Kusal Swarnakar vs. Union Of INDIA

Held

The Court allowed the writ petition, setting aside the impugned order to the extent of deactivating the petitioner's DIN in active companies. The Court directed Respondent No. 2 (Registrar of Companies) to activate the petitioner's DIN, enabling him to function as a Director, except in those companies that have been struck off under Section 248 of the Companies Act. The Court clarified that this order would not preclude the respondents from taking necessary action in accordance with law for any violations envisaged under Section 164(2) of the Act, as per the procedure contemplated in Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014. If the petitioner is aggrieved by the action of striking off his company under Section 248, he is at liberty to avail the remedy under Section 251 of the Act. The Court's reasoning was based on a previous common order which held that DIN deactivation can only be done under Rule 11, requiring notice and an opportunity of hearing, and that deactivation for violations under Section 164(2) cannot be done except in accordance with Rule 11. The Court also referred to a Division Bench judgment of the Allahabad High Court which held that in the absence of a specific provision empowering the Registrar of Companies to deactivate DIN for disqualification under Section 164, such action cannot be sustained.

Facts

The petitioner, Kusal Swarnakar, filed a writ petition seeking a direction to restore his Director Identification Number (DIN) which had been deactivated. He contended that this deactivation was arbitrary, illegal, without jurisdiction, and contrary to the provisions of the Companies Act, 2013, and the Companies (Appointment or Directors) Rules, 2014. The petitioner also argued that the action violated principles of natural justice and his constitutional rights. The respondents were the Union of India, represented by the Secretary, Ministry of Corporate Affairs, and the Registrar of Companies. The petitioner sought to incorporate a new company and submit pending annual returns and financial statements for a company where he was appointed as a director. The issue was covered by a previous common order of the High Court in similar writ petitions.

Key Issues

1. Whether the deactivation of the Petitioner's Director Identification Number (DIN) by the respondents was arbitrary, illegal, without jurisdiction, and contrary to the provisions of the Companies Act, 2013, and the Companies (Appointment or Directors) Rules, 2014, violating principles of natural justice and constitutional rights? Petitioner's Contention: The petitioner argued that the deactivation of his DIN was done without following the prescribed procedure under Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014, specifically without issuing notice or calling for an explanation. This deactivation caused him significant hardship, preventing him from fulfilling his statutory duties as a director. He relied on the common order passed by the High Court in similar writ petitions. Respondents' Contention: The learned Assistant Solicitor General did not dispute the petitioner's submission that the issue was covered by the previous common order. The judgment also references the respondents' argument in the common order that directors are automatically disqualified if companies fail to file annual returns for three consecutive years after the Rules of 2014 came into force, and that an alternative remedy under Form DIR-10 exists, making the writ petitions premature.