Corporate Life Extinguished Without Being Heard: Madras HC Sets Aside RoC’s Order Disqualifying Pvt Firms’ Directors For Non-Filing Of Financial Statements [Read Order]

The Madras High Court has set aside the disqualification of directors of private companies for failure to file annual returns/ financial statement for three consecutive years saying the same the disqualification was disproportionate to the lapse as the default.Justice T Raja said the Registrar of Companies cannot disqualify directors, over 35,000 in number, for the financial years. By virtue of the new Section 164 of the 2013 Act using the expression “for any continuous period of three financial years” and in the light of Section 2 defining “financial year” as well as their own General Circular No.08/14 dated 4.4.2014, the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the financial years commenced from 2013-14, 2014-15 and 2015-16 i.e., one year before the Act 2013 came into force. By virtue of the first proviso to Section 96 of the 2013 Act, Annual General Meeting for the year ending on 31.3.2017 can be held within six months from the closing of financial year i.e., 30.9.2017, additionally in the light of Section 164 referring to “annual return” and “financial statement”, the time limit to file annual return under Section 92 of 2013 Act is sixty days from Annual General Meeting or the last date on which Annual General Meeting ought to have been held, hence, the time limit to file balance sheet under Section 137 of the 2013 Act is again thirty days from Annual General Meeting. In view of the above legal position, when the default in filing the accounts or returns are made as compoundable offence, Section 164 providing the disqualification of director of private company not only in the defaulting company, but also from other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature, because, notice to be sent under Section 248 of the Companies Act, 2013 by the Registrar of Companies for striking off the name of the company from the Registrar of Companies on the premise that the company has not been carrying on any business for a period of two financial years, is different from the disqualification under Section 164, inasmuch as a company can be struck off, if the company has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years. However, it is made clear beyond any pale of doubt that the mischief of removal of the names of the companies by the Registrar of Companies and the disqualification of the directors in the defaulting company will go together, as it is inseparable, and the Registrar of Companies need not give fresh notice to the directors for their disqualification from the dormant company, if there is a failure to file the financial statement or annual return for any continuous period of three financial years as per Section 164.