Case Summary: Dilipraj Pukkella & Anr. v. Union of India & Ors. (2025) | Scope of Director Disqualification under Companies Act

The case of Dilipraj Pukkella & Anr. v. Union of India & Ors. revolves around the disqualification of company directors under Section 164 of the Companies Act, 2013. The petitioners, Mr. Dilipraj Pukkella and Mr. Muhammed Imthiyaz, challenged the constitutional validity of the action taken by the Ministry of Corporate Affairs (MCA) in blocking their Director Identification Numbers (DINs), thereby preventing them from functioning as directors, citing infringement of their rights under Article 19(1)(g) of the Constitution of India.

Citation: WP 3465 of 2021

Court: High Court of Karnataka at Bengaluru

Coram: Justice Suraj Govindaraj

Date of Judgment: 25 July 2025

The judgment clarified the legal position regarding disqualification, its scope under Sections 164 and 167, and the permissible period of such disqualification.

Background and Facts

The petitioners were appointed as directors of M/s Vihaan in 2016. However, while attempting to make statutory filings for financial years 2017-18 and 2018-19, they encountered a message on the MCA portal indicating that they had been disqualified under relevant provisions of the Companies Act, 2013.

The sequence of events is as follows:

• Inspection Notice: On 07.08.2018, the company was informed that its records would be inspected under Section 206(5) of the Companies Act, 2013.
• Irregularities Noted: On 12.12.2018, the Regional Director flagged several irregularities and sought explanations.
• Show Cause Notice: Issued on 21.05.2019 by the Registrar of Companies.
• Reply and Winding Up Petition: The petitioners replied on 04.06.2019. Subsequently, on 07.06.2019, a petition for the winding up of the company was filed before the National Company Law Tribunal (NCLT).
• Disqualification Realised: Petitioners came to know that their DINs were blocked and that they were disqualified from acting as directors in any company, not just M/s Vihaan.
• Legal Challenge: Hence, they approached the High Court under Article 226 of the Constitution.

Reliefs Sought

The petitioners prayed for:

• Declaration that the action of blocking their DINs and disqualifying them from acting as directors was unconstitutional and violative of Article 19(1)(g).
• Restoration of their DINs/DSCs (Director Identification Numbers/Digital Signature Certificates).
• Any other appropriate relief in the interest of justice.

Petitioners’ Contentions

Senior Counsel Sri D.R. Ravishankar argued:

• No Interim Disqualification Permissible: Petitioners were disqualified without due process or final order.
• Collateral Damage to Other Companies: They were disqualified from being directors in all companies, even those not involved in the alleged violations, which was excessive and arbitrary.
• Expiry of Disqualification Period: Even assuming a valid disqualification, the five-year statutory period under Section 164 had expired in 2023. Thus, continuing the embargo was unlawful.

Respondents’ Contentions

Additional Solicitor General Sri Aravind Kamath submitted:

• Serious Allegations Against Vihaan: The company and its directors were allegedly involved in financial irregularities and fraudulent Ponzi schemes, causing loss to thousands of investors.
• Legal and Procedural Validity: Disqualification was based on provisions under the Companies Act for defaulting in filing returns and repayment of deposits.
• Expiry of Disqualification Period: The five-year period had lapsed in 2023. Thus, there was no extension or ongoing legal bar unless fresh proceedings were initiated.

Issues for Determination

The Court identified three key legal issues:

• Whether a director can be disqualified from all companies under Section 164(2), including those where no default occurred.
• Whether authorities have the power to extend disqualification beyond the prescribed five-year period.
• What relief, if any, should be granted to the petitioners.

Judicial Analysis

Issue 1: Scope of Disqualification under Section 164

• Section 164(2) disqualifies a person from being reappointed as a director in any company for five years if the company fails to file annual returns or repay deposits for a specified period.
• Section 167(1)(a) mandates vacation of office in all companies except the defaulting one, when disqualification under Section 164(2) occurs.

Court’s Findings:

• Disqualification applies to all companies where the individual serves as a director, even if only one company is in default.
• The proviso to Section 167(1)(a) ensures that directors continue in the defaulting company (to facilitate rectification), but must vacate positions in other companies.
• This construction is supported by the need to uphold public interest and regulatory oversight.

The Court rejected the argument that disqualification should be confined only to the defaulting company, holding that disqualification flows from an individual’s conduct and responsibility, not merely the company’s performance.

Issue 2: Duration of Disqualification

• Section 164(2) explicitly limits the disqualification to five years from the date of default.
• The Act contains no provision allowing extension of the disqualification period.

Court’s Findings:

• Disqualification imposed in 2018 expired in 2023.
• No power exists under the Act to extend it.
• The authorities must restore the petitioner’s DINs/DSCs post the expiry of the disqualification period.

Issue 3: Relief to be Granted

The Court dismissed the writ petition, noting that the disqualification period had already lapsed, making the grievance infructuous.

However, it observed and clarified:

• The disqualification no longer continues.
• Authorities are expected to take appropriate steps to remove blocks from DINs/DSCs, as no further embargo is justified.

Constitutional Considerations

The petitioners had also challenged the disqualification as violative of Article 19(1)(g)—freedom to practise a profession or carry on trade or business.

Court’s Reasoning

• The right to business is subject to reasonable restrictions under Article 19(6).
• Sections 164 and 167 impose statutory restrictions to ensure compliance and integrity in corporate governance.
• A director who fails to ensure statutory filings or repayment of public deposits breaches fiduciary duties.
• Hence, the restrictions imposed are valid and reasonable.

The Court thus held that the impugned provisions are constitutionally valid and cannot be struck down merely on the ground of hardship or inconvenience to the disqualified individuals.

Key Legal Provisions Discussed

• Section 164 of Companies Act, 2013 – Disqualification of directors.
• Section 167 – Vacation of office of director upon incurring disqualification.
• Article 19(1)(g) of Constitution – Right to practice profession/business.
• Article 226 – Writ jurisdiction of High Courts.

Conclusion

Final Judgment:

• The writ petition was dismissed.
• The Court held that the disqualification was lawful, but the five-year period had expired, thereby lifting the embargo.
• The petitioners' DINs should now be reactivated.
• The Court refused to issue any writ or formal direction but clarified the legal position for future compliance.

Significance of the Judgment

• Clarifies Disqualification Scope: The judgment affirms that disqualification under Section 164(2) applies to all directorships, not just the defaulting company.
• Ensures Timely Restoration: It reiterates that no indefinite disqualification can be imposed. The MCA must act fairly and in accordance with time limits under law.
• Strikes Balance: The Court maintains a balance between corporate governance and individual rights, upholding constitutional validity while checking administrative excess.

Impact on Corporate Directors

This judgment provides key takeaways for directors of companies:

• Responsibility is personal and extends across all companies.
• Default in one company can result in disqualification from others.
• However, such disqualification cannot exceed five years.
• Authorities must restore DINs post expiry of the disqualification period.

Click Here to Read the Official Judgment

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