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WP No. 52312 of 2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 9TH DAY OF JANUARY, 2023

BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
WRIT PETITION NO. 52312 OF 2019 (GM-RES)
BETWEEN:

1. MR. SANJAY SINGH

S/O MR BADRI NARAIN SINGH,
AGED ABOUT 53 YEARS,
R/AT VILLA NO 219, PHASE 1, ADARSH PALM MEADOWS,
WHITEFIELD MAIN ROAD, RAMAGONDANAHALLI,
BENGALURU-560066

…PETITIONER
(BY SRI. S.SIMHA DUTTA., ADVOCATE)

AND:

1. UNION OF INDIA
REP BY THE MINISTRY OF CORPORATE AFFAIRS, HAVING
ITS OFFICE AT ROOM NO 508A,
5TH FLOOR, ‘A’ WING, SHASTRI BHAWAN, RAJENDRA
PRASAD ROAD, NEW DELHI 110001

2. REGISTRAR OF COMPANIES
KARNATAKA, HAVING ITS OFFICE AT 2ND FLOOR,
Digitally signed by KENDRIYA SADAN, KORAMANGALA,
PADMAVATHI B K
BENGALURU-560034
Location: HIGH
COURT OF
KARNATAKA 3. DEPUTY REGISTRAR OF COMPANIES
KARNATAKA, HAVING ITS OFFICE AT 2ND FLOOR,
KENDRIYA SADAN, KORAMANGALA,
BENGALURU 560034
…RESPONDENTS
(BY SRI. TIMMANNA BHAT.,CGC FOR R1 TO R3)

THIS WRIT PETITION FILED UNDER ARTICLE 226 AND

227 OF THE CONSTITUTION OF INDIA, PRAYING TO DECLARE
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WP No. 52312 of 2019

THAT SECTION 164(2)(a) OF THE COMPANIES ACT, 2013 AS

UNCONSTITUTIONAL AND IN VIOLATION OF ARTICLE 14,
19(i)(g) AND 21 OF THE CONSTITUTION OF INDIA AND ETC.

THIS PETITION, COMING ON FOR PRILIMINARY HEARING

IN ‘B’ GROUP, THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

The petitioner is before this Court calling in question

the action of the respondents in disqualifying the petitioner

from being a director of any company for the year 2016-

2021. The period for which the petitioner is disqualified is

now over and the orders have spent itself.

2. Heard Sri S. Simhadutta, learned counsel

appearing for the petitioner and Sri Timmanna Bhat,

learned Central Government Counsel appearing for the

respondents.

3. Learned Central Government Counsel appearing

for the respondents would place reliance upon the order

rendered by the co-ordinate Bench of this Court, in

W.P.No.56393/2017 AND CONNECTED MATTERS

disposed on 12.06.2016, which considered an identical

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issue of disqualification of the director and the impugned

order therein, is passed by the very same authority, to

contend that the matter is still pending consideration

before the Division Bench of this Court in

W.A.No.2688/2019.

4. The co-ordinate Bench of this Court in

W.P.No.56393/2017 AND CONNECTED MATTERS

disposed on 12.06.2016, after rendering its order draws

a summary of conclusions, which reads as follows:

“Part-13
Summary of Conclusions:
208. In view of the aforesaid discussion, I have
arrived at the following conclusions:
(a) It is held that Section 164(2)(a) of the
Act is not ultra vires Article 14 of the of the
Constitution. The said provision is not
manifestly arbitrary and also does not fall
within the scope of the doctrine of
proportionality. Neither does the said
provision violate Article 19(1)(g) of the
Constitution as it is made in the interest of
general public and a reasonable restriction
on the exercise of the said right. The object
and purpose of the said provision is to
stipulate the consequence of a
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WP No. 52312 of 2019

disqualification on account of the

circumstances stated therein and the same
is in order to achieve probity, accountability,
and transparency in corporate governance.
(b) That Section 164(2)(a) of the Act applies
by operation of law on the basis of the
circumstances stated therein, the said
provision does not envisage neither pre-
disqualification any hearing, nor post-
disqualification and this is not in violation of
the principles of natural justice and hence,
is not ultra vires Article 14 of the
Constitution.
(c) That Section 164(2)(a) of the Act does not
have a retrospective operation and is therefore,
neither unreasonable nor arbitrary, in view of the
interpretation placed on the same.
(d) That there has been an arbitrary exercise of
power by the respondent authority in
disqualifying the petitioners as directors of public
companies by taking into consideration the period
prior to 01.04.2014 as well as subsequent thereto
for the purpose of reckoning the continuous
period of three financial years. It is observed
that even in respect of public companies, having
regard to the nature of the consequences
envisaged under Section 164(2) of the Act as
compared to Section 274(1)(g) of the 1956 Act,
the period prior to 01.04.2014 and subsequent
thereto could not have been considered for
reckoning three continuous financial years for
disqualifying the directors of public companies.
Such disqualification is hence quashed.
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(e) Insofar as the private companies are

