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Great News! Delhi High Court Removes Director’s Disqualification Considering the CFSS 2020

The Delhi High Court recently passed an order for removal of directors’ disqualification of multiple directors. In the hearing of Yatin Wadhwa v Ministry of Corporate Affairs & ANR, The bench of Justice Naveen Chawla considered the role of Companies Fresh Start Scheme 2020 (a scheme allowing the revival of struck off companies without penalties) and the results of Mukut Pathak & Ors. v. Union of India & Others (2019) to order the removal of disqualification. The Court observed that the directors must be allowed to avail the benefits of Companies Fresh Start Scheme 2020 (CFSS) and for removal of directors’ disqualification is necessary.

What Did the Court Say in Its Judgement?

The petitioners, in this case, were directors who faced disqualification by the RoC. After approaching the Court to put stay on their disqualification, they managed to get an order of stay on their disqualification. But after the stay, the RoC approached the court to remove the stay and let the disqualification commence. In a recent hearing via video conferencing, the petitioners argued that they wanted to avail the CFSS 2020 but could not do so until the disqualification is in place. Therefore, their disqualification must be removed so they can take advantage of the scheme and give a fresh start to their companies and career. The court used the case of Mukut Pathak & Ors. v. Union of India & Others (2019) that had stated that such disqualification under the Companies Amendment Act, 2018 shall not have a retrospective effect and shall only apply from 07th June 2018 onwards. The Court also favoured the petitioners on the argument that there is no use of Companies Fresh Start Scheme if the stay on the director’s disqualification is removed. The court observed that the disqualification should be removed to ensure that the directors are able to avail the benefits of CFSS 2020 and does not get affected by the Retrospective effect.

The Companies Fresh Start Scheme was launched by the Government to give a respite to companies who have defaulted in filing financial documents and statements for three years and hence been struck off from RoC. These companies have been allowed to file their requisite documents and regularize their operations. The directors of such companies could also apply for DIN reactivation once their company is revived by this scheme. The Scheme also envisages non-imposition of penalty or any other charges for belated filing of the documents.

The court clarified that the intent and purpose of the CFSS is to allow a fresh start for defaulted companies and the directors of these companies should be allowed to avail the scheme to ensure its effectiveness. The Court observed that in light of the COIVD-19 Pandemic, the scheme should be given full effect and the disqualification of directors could render the scheme useless. 

Finally, the Court relied on the judgement given in Mukut Pathak Case and ordered the Ministry of Corporate Affairs to take necessary steps to remove the disqualification of petitioners. The hearing also affirmed why taking legal help in removal of director disqualification is important. The technicalities of such cases can only be handled by a legal professional. 

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