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HC Notice to Govt over Disqualification of Shell Cos' Directors

HC Notice to Govt over Disqualification of Shell Cos' Directors
The Delhi High Court has issued notice to the Ministry of Corporate Affairs and Registrar of Companies (RoC) on a petition challenging the disqualification of more than one lakh directors of shell companies.The Ministry of Corporate Affairs, last month, identified 1,06,578 directors of shell companies for disqualification.While issuing notices to the ministry, the HC also stayed the disqualification of three such directors.

Advocate Manish Jain, counsel for the petitioners, challenged the vires, Latin for powers, of Section 164 (2) of Companies Act, 2013 which was notified in the year 2014.Jain said that the section was wholly ambiguous, as it is unclear as to whether it is applicable only to existing directors or extends to all those who no longer are directors of the disputed shell companies.

“The vires of the section in question has been challenged,“ Jain told ET. He argued that the ministry had violated the principles of natural justice in disqualifying the directors. For, he contended, the directors were not even issued show-cause notices before disqualifying them.The petitioners have also contended that there was no provision under Section 164 (2) of Companies Act, 2013 for “immediate disqualification“ of a director.

Jain said the section is “unconstitutional“, as it is apparently applicable even to those directors who were not the directors of defaulting companies at the time of default and have vacated or quit the officer prior to the default.The government recently de-recognised 2.10 lakh companies that were dormant and utilised for dubious transactions. After de-recognition, the finance ministry directed banks to restrict operations of bank accounts of such companies by their directors or authorised representatives.

The ministry is further analysing the data of these companies from the Registrar of Companies, to identify the directors and the significant beneficial interest behind these companies.Under Section 164 (2) of the Companies Act, 2013, a director in a company that has not filed financial statements or annual returns for three years in a row will not be eligible for re-appointment as a director in that or any other company for five years.

The Economics, New Delhi, 13th October 2017

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