w w w . L a w y e r S e r v i c e s . i n



Satish Kumar Gupta v/s Union of India & Another


Company & Directors' Information:- GUPTA CORPORATION PRIVATE LIMITED [Active] CIN = U40100MH2005PTC154038

Company & Directors' Information:- M R GUPTA AND COMPANY PRIVATE LIMITED [Active] CIN = U74899DL1992PTC051324

Company & Directors' Information:- GUPTA INDIA PRIVATE LIMITED [Active] CIN = U51311DL1996PTC077255

Company & Directors' Information:- GUPTA AND COMPANY PRIVATE LIMITED [Active] CIN = U52110DL1974PTC007339

Company & Directors' Information:- GUPTA AND GUPTA PRIVATE LIMITED [Active] CIN = U55204DL1954PTC002390

Company & Directors' Information:- S K GUPTA PRIVATE LIMITED [Active] CIN = U26900MH1973PTC016294

Company & Directors' Information:- R. K. GUPTA AND COMPANY INDIA PRIVATE LIMITED [Active] CIN = U74899DL1993PTC052138

Company & Directors' Information:- B R GUPTA AND COMPANY PRIVATE LIMITED [Active] CIN = U63013DL2000PTC107343

Company & Directors' Information:- T N GUPTA PVT LTD [Active] CIN = U02005WB1951PTC020141

Company & Directors' Information:- A V GUPTA AND COMPANY PRIVATE LIMITED [Converted to LLP] CIN = U24239DL1999PTC102248

Company & Directors' Information:- Y P GUPTA AND COMPANY PVT LTD [Under Process of Striking Off] CIN = U74899DL1983PTC016661

Company & Directors' Information:- J S GUPTA AND CO PVT LTD [Strike Off] CIN = U20211UP1975PTC004078

Company & Directors' Information:- M K GUPTA AND CO PRIVATE LTD [Strike Off] CIN = U74999DL1979PTC009517

Company & Directors' Information:- A J GUPTA AND CO PRIVATE LIMITED [Strike Off] CIN = U74210UP1980PTC004986

Company & Directors' Information:- D. R. GUPTA & COMPANY PRIVATE LIMITED [Strike Off] CIN = U74899DL1944PTC000794

Company & Directors' Information:- S P GUPTA AND CO PVT LTD [Strike Off] CIN = U26932RJ1972PTC001459

    Writ Petition Nos.1731 of 2018, 1812 of 2018, 1830 of 2018, 1849 of 2018, 2001 of 2018, 2012 of 2018, 2034 of 2018, 2058 of 2018, 2065 of 2018, 2084 of 2018, 2261 of 2018 & WPST Nos. 19133 of 2019, 1952 of 2020

