Govt may have applied law retrospectively to disqualify directors, claim lawyers

MUMBAI: The government may have applied the Companies Act, 2013, retrospectively when it disqualified the directors of over 200,000 companies that did not file their financial statements or annual returns for three straight years, said lawyers. On September 12, Mint reported that the government had identified 106,578 such directors and planned to bar them from the boards of other firms in its continuing fight to eradicate the black economy.

Section 164 (2) (a) of the Companies Act, 2013, provides the ground for disqualifying directors if the company has not filed financial statements or annual returns for any continuous period of three fiscal years.

However, according to a 26 March 2014 notification from the ministry of corporate affairs, section 164 of the Act (along with many other provisions) came into force from 1 April 2014, i.e. the start of fiscal year 2014-15. The Companies Act itself came into effect from September 12, 2013 with some, not all, provisions.

Thus, any disqualification which would be based on returns or statements not filed before 2014-15 would mean that the Act is being applied retrospectively, said lawyers.

A look at the Registrar of Companies (RoC)’s notifications on 13 September (a day after the ministry statement) shows exactly that. RoC Mumbai, for instance, clearly quotes section 164 (2) (a) of the Act and says that directors have been banned because no returns or statements were filed for fiscal years 2013, 2014 and 2015. These directors have been banned from 1 November 2015 to 31 October 2020. The November 1 date is relevant because norms say that companies have to conduct their annual general meeting of shareholders by September and file their returns within another month.

“We are going to challenge the disqualification because it’s a clear case of a law being used retrospectively,” a senior partner of a top law firm said on condition of anonymity.

Yet others have been banned for November 1, 2016 to October 31, 2021, but even there it means the law has been applied retrospectively for fiscal 2014.

“In case of the Companies Act, 1956, (this provision) existed only with respect to public companies. This has now been expanded to all companies under the 2013 Act. Hence, it would be appropriate to say that, to the extent the disqualification relates to non-compliance by private companies, the law was introduced only with effect from financial year 2014-15 and not earlier,” said Nabeel Ahmed, a partner at Grant Thornton India Llp.

The ministry of corporate affairs and RoC Mumbai did not respond to calls and emails seeking comment.