a director, for which no allegations are made.
Senior Advocate D.R. Ravishankar appeared for the Petitioners while Additional Solicitor General (ASG) Aravind Kamat appeared for the Respondents.
Facts of the Case
The Petitioners were appointed as directors of a company in the year 2016. When the company attempted to file its annual returns and statutory filings for the year 2017-18 and 2018-19, a pop-up dialogue box on the official web portal of the Respondent-Ministry of Corporate Affairs (MCA) displayed the message “the Directors disqualified under the provisions”. The Petitioners made certain representations to the Registrar of Companies (RoC) and requested to activate the DINs to enable the company to comply with the statutory filings. Thereafter, the company was informed by the MCA that an inspection of the books of account and other books of records and papers of company would be carried out under Section 206(5) of the Companies Act.
The Petitioners were called upon to furnish certain information and documents. Subsequently, the Regional Director had informed the company about certain irregularities and called upon to provide explanation/information along with documentary evidence in relation thereto. Consequently, a show-cause notice (SCN) was issued by the RoC and after receiving reply of the company, it filed a Petition for winding up before the National Company Law Tribunal (NCLT). Consequently, the Petitioners came to know about their disqualification from all companies as directors. In that background, several correspondences were exchanged and when the same did not yield any result, the Petitioners approached the High Court.
Reasoning
The High Court after hearing the contentions of the counsel, noted, “Section 164 has been reproduced hereinabove. In terms of Clause (b) of Sub-section (2) of Section 164, it is seen that no person who has or has been a director of company of which the reasons as indicated in Clause (a) and (b) of Sub-section (2) of Section 164 are attracted, would be eligible to be reappointed as a director of that company or appointed in any other company for a period of 5 years from the date on which the said company fails to do so. The said Sub-section (2) of Section 164 does not provide for extension of the period of 5 years, the restriction can only be for a period of 5 years.”
The Court said that the disqualification of the Petitioners having occurred in the year 2018, the said 5 years expired in the year 2023 and therefore cannot be continued thereafter.
“In that view of the matter, I answer point No.2 by holding that there is no power with the concerned authorities to extend a period of disqualification beyond a period of five years”, it added.
Accordingly, the High Court dismissed the Writ Petition with the observation that the disqualification of Petitioners has come to end in the year 2023.
Cause Title- Dilipraj Pukkella & Anr. v. Union of India & Ors. (Neutral Citation: 2025:KHC:28697)
Appearance:
Petitioners: Senior Advocate D.R. Ravishankar and Advocate Shreehari Kutsa.
Respondents: ASG Aravind Kamat and CGC M.N. Kumar.