    Decided On, 07 February 2020

    At, High Court of Judicature at Bombay

    By, THE HONOURABLE MR. JUSTICE S.C. DHARMADHIKARI & THE HONOURABLE MR. JUSTICE R.I. CHAGLA

    For the Petitioner: Rahul Kedar a/w Shweta Rankhambe i/b Aagam J. Doshi, Mahesh Pandey a/w K.R. Tiwari, AartiGouri, Roshan Tanna, Jasmeet Kaur a/w Dattatray Adarkar i/b Solicis Lex, Ranjeev Carvalho a/w Ayush Kothari i/b Sabeena Mahadik, Saurabh Pandya, Jayom Shah a/w Ruchika Motwani i/b Priyanka Mishra, Zal Andhyarujina a/w Ms Khushboo Shah Rajani, Disha Ponda, Ishani Khanwilkar i/b AKR Advisors LLP., Rohan Sawant a/w Krishma Shah i/b ANP Partners, Apporv Srivastav with Avinash Lalwani, Kanchan Singh i/b Shubro Dey, Nitesh Menon i/b MDP & Partners, Cyrus Ardeshir with Ferzana Behramkamdin & Bharti Bhansali, i/b FZB & Associates, Prachi Wazalwar a/w Heena Vichare, Aditi Abhyankar, Akshay Petkar a/w Aniket Malu, Kevik Setalvad, Senior Advocate a/w Anil Jarial i/b Legal Associates, Sanjay Rego i/b Deven Dwarkadas & Partners, Adwait Bhonde, Abhay Wadhwa i/b Pankaj B. Singh, Aditya Khanna a/w Kartik K. Tiwari, Sheeja John i/b M/s. M.P. Savla & Co., Gayatri Ramchandran i/b Acuity Law, Navankur Pathak i/b Darshan Furia, G.C.Mohanty i/b Mohanty & Associates, Ajit S. Tawar i/b Ajit S. Tawar & Co., Dipti Kuber i/b Roy's Law Firm, Sunny Shah i/b Hemant Sethi & Co., Shrey Fatterpekar a/w Natasha Bhot i/b M. Mulla Associates, Zal Andhyarujina a/w Keanan Nagporwala i/b Kochhar & Co., Kavita Mohan Kutty, Deepali Jaiswar i/b Jyoti Muley, Ieshan Sinha a/w Aayesh Gandhi, Rajeev Kumar i/b Wadia Gandhy & Co., Pankaj R. Dubey, Shrushti Relekar i/b India Law Alliance, Nikhil Sakhardande a/w Shubra Swamy i/b Sonu Tandon, Zain Mookhi a/w Surbhi Soni, Rohini Menon i/b Manish G. Varma, Vivek Kantawala a/w Amey Patil, Vivek M. Sharma i/b Vivek Kantawala & Co., Ravichandra S. Hegde a/w Robin Shah, Geetika Jain, Ankita Roy i/b Parinam Law Associates, Gaurav Srivastav a/w Angela Singh i/b Simeen Shaikh, Sujit Lahoti a/w Shubham Agrahari i/b Anoma Law Group LLP., Ujwala Karpe i/b Ashutosh S. Kale, Anuj Desai i/b Bijal K. Rathod, Niyati Merchant i/b MDP & Partners, Hasit Seth a/w Aniketh Nair, Dev Motta i/b Mustafa Motiwala, Benny Joseph i/b B.J. Law Offices LLP, Vishesh Srivastav, Vindu Prakash Pandey a/w Pramodkumar Pandya i/b Legal Edge LLP., Vishal Kanade a/w Komal Khushalani, Shadab S. Jan i/b M/S Crawford Bayley & Co., Pooja Yadav i/b Expert Jurist LLP, Anupam Chattopadhyay, Ashutosh Singh, Abhay Wadhwa i/b Sanjay M. Yegurwar, Ritu Shetty i/b Hariani & Co., Alisha Khan i/b RMG Law Associates, Rahul D. Oak a/w Siddhesh J. Shetye, Nikhil Kulkarni a/w Meher Puja Mathur, Gaurangi Patil a/w Amit Mishra i/b GP & Associates, Jeetendra Ranawat i/b Pranav C. Khatku, Anuj Desai a/w Prachi Pandya i/b Corporate Attorneys, Navid Yunus Memon, Pankaj Kode i/b Himanshu Kode, Ativ Patel i/b AVP Partners, Ajit N. Jakhadi a/w Amol Chile, Sidharth Samantaray i/b Fauzan Shaikh, Shadab S. Jan a/w Komal Khushalani i/b Crawford Bayley & Co., Noelle Ann Park, Vikhil Dhoka a/w Maulik Chokshi i/b GM Legal, Kajal Sarvaiya i/b Reeti Law Associates, Yashwardhan Tiwari, Ayush Agarwal i/b Shete S. Lalasaheb, Saurabh Pakale i/b Pravin M. Kapadia, Ayushi Agarwal a/w Ashish Pinto, Dikshat Mehra a/w Krutika Cheulkar i/b Rajani Associates, Meghna Lakhotia i/b Keshav Borhade, Shrey Fatterpekar a/w Mr.Vikram Jakhadi i/b VIS Legis Law Practice, Bindu Bhatia i/b Ankur Kumar, Hiral Thakkar i/b Fraser Alexander, Pradeep Sancheti, Senior Advocate a/w Saurabh Bachhawat i/b Yashvi Panchal, Asadullah Shaikh a/w K. Jain i/b AAK Legal, Advocates. For the Union of India: Anil Singh-Additional Solicitor General i/b Anusha P. Amin, Anjani Kumar Singh, Anil Singh, Additional Solicitor General a/w Shailesh S. Pathak, Anil Singh, Additional Solicitor General with Sandesh Patil, Anil Singh, Additional Solicitor General a/w Aditya Thakker, Ashish Mehta, Jonas Thomas, Gaurav Kotwani i/b Ethos Legal Alliance, Advocates. For the Respondents: R1 & R2, Ajinkya Jaibhave, M.S. Bhardwaj a/w Ashish Mehta, Niranjan P. Shimpi a/w Sanjay K. Gunjkar, Pravartak Pathak with Carina Xavier, Jayesh Gupta, Advocates.



