Director Can Be Disqualified Across All Companies, But Only for 5 Years: Karnataka High Court | Calls S.164 a Reasonable Restriction Under Article 19(1)(g)
Sanchayita Lahkar
The High Court of Karnataka Single Bench of Justice Suraj Govindaraj stated that the disqualification of directors under Section 164(2) of the Companies Act, 2013 cannot extend beyond a five-year period and has come to an end in the present case. The Court dismissed the writ petition but made a significant observation that the authorities lack the statutory power to prolong the disqualification period beyond the legally mandated term. Consequently, the Court held that the petitioners’ disqualification, which arose in 2018, ceased to be in effect as of 2023.
The petitioners, directors of M/s Vihaan Direct Selling (India) Private Limited, approached the Court challenging the action of the Ministry of Corporate Affairs and its associated authorities. The writ petition was filed under Articles 226 and 227 of the Constitution of India seeking declaration that the disqualification and blocking of their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) was unconstitutional and violative of their fundamental rights under Article 19(1)(g).
The petitioners stated that they were appointed as directors in 2016. Subsequently, during attempts to file the company's annual returns for the financial years 2017-18 and 2018-19, a pop-up message appeared on the Ministry’s web portal stating: "the Directors disqualified under the provisions."
In response, the petitioners made multiple representations to the Registrar of Companies (ROC), Bengaluru, requesting reactivation of their DINs. On 07.08.2018, the company received an intimation from the Ministry of Corporate Affairs about a scheduled inspection under Section 206(5) of the Companies Act, 2013. The petitioners were directed to furnish information and documents.
Following the inspection, the Regional Director issued a communication dated 12.12.2018 stating certain irregularities and sought explanations supported by documentary evidence. Subsequently, a show-cause notice was issued by the Registrar of Companies on 21.05.2019. The company submitted a reply on 04.06.2019.
Shortly after, on 07.06.2019, the Registrar of Companies filed a petition before the National Company Law Tribunal (NCLT) seeking the winding up of the company. It was through the documents filed therein that the petitioners came to know about their disqualification.
The petitioners asserted that they were disqualified not only from M/s Vihaan but also from holding directorships in any other company. This, according to them, inflicted severe harm, especially as they were not directors in any other company.
It was further argued that even if disqualification was warranted, it could not extend beyond five years. Since the original disqualification commenced in 2018, it had expired in 2023. Therefore, any continuation of the DIN/DSC block beyond that period was without legal authority.
On the other hand, the respondents, represented by the Additional Solicitor General, did not dispute the disqualification but pointed to serious allegations against the company involving a suspected Ponzi scheme and consequent investor losses. It was submitted that appropriate action had been initiated and was pending. However, it was acknowledged that the five-year disqualification period had lapsed and no provision existed under the Act to extend the same.
The Court framed three issues for consideration:
- Whether under Section 164 of the Companies Act 2013, a director can be disqualified from being a director in the company as regards which the allegations are made, as well as regarding any other company in which he or she is a director, for which no allegations are made?
- Whether there is any power with the concerned authorities to extend a period of disqualification beyond a period of five years?
- What order?
Answering the first point, the Court noted: "In terms of proviso to Clause (a) of Sub-section (1) of Section 167, it is categorically stated that where a director incurs a disqualification under Sub-section (2) of Section 164, the office of the director shall become vacant in all the companies other than the company which is in default under that Sub-section."
The Court clarified that the disqualification operates beyond the company in default. It recorded: "The submission... that a director can only be disqualified in the company in default and not in a company in which he is not in default, cannot be sustained. The disqualification is not with reference to a company but with regard to an action not taken by the director coming under Sub-section (2) of Section 164."
It further observed: "Thus, so long as any default is made to the requirement of Clause (b) of Sub-section (2) of Section 164, such a director would be disqualified as a director of that company or from appointment in any other company for a period of 5 years."
As to the constitutional challenge under Article 19(1)(g), the Court held: "The Right to Trade and Business and practice profession under Article 19(1)(g) of the Constitution of India is not absolute but is subject to reasonable restrictions that may be imposed under law."
Regarding the second point, the Court clearly stated: "Section 164... does not provide for extension of the period of 5 years, the restriction can only be for a period of 5 years."
"In the present case, the disqualification of the petitioners having occurred in the year 2018, the said 5 years expired in the year 2023 and therefore cannot be continued thereafter."
The Court issued the following conclusion: "No ground being made out in the writ petition stands dismissed, with the observation that the disqualification of petitioners in the present case has come to end in the year 2023."
Advocates Representing the Parties
For the Petitioners: Sri. Shreehari Kutsa, Advocate
For the Respondents: Sri. Aravind Kamat, Additional Solicitor General; Sri. M.N. Kumar, Central Government Counsel
Case Title: Mr. Dilipraj Pukkella & Anr. v. Union of India & Ors.
Neutral Citation: NC: 2025: KHC:28697
Case Number: WP No. 3465 of 2021
Bench: Justice Suraj Govindaraj
