The Karnataka High Court, in a significant ruling, has clarified that directors disqualified under Section 164(2) of the Companies Act, 2013 can be barred from serving as directors in all companies, not just the company that is in default. The Court further upheld that the provisions under Section 164 and Section 167 are reasonable restrictions under Article 19(1)(g) of the Indian Constitution, which guarantees the right to practice any profession or business.
🔍 Background of the Case
The case involved petitioners Dilipraj Pukkella and another, both directors of M/s Vihaan Direct Selling (India) Pvt. Ltd. When the company attempted to file statutory returns for the financial years 2017–18 and 2018–19 on the MCA portal, a system-generated message appeared stating that the directors were disqualified under applicable provisions.
Subsequently, the Registrar of Companies initiated winding-up proceedings against the company on June 7, 2019, before the National Company Law Tribunal (NCLT). The petitioners became aware of their disqualification only through these proceedings and challenged the same before the High Court.
They argued that while they could be disqualified from M/s Vihaan, they should not be barred from acting as directors in other companies where no violations occurred. They also submitted that such blanket disqualification was unconstitutional and harmed their professional and business interests.
⚖️ Court’s Observations
Justice Suraj Govindaraj delivered the verdict and observed:
“The disqualification is not with reference to a particular company but with regard to an omission or commission under Section 164(2), such as failure to file financial statements or repay deposits. Hence, a director can be disqualified across all companies.”
The Court categorically rejected the petitioners’ contention that disqualification must be restricted only to the company in default. It emphasized that:
- Section 164(2) deals with disqualifications arising from non-compliance by a company in fulfilling statutory obligations like filing returns, repaying deposits, or redeeming debentures.
- Proviso to Section 167(1)(a) explicitly states that if a director incurs disqualification under Section 164(2), their office shall become vacant in all companies except the defaulting one.
- Therefore, directors disqualified under this provision are barred from holding directorship in any company during the disqualification period.
⏳ Disqualification Period Cannot Exceed 5 Years
Importantly, the High Court held that the disqualification period under Section 164(2) is limited to five years, and cannot be extended by any authority. Since the alleged disqualification in this case dated back to 2018, the restriction would have expired by 2023. Hence, as of now, the petitioners can resume their roles as directors in companies.
🏛️ Final Judgment
The writ petition was dismissed, and the Court upheld the validity of the disqualification under Section 164(2). It reaffirmed that:
“Section 164 and 167 are not unconstitutional. They are valid and reasonable restrictions imposed in public interest to ensure compliance and accountability in corporate governance.”
⚖️ Advocates & Representation
- For Petitioners: Advocate Shreehari Kutsa
- For Respondents: ASG Aravind Kamath and CGC M N Kumar (R1 to R3)
📌 Key Takeaways
- Directors disqualified under Section 164(2) are barred from all companies, not just the one in default.
- Such disqualification is a reasonable restriction under Article 19(1)(g).
- The maximum disqualification period is 5 years, and cannot be extended.
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Directors can resume positions after the disqualification period lapses, even if earlier prevented from filing returns.
Case Title: Dilipraj Pukkella & Another vs Union of India & Others
Case No: W.P. No. 3465 of 2021
Citation: 2025 LiveLaw (Kar) 256