Debarred firm directors may approach courts

Legal experts claim retrospective application of company law provisions

The government’s move to debar directors of companies that have not filled annual returns for three successive years is likely to be challenged in courts citing retrospective application of the Companies Act, 2013.
As a general rule, the 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, that 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 enactment of this new section under Companies Act, 2013, the corresponding section under the Companies Act, 1956, was applicable only to public companies.

CRACKING THE SHELL

Many directors feel the period of default being considered while issuing the list of defaulters is prior to the enactment of section 164 under the Companies Act, 2013

However, if the director was appointed after introduction of the Companies Act, 2013, and at that point such non-compliance existed, he or she would still stand disqualified

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 or had not filed financial statements for three years or more. Subsequently the directors, or the authorised signatories, of the debarred companies had been disqualified from being appointed in any other company in that position. According to the government estimates, at least 200,000-300,000 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 the 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.

Illustration: Ajay Mohanty

However, if the director was appointed after introduction of the 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 the 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.

According to the Companies Act, 2013, any aggrieved director could apply to the National Company Law Tribunal (NCLT) within three years of the debarment order.  If in the opinion of the NCLT, removal is not justified, it may order restoration of the name of the company in the Registrar of Companies.