Freezing of Folios of physical shareholders... Last date for KYC is 30th September 2023... Act now Ref: SEBI Circular SEBI/HO/MIRSD/MIRSD-PoD-1/P/CIR/2023/37


Bombay HC’s Verdict On July 10: Disqualified Directors Wait With Bated Breath

Bombay HC’s Verdict On July 10_ Disqualified Directors Wait With Bated Breath

Bombay HC’s Verdict On July 10: Disqualified Directors Wait With Bated Breath

Bombay HC’s Verdict On July 10: Disqualified Directors Wait With Bated Breath

Will the disqualified directors get the much-needed respite or will the road to justice be longer for these disqualified directors?

Will the MCA be able to justify and convince the Judges of the righteousness of their actions?

Immense speculation and interest have been generated around the hearing of a batch of petitions of disqualified directors which have been clubbed together and is due to be taken up by the Bombay High Court on Wednesday, July 10. On one hand, the disqualified directors are anxiously waiting for a positive outcome, on the other, the well-versed legal community is curious to see how things will turn out.

The wait and watch are but natural, as the High Courts of Madras, Gujarat and Karnataka have come out in favour of the disqualified directors by quashing MCA’s notification.

Why So Much Buzz Around This Case?

  • The sheer numbers are mind-boggling.
  • The Section in question is a newly introduced Section.
  • Disqualified directors feel an injustice has been done.
  • Legal experts feel particular Section of the Act has been misunderstood by the MCA.
  • Many High Courts have provided relief to the aggrieved disqualified directors, but some have denied too.

Context of The Case!

This mass disqualification of company Director’s by MCA has been marred by controversies from the very beginning, i.e., 2017. More than 3.02 lakh directors were disqualified by invoking Section 164 (2) (a) of the Companies Act, 2013. The Section mandates that any company which fails to file Financial Statements and/or Annual Returns for three consecutive financial years, they will be struck off and all their directors will be disqualified.

Factors In Favour of Disqualified Directors!

In this particular case which is going on in Bombay HC, the petitioners have given extensive reference to all the points on the basis of which they have got respite in Tamil Nadu, Karnataka and Gujarat.

The provisions of the Companies Act, 2013, which came into effect from April 1, 2014, has been wrongly interpreted by the authorities on several grounds.

Retrospective Implementation of the Section:

Being a prospective Act no Section of it can be used introspectively. Hence, the financial year for the mandated compliance of financial documents should be from 2014-15 and not 2013-14. The Courts that have given judgements in favour of the disqualified directors have upheld this argument.

Against The Principal of Natural Justice:

The petitioners have claimed in the petition that the mandatory Notice was never served on them; hence, they were given no chance to resolve the issues. This is clearly in opposition to the principle of Natural Justice, which has been declared as a basic structure of the Indian Constitution by the Apex Court.

Misinterpretation of the Act:

Prior to the implementation of the Companies Act, 2013, the companies and their directors were governed by the Companies Act, 1956. The 1956 Act had no provision of removal of directors for the non-compliance of a company, thus, the action by the MCA is a contradiction in the sense that in the years preceding 2014, they cannot make a director liable for these failures.

The petitioning of them have also questioned the veracity of the clause that makes them stand disqualified not only from the erring company but from all other companies. Their being debarred has not only jeopardized their career but have created insurmountable hurdles for those companies as well.

Due to all these factors many of the disqualified directors, who are jobless since the MCA’s action, are even seeking compensation from the respective ROCs.

Within a week from now, the Court’s judgement will be pronounced, we will provide a prompt update on it!

Previous Post
Newer Post