Brief on recent order on Disqualification of Directors

On June 12, 2019, the High Court of Karnataka passed a detailed order on disqualification of directors which was filed by way of Writ Petition under Articles 226 and 227. The extract of the Order are as follows:

(i) Where the disqualification of the petitioners is based by taking into consideration any financial year “prior to 01.04.2014 as well as subsequent thereto” while reckoning continuous period of three financial years under Section 164(2)(a) of the Act, irrespective of whether the petitioners are directors of public companies or private companies, such a disqualification being bad in law, the Writ Petitions are allowed and the impugned List is quashed to that extent only;

(ii) If the disqualification of the directors is based by taking into consideration any financial year prior to 01.04.2014 only i.e., the disqualification has occurred under the provisions of the 1956 Act in respect of the public companies, the writ petitions are dismissed;

(iii) If the disqualification of the directors is based by taking into consideration three continuous financial years subsequent to 01.04.2014, irrespective of whether the petitioners are directors of public companies or private companies, they stand disqualified under the Act;

(iv) Where the disqualification of the petitioners is based by taking into consideration any financial year prior to 01.04.2014 in respect of private companies, such disqualification being bad in law, the writ petitions are allowed to the aforesaid extent only;

(v) The Writ Petitions, wherein the challenge is also made to the vires of Section 164(2)(a), and/or 167(1)(a) and/or proviso to Section 167(1)(a) of the Act, are dismissed to the aforesaid extent;

(vi) The respondents are directed to restore the DIN of those directors whose disqualification has been quashed by this Court;

(vii) Those petitioners who have challenged only the striking off of the companies in which they are directors have an alternative remedy of filing a proceeding before National Company Law Tribunal (NCLT) under Section 252 of the Companies Act, 2013, which provides for an appeal to be filed within a period of three years from the date of passing of the order dissolving the company under Section 248 of the Act. Hence, those Writ Petitions are dismissed reserving liberty to those petitioners who are aggrieved by the dissolution of the companies under Section 248 of the Act (Struck off companies) to approach NCLT, if so advised;

(viii) Parties to bear their own costs. Interim orders passed in these writ petitions stand vacated. All pending applications stand disposed.

(Link : http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/275052/1/WP52911-17-12-06-2019.pdf)