DIN of Disqualified  Directors can be reactivated to avail the CFSS 2020 : Kerala High Court
Channel: R V Seckar
Date: 2020-10-03

Delhi High Court orders the reactivation of DINs and DSCs of the disqualified directors within a period of 3 working days
IN SANDEEP AGARWAL  VS UNION OF INDIA
In Thirunavukkarasu Ragunathan v. Union of India and Ors ordered to restore the DIN of the directors to take benefit of the CFSS 2020 Scheme. 

"This Court is of the firm opinion that in order for the CFSS Scheme to be effective, Directors of the Companies ought to be given an opportunity to avail of the Scheme.

On 28 September 2020, Monday, the Kerala High Court directed the Registrar of Companies to reactivate the cancelled Director Identification Numbers (DIN) and Digital Signatures of two disqualified directors whose DINs were cancelled on account of failure to furnish prescribed returns.

Aggrieved that their disqualification and the cancelled DINs prevented them from availing the Central Government's Fresh Start Scheme for the companies to file their returns and regularize their operations, they approached the High Court.

Allowing their prayer, Justice N Nagaresh found:

Since their disqualification did not affect the petitioners or a single company alone but would extend to any other company in which they were directors, the Court opined that their DINs should be activated.

Further, the scheme would be rendered "nugatory" if the DINs were not reactivated, since it was envisaged for companies such as the one involved in the litigation, the Judge remarked.

Under such circumstances, to disqualify Directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme nugatory."

The Scheme, notified in March 2020 , allows companies who have defaulted in filing prescribed financial statements and annual returns to duly file them without incurring penalties or charges.

The litigation before the High Court was instituted after two directors were unable to avail of the scheme by reason of their DINs and Digital Signatures being cancelled. The cancellation was on account of the failure to furnish returns pertaining to financial years after 2014.

After Section 164 of the Companies Act was notified, the Directors were disqualified. Section 164 describes the conditions under which a Director would be deemed disqualified for the purposes of the legislation. Failing to file returns is one of the disqualifiers listed in the section.

The Directors submitted that they were unable to furnish the returns for one of the companies after 2014 because it was a sick company. Therefore, much of its assets had been taken over by banks or had been sold, making it impossible for the directors to ascertain the exact position of the company to file returns.

Apart from this, Advocate Navod Prasannan Pattali averred that the petitioners were entitled to avail the scheme, given that their Company did not fall under any of the categories barred by the Centre's Scheme.

On the other hand, the Central Government Counsel argued that the State had no issues with the petitioners applying for the scheme, but that the scheme could not "be a reason to activate the DIN numbers of the petitioners."

There was an additional concern raised pertaining to the lapsed time between the failure to file returns and the litigation in Court.

Rejecting the Centre's submissions, Justice Nagaresh found that a fresh cause of action was initiated with the announcement of the Fresh Start Scheme.

"The launch of the Scheme itself constitutes a fresh and continuing cause of action and therefore, the question of delay or limitation should not arise", the Court said.

Therefore, the Respondents were directed to reactivate the DINs and Digital Signatures and allow the petitioners the benefit of the Fresh Start Scheme, if they were otherwise eligible.

With this, the petition was disposed of.

What We Learn from this Case ?

1. The lapsed time between the failure to file returns from 2014 onwards and the litigation in the Court The launch of the Scheme itself constitutes a fresh and continuing cause of action and therefore, the question of delay or limitation should not arise", the Court said
2. To disqualify Directors permanently and not allowing them to avail of their DINs and DSCs could render the CFSS 2020 Scheme nugatory
3. It is submitted that ROC offices across India makes a condition that if a new director is to be appointed from backend , then Company should not have been stricken off . However , Delhi and Kerala High Court are not agreeing to this and ask the ROC to reactivate DINs of directors of the company which has not filed its returns and had been stricken off. Thus , stricken off companies should be given an opportunity to avail the fresh start scheme by appointing a new director from back end mainly to file all the pending forms by availing the benefit CFSS 2020 Scheme.