Financial statements: RoC order on directors set aside

Justice T Raja while disposing a spate of writ petitions filed in this regard, said “When the default in filing the accounts or returns are made as compoundable offence, Section 164(2) (a) providing the disqualification of director of private company not only in the defaulting company, but also from other company in which the petitioner is a director, diligently and meticulously following every provision of law, is certainly disproportionate to the lapse, as it is only regulatory in nature.”

“Since, notice to be sent under Section248(1) of the Companies Act, 2013 by the Registrar of Companies for striking off the name of the company from the Registrar of Companies on the premise that the company has not been carrying on any business for a period of two financial years, is different from the disqualification under Section 164(2)(a), in as much as a company can be struck off, if the company has not been carrying on any business for a period of two financial years, whereas for disqualification, the criteria is three financial years” the judge added.

The spate of petitions, which focused their challenge on how the three continuous financial years should be calculated, had contended that Since Section 164 was made effective only from January 1, 2014, the first financial year for the purpose of Section 164 of the 2013 Act would between April 1, 2014 and March 31, 2015. Accordingly, the second and third financial years would be the years ended March 31, 2016 and March 31, 2017.

They also cited provisions related to holding of annual meetings and time limits given thereafter for filing annual returns and the like. Given all these, the disqualification could get triggered only on or after October 30, 2017 if a firm fails to file annual forms for three financial years, it was argued.

Justice Raja in his order also held “By virtue of the new Section 164(2)(a) of the 2013 Act using the expression “for any continuous period of three financial years” and in the light of Section 2(41)defining “financial year” the first financial year would be from 1.4.2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the Registrar of Companies Tamil Nadu clearly admitted in the counter affidavit that the default of filing statutory returns for the financial years commenced from 2013-14, 2014-15 and 2015-16 i.e., one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings.”