concerned, disqualification on account of the
circumstances stated under Section 164(2)(a) of
the Act has been brought into force for the first
time under the Act and the consequences of
disqualification could not have been imposed on
directors of private companies by taking into
consideration any period prior to 01.04.2014 for
the purpose of reckoning continuous period of
three financial years under the said provision.
The said conclusion is based on the principle
drawn by way of analogy from Article 20(1) of the
Constitution as, at no point of time prior to the
enforcement of the Act, a disqualification based
on the circumstances under Section 164(2) of the
Act was ever envisaged under the 1956 Act vis-à-
vis directors of private companies. Such a
disqualification could visit a director of only a
public company under Section 274(1)(g) of 1956
Act and never a director of a private company.
Such petitioners who disqualification are directors
of the private companies is hence quashed.
(f) But, if any disqualification of directors of
public companies has occurred under the 1956
Act, i.e., prior to 01.04.2014, the same would
result in an ineligibility under Section 164(2) of
the Act on account of the retro-active operation
of the Section.
(g) Consequently, where the disqualification
under Section 164(2)(a) of the Act is based on a
continuous period of three financial years
commencing from 01.04.2014, wherein financial
statements or annual returns have not been filed
by a public or private company, the directors of
such a company stand disqualified and the
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consequences of the said disqualification would

apply to them under the Act.
(h) That Section 167(1)(a) of the Act is not ultra
vires Article 14 and/or Article 19(1)(g) of the
Constitution. The said provision is saved under
Article 19(6) thereof.
(i) The proviso to Section 167(1)(a) of the Act is
not ultra vires Articles 14 or 19(1)(g) of the
Constitution as being manifestly arbitrary having
regard to the interpretation made above.
(j) Further, the amendment to Section 167(1)(a)
of the Act, by insertion of the proviso is by virtue
of the Amendment Act, 2017 is subsequent to the
date on which the petitioners were disqualified,
which in most cases is 01.11.2016 or at any rate
prior to 7 th May 2018. That the said proviso has
only a prospective effect and cannot have a
retrospective and operation. Thus, in respect of
the petitioners who were disqualified prior to the
date of enforcement of the amended provision,
that portion of the proviso namely “office of the
director shall become vacant not applicable in to
all the companies” is those petitioners. Hence,
the petitioners herein, (who may have also been
granted interim orders by this Court) continue to
hold office as directors in the defaulting company
as well as all other companies. This is in
consonance with the interpretation placed on the
proviso and petitioners would not vacate the
office in all other companies in which they are
directors as the proviso does not apply to the
petitioners who were all disqualified prior to 07 th
May 2018, as the amendment, by way of an
insertion of proviso, has only a prospective
operation.
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(k) It is clarified that the operation of the proviso

under Section 167(1)(a) of the Act being
prospective in nature, any disqualification of any
director of a public company or a private
company prior to 07 th May 2018, would not
result in such director vacating the office of the
director in all other companies in which the
disqualified director is a director. However, the
director of the company in default would continue
to hold office as a director even in respect of the
defaulting company. The proviso to the above
extent only is by way of a clarification so as to
avoid an absurdity as otherwise, all the directors
of the defaulting company would have to vacate
office which would result in the company being
bereft of directors and have a cascading effect
and there would be no compliance of Section
164(2)(a) by such a company. Hence, the
expression “other than the company which is in
default” in the proviso to Section 167(1)(a) would
imply that the director of a defaulting company
who has suffered disqualification need not vacate
his office of the director in the defaulting
company.
(l) Consequently, proviso to Section 167(1)(a) of
the Act having a prospective operation would
affect only those directors who are disqualified on
or after 07 th May 2018 insofar as vacating office
of director other than the defaulting company is
concerned.
(m) It is held that the directors of the struck off
companies under Section 248 of the Act do
not per se get disqualified. But, if the said
company has also not complied with Section
164(2)(a) of the Act, then the said company
being a defaulting company, the directors of
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such a company get disqualified in terms of

the discussion made above.
Re. Point No.7:
209. In the result, I pass the following order:
ORDER
(i) Where the petitioners disqualification is
based by of the 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;
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(iv) Where the petitioners disqualification 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 of companies) to approach
NCLT, if so advised;
(viii) Parties to bear their own costs.
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Interim orders passed in these writ petitions

stand vacated. All pending applications stand
disposed.
The appreciation for the assistance rendered
by the learned senior counsel and the learned
counsel for the petitioners, learned ASG and
other counsel for Union of India and other
respondents is placed on record.”
(Emphasis supplied)
Certain observations in the afore-extracted order

were against the Union of India. The Union of India has

challenged the order in writ appeal No.2688/2019,

before the Division Bench. The petitioners whose cases

were dismissed did not choose to challenge the order. The

Division Bench of this Court on 04.12.2019, passed the

following order:

“Heard Sri Prabhuling K. Navadgi, learned

Senior Counsel appearing for learned Counsel for
the appellants.
Admit.
The operation and execution of the order
dated 12.6.2019 passed by the learned
Single Judge in W.P.No.56393 of 2017 is
stayed in so far as it pertains to operative
portion of the order at No.(i), (iv) and (vi) is
concerned and also insofar as it relates to
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holding that proviso to Section 167(1)9a) of

the Companies Act, 2013 is prospective in
nature, until further orders.”
(Emphasis supplied)

The matter is pending consideration at the hands of

the Division Bench. In the light of the period of such

disqualification itself having spent out, nothing further

survives for consideration with regard to challenge of

disqualification against the petitioner.

5. The issue being covered by the order rendered by

the co-ordinate Bench of this Court, nothing further

survives for consideration in the case at hand. The writ

petition is thus, disposed.

Sd/-
JUDGE

NVJ
List No.: 1 Sl No.: 87