Home Legal News Delhi HC Sets Aside Disqualification of Directors Under Companies Fresh Start Scheme, 2020

Delhi HC Sets Aside Disqualification of Directors Under Companies Fresh Start Scheme, 2020

by Shreya
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A Single Judge Bench of Justice Prathiba M Singh of Delhi HC has set aside the disqualification of directors to enable them to continue the business of an active company in pursuance of the Companies Fresh Start Scheme, 2020. 

The Petitioners were directors in two companies namely Koksun Papers Private Limited and Kushal Power Projects Private Limited. Being the directors, the Petitioners were also disqualified with effect from November 1, 2016 for a period of five years under Section 164(2)(a) of the Companies Act, 2013

The Scheme, which was rolled out on March 31, 2020, was introduced by the Ministry of Corporate Affairs to permit active companies to make good any defaults in filing of documents and seek immunity from disqualification in present case of disqualification of directors.

The Central Government informed the Court that the judgment in Mukut Pathak was underchallenge by way of an appeal, though no stay was presently in place in disqualification of directors.

Also Read: [ Insolvency Process] NCLAT Judgment Gives Respite To companies,Eases Way To Exit Insolvency Process

After considering the submissions made by the parties, the Court noted that the judgment in Mukut Pathakinsofar as the merits of the case was concerned, was squarely applicable in the present case of disqualification of directors.

The said judgment clearly holds that the proviso to Section 167(1)(a) of the Act cannot be read to operate retrospectively. It was further held that the said proviso, being a punitive measure with respect to the rights and obligations of directors, cannot be applied retrospectively unless the statutory amendment expressly provides so.”

The Court also listed the salient features of the Scheme, which are as follows:

– The Scheme was launched to facilitate a fresh start, on a clean slate, for companies registered in India;

– Alleviative measures under the Scheme are for the benefit of all companies.

– It gives an opportunity to file belated documents in the MCA-21 Registry in respect of annual filings, without being subject to higher additional fee on account of delay;

– It grants immunity from launch of prosecution or of proceedings for imposition of penalty on account of delay associated with certain filings;

– Any defaulting company can file the belated documents, which were due for filing on any given date, as per the Scheme. Normal fee would be payable for such filing by the defaulting company;

– Applications can be made for seeking immunity in respect of belated documents. Once the documents are taken on file or approved by the designated authority, such applications would have to be filed within six months from the date of closure of the Scheme;

– To avail benefit of the Scheme, the defaulting company would have to withdraw any appeal that it may have filed against prosecution launched or orders passed by a court or adjudicating authority under the Act;

– If a final notice of striking off of a company has already been initiated or in certain other situations as enumerated in Clause 6(ix), the Scheme would not apply;

– If immunity is granted, the Scheme provides that prosecution shall be withdrawn before the concerned Court and the proceedings for penalties shall also be closed;

– The Scheme extends to inactive companies who can file the requisite documents and get themselves declared as dormant companies under Section 455 or apply for striking off the name of the company.

The Court further observed that the Division Bench’s order cited by Centre itself clarified that the powers of judicial review were discretionary and the question of delay was to be examined in the particular facts and circumstances of each case.

The issue of Companies Fresh Start Scheme was also not invoked before the Division Bench, the Court said. The court said further,

“Considering the COVID-19 pandemic, the MCA has launched the Fresh Start Scheme-2020, which ought to be given full effect. It is not uncommon to see directors of one company being directors in another company. Under such circumstances, to disqualify directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme itself nugatory.”

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