18 Jan 2121

The main purpose of Ministry of Corporate Affairs who introduced CFSS-2020 which allows the fresh start for defaulting companies and directors of such companies - Delhi High Court

Case : Sharad Kumar Sinha vs. Union of India & Anr. W.P. (C) 721/2021

Court : Delhi High Court

Bench : Justice Prathiba M. Singh

Decided on : 18 Jan 2121

Relevant Statutes

Section 164(2) and 167 (1) (a) of the Company Act, 2013

Brief Facts and Procedural History

1. The Petitioner is a Director in Mafcons Buildwell Private Limited. The Company was struck off due to non-compliance in Mafcons Buildwell Private Limited as per section 164(2) of the Company Act 2013 i.e. related to non-filing of financial statements or annual returns for the continuous period of 3 years. The Petitioner was also disqualified as a director from 1st November 2017 to 31st  October 2022 and his DIN and DSC was also deactivated. The Petitioner also wants to start an afresh business.

The Issue of the Case

Whether the directors of the company are entitled to a fresh start or to avail of the schemes issued by the Ministry of Corporate Affairs?

The Observations of the Court

1. The Honourable Delhi High Court referred one judgment i.e. Anjali Bhargava & Anr vs. UOI and Anr. (W.P. (C) 11264/2020), It was clarified that there are four categories of the Directors are approaching courts seeking disqualification and activation of DIN/DSC numbers i.e. Directors who have been disqualified prior to 7th  May 2018, Who have been disqualified post 7th  May 2018, Director of active companies who have been disqualified and directors of the struck off company who seek appointment as directors in other/new companies. In the above judgement, section 167 (1) (a) of the Companies Act 2013 (The office of the directors would become vacant in all companies of once the director is disqualified quo one company i.e. defaulting company) was referred which came into force on 7th May 2018, It was held that if the directors who have been disqualified post 7th  may 2018, this provision would apply otherwise not.

2. The Honourable Delhi High court observed that the Ministry of Corporate Affairs introduced CFSS-2020 which allows the fresh start for defaulting companies and directors of such companies and also gives the opportunity to avail the scheme to the directors of the struck-off companies who seek to be appointed as directors of other companies.  The Honourable High court referred to another judgment i.e. Mukut Pathak & Ors. v. Union of India & Ors, 265 (2019) DLT 506, It was held that Section 167(1) (a) of the Companies Act, 2013 would not apply to the disqualification prior to 7th  May 2018 which means disqualification of the director quo active companies would be liable to be set aside and the DIN and DSC reactivated.

The Decision Held by the Court

The Petition is disposed of. The Petitioner falls under the last category and DIN and DSC numbers are directed to be reactivated within a week to enable him to start new companies.

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