The government’s move to debar directors of companies who have not filled annual returns for three successive years is likely to be challenged in courts citing retrospective application of Companies Act, 2013. As a general rule, law is always applicable prospectively, unless any prior date is mentioned specifically says Sumit Naib.

According to corporate law experts, Section 164 (2) (a) of the Companies Act, 2013, which pertains to disqualification of directors due to non-filing of financials and annual returns for three years is applicable to all types of companies including private ones with effect from April 1, 2014. Prior to the enactment of this new section under the Companies Act 2013, the corresponding section under the Companies Act, 1956 was applicable only to public companies The Ministry of Corporate Affairs earlier this month struck off the names of around 209,000 companies from the records, found to be without any business activity, including  those that had not filed financial statements for three years or more. Subsequently the directors, or the authorized signatories, of the debarred companies have been disqualified from being appointed in any other company in that position.

As per government estimates, at least 200,00-300,000 disqualified directors shall get debarred in the process. Many directors feel the period of default being considered while issuing the list of defaulters is prior to the enactment of section 164 under Companies Act, 2013. Accordingly, such directors may approach the court seeking relief on this ground, says Naib. One could take a view that to the extent the disqualification relates to non-compliance by private companies the law was introduced only with effect from FY 2014-15, he says. However, if the director was appointed after introduction of Companies Act, 2013 and at that point such non-compliance existed he or she would still stand disqualified points out Ahmed.

Legal experts note that during introduction of new company law in 2014 the government had introduced a Company Law Settlement Scheme – a two–month window – for companies that defaulted on filing statements to come good by paying a lower fee. However for companies that took advantage of this scheme, the provisions of Section 164 (2) would apply only for prospective defaults if any, says Ahmed. As per Companies Act, 2013, any aggrieved director could apply to the National Company Law Tribunal (NCLT) within three years of debarment order If, in the opinion of NCLT, removal is not justified it may order restoration of the name of the company in the Register of Companies.