HC Grants Director’s Removal Request as Default u/s 166(3) Remained Unaddressed Due to COVID-19 Pandemic

Case Details: Rajiv Sharma v. Registrar of Companies - [2024] 160 taxmann.com 36 (HC-Bombay)

Judiciary and Counsel Details

• • G.S. Kulkarni & Firdosh P. Pooniwalla, JJ.
  • Ashok Singh for the Petitioner.
  • Shehnaz V. Bharucha & Mohamedali Chunawala for the Respondent.

Facts of the Case

In the instant case, the company was sought to be formed during the period when the country was impacted by the COVID-19 pandemic and the petitioner resumed his position in the company as a director on 19.8.2020. He tendered his resignation via a letter dated 24.8.2021.

Upon receiving the resignation letter, the Board of Directors passed a resolution accepting the petitioner’s resignation. However, as nothing was heard from the company regarding steps being taken to complete the formalities of the resignation of the petitioner as a director, the petitioner, therefore, requested the RoC to remove his name from the directorship of the company with immediate effect.

The relief as sought by the petitioner was being opposed by the RoC primarily on the ground that the company had not fulfilled some of the compliances required to be made under the provisions of the Companies Act, 2013, thus, directors were in default as per section 166(3) of the Companies Act, 2013. Therefore, the claim of the petitioner for deletion of his name couldn’t be accepted for want of such compliance by the company.

It was noted that although certain compliances on the part of the company were necessary, however, in the peculiar facts of the instant case, it was clear that the company itself didn’t commence its business, as also other director being a foreign director did not take any steps in that regard. Added to this was the Covid-19 pandemic period during which such compliances couldn’t be made.

All these circumstances ought not to weigh against the petitioner for deletion of his name. Further, it was noted that except for certain forms not being filled by the company within the prescribed time, there did not appear to be any other gross default or illegality or any other justifiable reason for the RoC to give effect to the resignation of the petitioner, in official records, as maintained by him.

High Court Held

The High Court held that this was a default on the part of a non-functional company. Thus, there was clearly a case where the company itself was stillborn. Therefore, the instant petition filed by the petitioner praying for relief against the RoC for a direction to remove the petitioner’s name as director of the company was to be allowed.

However, regarding any other compliance and or default of the company, it was open to the RoC to take appropriate actions as law mandates.