Written by : Divya Lawrance , (3rd Year Law student), B.A.LL.B , Christ University ,Pune Lavasa
A director in a firm is a pivotal figure as the job of governing, managing, and adhering to legal standards lies with him or her. The Companies Act, 2013, allow director to be disqualified under specified situations. Such an instance and case that drew attention to legal complexities involved with disqualifying directors is G. Vasudevan vs UOI, dated December 2, 2019. This case resolved the contentious mass disqualification of directors and challenged the retrospective effect of section 164(2) of the Companies Act.
Section 164(2) of the Companies Act 2013, disqualifies directors if they have been with a company that has not filed three years' annual returns and/or accounts. Disqualified directors cannot be re-appointed to a company for five years. It is to promote corporate responsibility. Directors can be disqualified under the Companies Act, 2013, pursuant to section 164 for reasons like conviction by court, defaulting in filing financial statements or annual returns, default of the company in repayment of deposits or interest and order by NCLT. The Ministry Of Corporate Affairs had under section 164(2) disqualified a majority of directors in 2017 on grounds of their inability to ensure compliance with statutory provisions, such as the filing of returns.
WHAT WAS HELD?
The petitioner, G. Vasudevan, was disqualified as a director because he was connected with companies that had not filled financial statements for three years in a row. The MCA retrospectively invoked section 164(2) and prohibited him from occupying a directorial role for five years. Vasudevan objected to this disqualification, contending that the retrospective application of the provision was against natural justice and his basic rights under Article 19 (1)(g) of the constitution.
The Madras HC held that the retrospective operation of section 164(2) was not constitutional because it punished directors for default prior to the introduction of the provisions. The court stressed that rules creating punishment have to be operated prospectively unless specifically the contrary is provided by the legislature. It also held that the action of the MCA was against the principles of natural justice since directors were disqualified without any notice or hearing. The court also held that the regulatory steps should be taken with a view to ensuring fairness and directors cannot be penalized for defaults committed in the past under a provision that did not exist at that point. Thus, the court overturned the disqualification and emphasized the need for due process in such proceedings.
The judgments in G. Vasudevan vs Union of India (2019) are bound to have a great and long-lasting impact on corporate governance and compliance with the regulatory framework in India. For starters, it explains that penal laws under the Act cannot be invoked retrospectively except where there is an explicit intent on the part of the legislature, thus protecting directors against indiscriminate disqualification. Second, the rulling upheld natural justice principles, ensuring proper notice and an opportunity to be heard by affected parties before punitive actions were taken against them. The judgement also afforded relief to several disqualified directors so that they could challenge their removal from office on grounds of non – compliance with due process. Apart from that, the judgment underscored that the regulatory authorities have to exercise their powers reasonably and within constitutional bounds, thereby enhancing business compliance system as well as safeguarding individual rights.
CONCLUSION
This case G. Vasudevan vs Union of India (2019) case proved useful in explaining the usage of section 164(2) and safeguarding directors against whimsical disqualification. The verdict reaffirmed corporate governance law had to be transparent, fair, and not retrospective in character. In my opinion, compliance is important, but legal provisions need to be enforced with fairness and due process so as not to cause undue hardship to individuals. Regulatory agencies ought to take a balanced approach enforcing accountability while sustaining constitutional rights. This case acts as a wake-up call to the fact that governance structures should adapt in ways that are equitable and legally plausible to ensure the sustainability of faith in corporate governance.
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