Judgment Text


1. The matters were placed before us for considering the prayer for interim relief.

2. On these petitions, on 15th October, 2019, an order was passed by a Division Bench, to which, one of us (S.C.Dharmadhikari, J.), was a party.

3. The Court had, after quoting the sections, raised certain queries.

4. Consistent with those queries, Mr.Anil Singh, learned Additional Solicitor General, submits that the prayers in these writ petitions are virtually to stay the operation, enforcement and effect of the law itself. Even when there is no challenge to the constitutional validity, the writ petitions contain a prayer by which the petitioners are calling upon this Court to go into the issue of the individual directors' disqualification and in that process, the Court is requested to virtually re-write the Section.

5. The attempt is made on several grounds to urge, according to Mr.Singh, that the law should not take effect at all.

6. However, with reference to queries posed in this order, Mr.Singh has been fair enough to point out that a challenge to the Constitutional validity of the provision has not been upheld.

7. He has also pointed out the judgments of Karnataka High Court, Madras High Court, Delhi High Court and Gujarat High Court. Though these judgments have been rendered by the learned Single Judges, the Karnataka High Court, Gujarat High Court and Madras High Court have held that the provision cannot be applied retrospectively. The Delhi High Court has clarified that in this case, there is no retrospective operation or application of the provision. Mr.Singh, however, submits that in this case, there is a ministerial or administrative act of filing the financial statements or annual returns. If they are not filed continuously for a period of three years, then, the disqualification is invited or incurred. He would submit that the provisions have been construed and interpreted by the above High Courts and in that process, the argument of the Central Government has been noted. In that regard, our attention is invited to the judgment and order of the High Court of Karnataka at Bengaluru reported in Indian Law Reporter 2019 Karnataka 3768 (Yashodhara Shroff and Ors. v. Union of India and Ors.). Mr.Singh has invited our attention to para 191 of this judgment to urge that the Government argued that the proviso to Section 164(2) is only clarificatory in nature and, therefore, it has retrospective operation, by which, the petitioners would continue as directors of the defaulting company, but they would vacate office in all other companies. This position is envisaged even under Section 167(1) clause (a) of the Act and, therefore, the proviso only clarifies that the directors of the defaulting company would not vacate the office in the defaulting company in order to ensure that the defaulting company is not left without any director.

8. The learned Single Judge in para 193 of this judgment has held that the object of introducing Section 167(1)(a) of the Act, when such a provision was conspicuous by its absence in 1956 Act, is to bring in a higher degree of transparency and accountability in corporate governance so as to ensure control over the companies in the interest of shareholders and the public in general and in the interest of Indian economy. Therefore, the argument of the petitioners' advocate that Section 167(1)(a) of the Act did not envisage vacation of office of a director under Section 164(2) of the Act, is incorrect. Thereafter, the judgment refers to other arguments.

9. After having heard the learned Additional Solicitor General, Mr. Ardeshir, Mr.Andhyarujina and some other counsel, we are of the view that the order dated 15th October, 2019 passed on these petitions raising legal queries, sufficiently protects the interest of both sides. This Court has performed a balancing act. Therefore, taking that order and the queries further it is clear that section 164of the Companies Act, 2013 provides for disqualifications for appointment of director. By sub-section (1), the eligibility for appointment of the director of a company is the aspect dealt with. By sub-section (2), it is said that no person, who is or has been a director of a company, which has not filed financial statements or annual returns for any continuous period of three years, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. Then, there is a proviso, which has been inserted by Act 1 of 2018.

