Disqualification of Directors of the Company & Scheme of Companies Fresh Start provided by the Ministry of Corporate Affairs.

Asif Iqbal

10, Sep, 2020

The advocate representing the petitioner was Advocate Nikhil Verma & Advocate Gigi C. George argued for the Centre. The order was passed by Justice Parthiba M. Singh of the Delhi High Court. W.P.(C) 5490/2020 & CM APPLs. 19779-80/2020

The advocate representing the petitioner was Advocate Nikhil Verma & Advocate Gigi C. George argued for the Centre. The order was passed by Justice Parthiba M. Singh of the Delhi High Court. W.P.(C) 5490/2020 & CM APPLs. 19779-80/2020

The directors of Kushal Power Project Private Limited and Koksun Papers Private Limited filed the petition before the bench of the High Court of Delhi. The name of Kushal Power Project Limited struck off from the Register of Companies as annual returns and financial statements weren’t submitted. They disqualified the petitioners from the position of directors for five years; it was from 1st November 2016 till 31st October 2021 under Section 164(2) of the Companies Act 2013. Along with, the Disqualification Identification Number (DIN) & Digital Signature Certificates (DSC) cancelled, and the petitioners endeavoured to challenge the decision made by the Court. The learned Counsel representing the petitioner wanted the Koksun Project entitled to get the benefit of Companies Fresh Start Scheme (CFSS); the Ministry of Corporate Affairs postulated this scheme provides an opportunity to active companies in filing documents and seeking immunity from disqualification. However, they could not avail the opportunity of the scheme and referred the judgment of Mukut Pathak to endorse that the disqualification doesn’t sustain the aforementioned company along with directors.
The challenge with the case of Mukut Pathak done through appeal, and stay hasn’t imposed as informed by the counsel representing the Ministry of Corporate Affairs. The submission of petitioners was accepted by the Court and merits of Mukut Pathak case applies to this case too. The note made by the bench was in the following manner;
“The said judgment holds that the proviso to Section 167(1)(a) of the Act cannot read to operate retrospectively. It was further held that the said proviso, being a punitive measure regarding the rights and obligations of directors, cannot apply retrospectively unless the statutory amendment expressly provides so.”
The question of the delay examined and observation over the order made by the division bench was cited by the Centre and it clarified the powers of Judicial Review is discretionary. The bench discussed the benefits of Companies Fresh Start Scheme and those are as follows;
1. They brought the scheme to facilitate the registration of companies in India
2. Immunity from the launch of prosecution and imposition of penalty in the account of delay along with the filing of financial statement.
3. Reduce the measures which will allow companies to benefit.
4. Submission of documents in the MCA-21 registry in accordance to delay in filing.
5. To avail benefit of the Scheme, the defaulting company would have to withdraw any appeal that it may have filed against prosecution launched or orders passed by a court or adjudicating authority under the Act.
6. file the requisite documents and declared as dormant companies under Section 455 or apply to remove the name of the company.

The High Court of Delhi ordered “Considering the COVID-19 pandemic, the MCA has launched the Fresh Start Scheme-2020, which ought to be given full effect. It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme itself nugatory.”

The disqualification of Kosun Power Plant Private Company was set aside by the Court and gave the direction to reactivate the cancellation of DIN & DSC of the directors; they should finish it within the three working days.