The Madras High Court has set aside the disqualification of directors of private companies by the Registrar of Companies for non-filing of financial statements for a period of three continuous financial years.

Justice T. Raja, who reserved the order after hearing final arguments in the case last week, delivered the judgment on Friday.

The directors were disqualified under Section 164(2)(a) of the Companies Act, 2013. The court said that since Section 164 came into effect from April 1, 2014, the respondents (i.e. RoC) cannot disqualify the petitioners for the financial years 2013-14, 2014-15, 2015-16, as it would tantamount to giving retrospective effect.

The Section says that if the financial statements are not filed for three continuous financial years, then the director can be disqualified. However, if Section 2(41), which defines ‘financial year’ is taken into account, then the first financial year would end on 31.3.2015, the second financial year on 31.3.2016 and the third on 31.3.2017.

Natural justice

Petitioners had contended that even though the Section did not contemplate a show-cause notice before taking any action, since the disqualification had civil consequences, the principle of natural justice had to be adhered to.

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