Condonation Of Delay In Filing Returns For Company Not Available To Directors: Kerala High Court

The Kerala High Court on Thursday held that condonation of delay in filing annual returns does not wipe out the statutory disqualification incurred by directors for failure to file returns for consecutive financial years. The court observed that the benefit of condonation available to the company cannot be extended to its directors.

The court held that the office-bearers of the Aruvipuram Sree Narayana Dharma Paripalana Yogam, including V.K. Natesan, Dr. M.N. Soman, Thushar Vellappally and Santhosh @ Arayakkandil Santhosh, had incurred disqualification under Section 164(2) of the Companies Act, 2013, and clarified that the five-year period of ineligibility would begin only after they cease to hold office, since no elections had been held after 2015.

A Single Bench of Justice T.R. Ravi held that while delay in filing returns may be condoned under the Companies Act, the statutory consequences for directors under Section 164 of the Companies Act, 2013 operate independently.

“Directors who are distinct from the Company and who are in control of the affairs of the Company are dealt with differently by the Act, by prescribing certain consequences if they fail to file the annual returns continuously for three financial years. They are not entitled to the benefit of the condonation of delay available to the Company.”

The petition was filed by members of the Aruvipuram Sree Narayana Dharma Paripalana Yogam challenging an order of the Inspector General of Registration dated February 17, 2024, which had held that the directors of the Yogam were not disqualified for the financial years 2014-15 and 2015-16.

According to the petitioners, the Yogam had failed to file annual returns and financial statements for several years from 2006-07 to 2016-17, attracting disqualification of directors under Section 164(2) of the Companies Act.

They contended that the Yogam is governed by the Kerala Non-Trading Companies Act, 1961, under which the provisions of the Companies Act apply mutatis mutandis.

Although the pending returns were later filed under the Companies Fresh Start Scheme (CFSS), 2020 and immunity from penalties was granted, the petitioners argued that the scheme merely condones the delay and waives penalties. According to them, it does not erase the statutory disqualification already incurred by the directors.

The issue had earlier been remitted for reconsideration by the High Court. However, the Inspector General of Registration once again concluded that the directors were not disqualified, relying on the immunity granted under the CFSS.

Subsequently, the petitioners approached the High Court again, seeking to set aside the order and for consequential directions, including a declaration that the directors stood disqualified and a direction to conduct fresh elections.

The directors resisted the petitions, arguing that the writ proceedings were not maintainable since remedies were available under the Companies Act and related proceedings were already pending before the Company Law Tribunal and a civil court. The court rejected the objection, noting that the impugned order had itself been passed pursuant to earlier directions of the High Court, and therefore the writ petitions could not be declined on the ground of alternative remedy.

While examining the question of the applicable law, the Court observed that the Yogam had consistently been treated as governed by the Kerala Non-Trading Companies Act in government orders as well as in earlier proceedings. In that background, it held that the authorities under the Kerala Act were competent to consider the question of disqualification.

On the issue of condonation of delay in filing returns, the Court noted that the legal consequences had already arisen.

“In view of the statutory provisions, the respondents cannot be heard to contend that the condonation of the delay in filing the annual returns will have the effect of undoing the statutory consequence.”

Rejecting the contention that the five-year disqualification period had expired, the Court held that the period of ineligibility under Section 164(2) would begin only after the directors cease to hold office, particularly since no elections had been held after 2015.

“ …the only interpretation possible is that the period of 5 years contemplated in Section 164(2) will begin from the day the respondents cease to be Directors. This is more so, since admittedly, there has been no election held after 2015. I hence hold that the respondents 4 to 7 have become disqualified under Section 164(2) of the 2013 Act.”

The court also observed that the directors are required to comply with statutory requirements, including obtaining a valid Director Identification Number in accordance with the applicable law, and that non-compliance with such requirements would affect their eligibility to continue as directors.

Accordingly, the Court quashed the order of the Inspector General of Registration, declared that the SNDP Yogam office-bearers are disqualified and not eligible for re-appointment, and directed the state government to take necessary measures to appoint the required number of directors to hold office until new directors are appointed in accordance with law.

For Petitioners: Senior Advocate P.B. Krishnan, Advocates Sabu George, K.P Prasanth, P.B Subramanyan, Manu Vyasan Peter, D. Anil Kumar, K.T Shyamkumar, Harish R Menon, K.N Abha, R. Revikumar, A.G Prasanth and Aleena Sebastian

For Respondents: Senior Advocate Udaya Holla, Advocates Meghana Ballal, A.N Rajan Babu, C.E Unnikrishnan, V.P Brijesh, Aswathy Amby