Ramesh Babu Gabbita vs. Union Of INDIA

Held

The High Court held that the deactivation of the petitioner's Director Identification Number (DIN) was not legally valid as it was done without following the prescribed procedure. The Court referred to its previous decision in W.P.No.5422 of 2018 and batch, which established that DIN deactivation must be in accordance with Rule 11 of the Companies (Appointment and Qualification of Directors) Rules, 2014. Rule 11 mandates that an opportunity of being heard must be given to the concerned individual before cancellation or deactivation of DIN, except in specific circumstances outlined in clauses (a) to (f) of the rule. The Court found that the grounds for deactivation cited by the respondents were different from those permitted under Rule 11. Furthermore, the Court noted that the issue was not about the disqualification of directors per se, but specifically about the deactivation of DIN for active companies. The Court also cited a Division Bench judgment of the Allahabad High Court in Jai Shankar Agrahari v. Union of India, which supported the view that DIN deactivation without a specific provision or due process cannot be sustained. Consequently, the writ petitions were allowed, and the impugned orders deactivating the DINs in active companies were set aside. The respondents were directed to reactivate the DINs, with the clarification that this would not preclude action for violations under Section 164(2) of the Act as per Rule 11 procedures. The Court also noted that if the petitioners were aggrieved by their companies being struck off, they could avail the remedy under Section 252 of the Act.

Facts

The petitioner, Ramesh Babu Gabbita, filed a writ petition seeking to continue as a director and to have his Director Identification Number (DIN) and digital signatures activated. He contended that his DIN was deactivated without proper notice or explanation, contrary to the Companies (Appointment and Qualification of Directors) Rules, 2014. The respondents were the Union of India and the Registrar of Companies. The petitioner argued that his case was covered by a previous common order of the High Court in W.P.No.3230 of 2020 and batch. The respondents did not dispute this submission. The High Court, with the consent of both parties, disposed of the writ petition at the admission stage based on the submissions made and the common order.

Key Issues

1. Whether the deactivation of the petitioner's Director Identification Number (DIN) was legally valid and followed the procedure contemplated under the Companies (Appointment and Qualification of Directors) Rules, 2014? Petitioner's contention: The petitioner argued that his DIN was deactivated without following the procedure under Rule 11 of the Rules of 2014, specifically without issuing notice or calling for an explanation. This deactivation caused him significant suffering and prevented him from performing his duties as a director and complying with statutory requirements like submitting annual returns. He relied on previous judgments of the High Court, including W.P.No.5422 of 2018 and batch, which held that DIN deactivation must adhere to Rule 11 and cannot be based on violations under Section 164(2) of the Act without due process. Revenue/State's contention: The learned Assistant Solicitor General argued that the petitioners had an alternative remedy under Rule 14 of the Rules of 2014 by filing an application for removal of disqualification in Form DIR-10. He contended that the writ petitions were premature. He also argued that directors have a legal obligation to ensure annual returns are filed, and failure to do so for three consecutive years leads to automatic disqualification, citing Section 164(2) of the Companies Act, 2013. However, the judgment notes that the ASG did not dispute the petitioner's submission that the issue was covered by a previous common order.