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Disqualified directors of debarred companies may approach courts
The government’s move to debar directors
of companies who have not filed annual returns for three successive years is
likely to be challenged in courts citing retrospective application of Companies
Act, 2013.
As a general rule, law is always
applicable prospectively, unless any prior date is mentioned specifically, says
Sumit Naib, associate director, Nangia & Co.
According to corporate law experts,
Section 164 (2) (a) of the Companies Act, 2013, which pertains to disqualification
of directors due to non-filing of financials and annual returns for three
years, is applicable to all types of companies, including private ones with
effect from April 1, 2014. Prior to the enactment of this new section under the
Companies Act 2013, the corresponding section under the Companies Act, 1956 was
applicable only to public companies.
The Ministry of Corporate
Affairs earlier this month struck off the names of around 209,000
companies from the records, found to be without any business activity,
including those that had not filed financial statements for three years
or more. Subsequently the directors, or the authorised signatories, of the
debarred companies have been disqualified from being appointed in any other
company in that position. As per government estimates, at least 200,00-300,000
disqualified directors shall get debarred in the process.
Many directors feel the period of
default being considered while issuing the list of defaulters is prior to the
enactment of section 164 under Companies Act, 2013. “Accordingly, such
directors may approach the court seeking relief on this ground,” says Naib.
Agrees Nabeel Ahmed, partner with
advisory firm, Grant Thornton India. “One could take
a view that to the extent the disqualification relates to non-compliance by
private companies, the law was introduced only with effect from FY 2014-15,” he
says.
However, if the director was appointed
after introduction of Companies Act, 2013, and at that point such
non-compliance existed, he or she would still stand disqualified, points out
Ahmed.
Legal experts note that during
introduction of new company law in 2014 the government had introduced a Company
Law Settlement Scheme – a two–month window – for companies that defaulted on
filing statements to come good by paying a lower fee. However for companies
that took advantage of this scheme, the provisions of Section 164 (2) would
apply only for prospective defaults, if any, says Ahmed.
As per Companies Act, 2013, any
aggrieved director could apply to the National Company Law Tribunal (NCLT)
within three years of debarment order. If, in the opinion of NCLT,
removal is not justified, it may order restoration of the name of the company
in the Register of Companies.
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