With the Madras High Court reserving its order in the directors’ disqualification case, corporate India is keeping its fingers crossed.

Justice T. Raja of the Madras High Court last week heard the final arguments in the case which saw a spate of writ petitions challenging the order of the Registrar of Companies (ROCs) disqualifying directors of private companies for non-filing of financial statements for a period of three continuous financial years.

These petitions focussed their challenge on how the three continuous financial years should be calculated.

The Madras High Court was the first to grant a stay in September. Since then, more parties had filed writ petitions. The High Court had also heard the counter-arguments by the Ministry of Corporate Affairs.

The writ petitions were filed challenging the order on disqualification of directors under Section 164(2)(a) of the Companies Act, 2013.

Initially, a list of disqualified directors numbering 45,657 of various firms with effect from November 1, 2016 was released. An updated list later saw the number reduced to 34,565.

The calculation of three continuous financial years has become the fulcrum of focus in this instance. If one were to go by Section 274(1)(g) of the 1956 Act, which came into effect from December 13, 2000, it means “three financial years commencing on and after the first day of April, 1999.” The new Section 164(2)(a) of the 2013 Act, however, uses the words “for any continuous period of three financial years.” So, the definition of the financial years itself has become the subject matter of argument in this case.

According to Section 2(41) of the 2013 Act, it is argued ‘financial year’ in relation to any company “means the period ending on the 31st day of March every year, and where it has been incorporated on or after the first day of January of a year, the period ending on the 31st day of March of the following year.”

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 31/3/2016 and 31/3/2017,” it is argued.

‘October 2017 as trigger’

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 is argued.

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