10. Sub-section (2) of Section 164 has been, on the own showing of all parties before us, brought into effect on 1st April, 2014. So is Section 167. In that Section, we find that it deals with vacation of office of director. That office becomes vacant if any of the disqualifications specified in Section 164are attracted. Those would include the aspect covered by sub-section (2) of Section 164. Additionally, prima facie we find that when the Section is containing a marginal heading "disqualification for appointment", by sub-section (2) it covers a case of a person who has been a director of a company. If such a company has not filed financial statements or annual returns for any continuous period of three financial years, then, as further noted in the Section, the disqualification is incurred. He cannot be appointed in other company also for a period of five years from the date on which the defaulting company fails to do so. The office of the director will become vacant in terms of Section 167, if the disqualifications are incurred. The proviso is inserted to clause (a) of sub-section (1) of Section 167with effect from 7th May, 2018. There, it is said that when the disqualification is incurred under sub-section (2) of Section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.

11. Prima facie, the queries that were posed in our order that the restriction is only on re-appointment and not from continuing as a director of the defaulting company would mean that a director would continue until the end of the extant term, but would not be eligible for reappointment for another five years thereafter. Further, if such a director had been appointed within six months of the company becoming a defaulting company, he would not incur disqualification. The query that we raised with regard to interpretation of Section 167sub-section (1) clause (a) is also in consonance with the intent of the legislation and we are of the opinion that the stand of the Central Government before the Karnataka High Court would sufficiently protect the interest of the petitioners before us. Section 167(1)(a) is also considered when this Court raised the above queries. Once the queries themselves denote that the Court was of the prima facie opinion that the re-appointment of director of that company, which has not filed financial statements or annual returns for any continuous period of three financial years would mean that the person can continue as noted in the order passed on 15th October, 2019 till the end of the extant term, but would not be eligible for re-appointment for another five years thereafter, then, there is sufficient opportunity to enable him to correct the affairs of that company. As far as Section 167(1)(a) is concerned, there, the vacancy would not occur in the case of a director, who has incurred the disqualifications specified in Section 164more so, when he incurs that disqualification is sufficiently set out in the statute itself and in the order passed on 15th October, 2019. Therefore, the following order would sub-serve the ends of justice.

12. As far as the arguments on the applicability of principle of retrospectivity or that Section 164could not have a retrospective operation, prima facie, with respect, we do not think that it will be proper to accept the interpretation based on the provision by Mr.Andhyarujina for the simple reason that it is filing of the financial statements or annual returns, which is contemplated in clause (a) of sub-section (2). If the company, in which the person is or has been a director, has not filed financial statements or annual returns for any continuous period of three financial years, on the date on which the company fails to do so, the disqualification is incurred. It is a ministerial or administrative act of filing which is to be performed by the Company. Therefore, if such financial statements or annual returns for any continuous period of three financial years have not been filed, then, the action is triggered.

13. Prima facie, we do not think that the Circular which has been issued by Ministry of Corporate Affairs and the notice dated 7th September, 2017 is in any way inconsistent or contravening the position emerging from the plain reading of this section. In the event, there is any inconsistency, then, statute must prevail. The Circulars are issued by the members of the Executive and is the same is position qua notic

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es of the Department. However, the interpretation of the legal provision is a job or task to be performed by the Court and understanding of the legal provisions by a member of Executive or any Executive functionary cannot be a substitute for that exercise. The Court cannot rely upon them to interpret the legal provisions. The interpretation of the legal provisions must be based on the language of the statute. In such circumstances, we do not think that the interim relief as sought can be granted. A blanket stay or a relief having far reaching legal consequences as sought cannot be granted. The prayers in that behalf are rejected. However, the Section shall operate consistent with the observations by this Court in the forgoing paragraphs. The application for interim reliefs is disposed of in these terms. 14. We clarify that this order only expresses our tentative and prima facie view and shall not influence the Court while finally deciding the matter and particularly the Constitutional challenge.
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