Mumbai: A group of senior executives in big automakers approached the Delhi high court for relief after finding themselves in the list of directors disqualified by the ministry of corporate affairs (MCA). The court stayed the MCA directive in an interim order on Tuesday.
Pawan Goenka, managing director of Mahindra & Mahindra Ltd, Srinivasan Sandilya, non-executive chairman of Eicher Motors Ltd, and Vinod Dasari, managing director of Ashok Leyland Ltd, are all directors in a firm called Association of Indian Automobile Manufacturers. This is a section 25 company; such firms, under the Companies Act, are those formed for promoting commerce, art, science etc and are not for profit.
Since the firm did not file any financial results for the past three years, its directors, which also includes Vishnu Mathur, the director general of Society of Indian Automobile Manufacturers (Siam), were named in the MCA list of over 100,000 directors. Any digital signatures by these directors on annual reports, financial results and other company documents will not be accepted by the Registrar of Companies (RoC).
In a petition before the Delhi high court, lawyers representing these auto executives argued that the ban directive was passed without issuing a show-cause notice.
“The petition has been filed stating that section 164(2)(a) applies to directors of a company which has not filed returns for three years. The section prevents these directors to be reappointed as directors of the company or directors of any other company. The section does not provide for immediate disqualification. Even the strictures on these directors seem to have been applied retrospectively,” said Satwinder Singh, a partner at Vaish Associates, which represented these directors.
Spokespersons for Ashok Leyland and Mahindra declined to comment. Queries emailed to Eicher were not answered.
The petition will be heard next on 1 November, and MCA has been asked to file a reply on the petition.
"Such kind of bar is bound to be challenged and it is good that people are approaching courts for relief. The issue is that a set of automated data has been used to effect a mass ban on directors without application of mind. However, just a handful of directors seeking individual relief will not help the others who do not have the wherewithal to approach the courts for relief," said Sandeep Parekh, founder of law firm Finsec Law Advisors.
Even in the case of Association of Indian Automobile Manufacturers, it is a ‘technicality’ that has resulted in action on its directors, said a person with direct knowledge of the matter on condition of anonymity. “The company had pretty much become defunct and all its activities have been transferred and are being carried out by Society of Indian Automobile Manufacturers (Siam). The company was kept going as some of the assets were yet to be transferred to Siam,” this person said.
A spokesperson for Siam declined to comment.
Mint had reported on 10 October that as many as 500 publicly traded companies have been hit due to the MCA directive. Stock exchanges National Stock Exchange of India Ltd and BSE Ltd are sending out notices to these firms seeking clarification on their suspended directors.