Whether the Directors of a Company, which in default of clauses (a) and (b) of Section 164(2) of the Act, are disqualified from being re-appointed as Directors in other non-defaulting companies?

No person who is or has been a director of company shall be eligible to be re-appointed as a director of ‘that company’ or appointed in any ‘other company’.

The Honourable High Court of Delhi in the matter of Mukut Pathak and Ors. vs. Union of India and Anr. stated that it was earnestly contended on behalf of the petitioners that the petitioners may be disqualified to act as directors of the concerned companies that had committed defaults as contemplated under Section 164(2)(a) of the Act – ie., had failed to file financial statements or annual returns for a continuous period of three financial years – but they are not disqualified to act as a directors of companies that are not in default. It was contended that in terms of Section 164(2) of the Act, a director of a defaulting company would not be eligible for being reappointed in that company or being appointed in any other company for a period of five years. It was submitted that the word ‘appointed’ and ‘re-appointed’ cannot be read as synonyms. She stated that since two separate expressions – ‘appointed’ and ‘reappointed’ – have been used by the legislature in the same statutory provision, the same must be given different meanings. On the strength of the aforesaid principle, it was contended that a person who has incurred the disqualification under Section 164(2) of the Act, cannot be appointed in any other company but can be re-appointed. It was contended that in this view, there was no impediment for a director to be re-appointed in a company that had not committed any default as specified in clauses (a) and (b) of Section 164(2) of the Act. It was also contended that a director of a defaulting company is disqualified from being appointed in any company in which he was not serving as a director at the material time. In other words, if a person was a director of a defaulting company but was also a director of other companies that were not in default, he would be disqualified from being re- appointed in defaulting company or for being appointed in any company other than the non-defaulting companies in which he was already a director. But he could be re-appointed in those non- defaulting companies where he had been appointed as a director prior to incurring the disqualification under section 164(2) of the Act. According to her, the expression “other companies” ought to be read as non-defaulting companies in which the director was not holding the office of a director at the material time.

The Honourable Judge ordered that the above contention was unsubstantial as a plain reading of Section 164(2) does not indicate this legislative intent. It provides that no person who is or has been a director of company shall be eligible to be re-appointed as a director of ‘that company’ or appointed in any ‘other company’. The expression ‘other company’ is used to refer to all companies other than the company which has committed the defaults as specified in clauses (a) and (b) of Section 164(2) of the Act. It is also relevant to note that the term appointment would include any ‘reappointment’ as well.

(Link : https://indiankanoon.org/doc/183261464/)

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.