DIN of Disqualified Company Directors can be reactivated to avail the benefit of the Centre's Fresh Start Scheme: Kerala HC [Read Judgment]
"This Court is of the firm opinion that in order for the Scheme to be effective, Directors of the Companies ought to be given an opportunity to avail of the Scheme", Justice Nagaresh emphasized
DIN of Disqualified Company Directors can be reactivated to avail the benefit of the Centre's Fresh Start Scheme: Kerala HC [Read Judgment]

On Monday, the Kerala High Court directed the Registrar of Companies to reactivate the cancelled Director Identification Numbers (DIN) and Digital Signatures of two disqualified directors whose DINs were cancelled on account of failure to furnish prescribed returns.

Aggrieved that their disqualification and the cancelled DINs prevented them from availing the Central Government's Fresh Start Scheme for the companies to file their returns and regularise their operations, they approached the High Court.

Allowing their prayer, Justice N Nagaresh found:

"This Court is of the firm opinion that in order for the Scheme to be effective, Directors of the Companies ought to be given an opportunity to avail of the Scheme"
Kerala High Court

Since their disqualification did not affect the petitioners or a single company alone but would extend to any other company in which they were directors, the Court opined that their DINs should be activated.

Further, the scheme would be rendered "nugatory" if the DINs were not reactivated, since it was envisaged for companies such as the one involved in the litigation, the Judge remarked.

"Considering the fact that the petitioners are Directors of a Company in respect of which financial statements and annual returns and such other documents are to be filed and the said Company is entitled to avail the benefit of the Scheme, the suspension of DINs would not only affect the petitioners and the Company but the other Companies also in which the petitioners are Directors. Under such circumstances, to disqualify Directors permanently and not allowing them to avail of their DINs and DSCs could render the Scheme nugatory."

The Scheme, notified in March, allows companies who have defaulted in filing prescribed financial statements and annual returns to duly file them without incurring penalties or charges.

The litigation before the High Court was instituted after two directors were unable to avail of the scheme by reason of their DINs and Digital Signatures being cancelled. The cancellation was on account of the failure to furnish returns pertaining to financial years after 2014.

After Section 164 of the Companies Act was notified, the Directors were disqualified. Section 164 describes the conditions under which a Director would be deemed disqualified for the purposes of the legislation. Failing to file returns is one of the disqualifiers listed in the section.

The Directors submitted that they were unable to furnish the returns for one of the companies after 2014 because it was a sick company. Therefore, much of its assets had been taken over by banks or had been sold, making it impossible for the directors to ascertain the exact position of the company to file returns.

Apart from this, Advocate Navod Prasannan Pattali averred that the petitioners were entitled to avail the scheme, given that their Company did not fall under any of the categories barred by the Centre's Scheme.

On the other hand, the Central Government Counsel argued that the State had no issues with the petitioners applying for the scheme, but that the scheme could not "be a reason to activate the DIN numbers of the petitioners."

There was an additional concern raised pertaining to the lapsed time between the failure to file returns and the litigation in Court.

Rejecting the Centre's submissions, Justice Nagaresh found that a fresh cause of action was initiated with the announcement of the Fresh Start Scheme.

"The launch of the Scheme itself constitutes a fresh and continuing cause of action and therefore, the question of delay or limitation should not arise", the Court said.

Therefore, the Respondents were directed to reactivate the DINs and Digital Signatures and allow the petitioners the benefit of the Fresh Start Scheme, if they were otherwise eligible.

With this, the petition was disposed of.

In the litigation before the Kerala High Court Advocate Navod Prasannan Pattali and Advocate KV Krishnakumar argued for the petitioners, while the Respondents were represented by Central Government Counsel Thulasi Panicker. The two banks in the litigation, Canara Bank and IDBI, were represented by Advocates M Gopikrishnan Nambiar, and CP Peethambaran and NS Mohandas respectively.

Read the Judgment here:

Thirunavukkarasu Ragunathan v. Union of India and Ors. - Judgment Dated September 28.pdf
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