'SNDP Yogam Has Not Filed Annual Returns For 3 Continuous Years' : Kerala HC Directs Decision On Sanoo's Plea To Disqualify Vellappally & Ors As Directors

The Kerala High Court has directed the Inspector General of Registration to take a decision on the complaint filed by noted writer Professor M K Sanoo seeking disqualification of Vellappally Natesan and three others as the directors of the SNDP Yogam.

A single bench of Justrice N Nagaresh directed that the decision should be taken within a period of three months.

Professor Sanoo had filed a complaint before the Inspector General of Registration alleging that Natesan and other directors of SNDP Yogam have incurred disqualification under Section 164(2) of the Companies Act as they have failed to file the annual returns of the Yogam for three consecutive financial years from 2013-14 to 2015-16.

He then filed a writ petition in the High Court seeking action against General Secretary of SNPD Vellappally Natesan, President Dr MN Soman, Vice President Tushar Vellappally and Devaswom Secreary Arayakkandil Santhosh.

Sanoo's case

Sanoo contended that Natesan and others who claim to be SNPD Directors "are taking advantage of absence of a proper and effective regulatory frame work".

The petitioner submitted that Aruvippuram Sree Narayana Dharma Paripalana Yogam( SNDP Yogam) is registered as a company under the Kerala Non-trading Companies Act, 1961. A company registered under the Kerala Non-Trading Companies Act 1961 is deemed to be a company registered under the Companies Act, 1956. Since the Companies Act 2013 has replaced the Companies Act 1956, the provisions of the 2013 Act are applicable to the Yogam, as held in the HC decision K. Manoj @ Manoj Kadakampally and othersv. Sree Narayana Dharma Paripalana Yogam and others.

The petitioner urged that Section 164(2)(a) disqualifies a person as Director if financial statements or annual returns are not filed for a continuous period of three years. Such Directors cannot be reappointed for a period of five years. Section 167 of the Companies Act, 2013 mandates that the office of a Director shall become vacant in case he incurs any of the disqualifications specified in Section 164. In view of the continued default in filing the mandatory returns, Natesan and the other directors should be deemed to have vacated office of the Directors by operation of Section 164(2) of the Companies Act read with Section 167 and they are disqualified from seeking re-election.

Allegations have strong legal footing, HC says

The High Court observed that Sanoo's allegations have 'strong legal footing'. The Court noted that there are no materials to indicate that the Directors of the Yogam took any effective steps to file annual returns/financial statements during the period from 2013-'14 to 2015-'16.

The disqualification under Section 164(2) is by operation of law and automatic.

"Since the Yogam has not filed annual returns/financial statements from the year 2013-'14 to 2015-'16 for a continuous period of three years, the Directors who were holding the office during the period would be disqualified for reappointment for the next five years", Justice Nagaresh observed in the judgment delivered on January 5.

The Court however observed that there was lack of clarity in the pleadings in the writ petition as to whether Natesan and others were the Directors of the Yogam during the relevant period.

"Going through the pleadings in the writ petition, I find that there is no positive assertion anywhere in the writ petition that respondents 4 to 7 were Directors of the Company during the three consecutive years since 2013-'14, except in the case of the 4th respondent(Natesan)...

The pleadings in the writ petition leaves this Court to presume that the 4th respondent has been the General Secretary of the Yogam during the years 2013-'14 to 2015-'16. As regards respondents 5 to 7, there is no pleading in the writ petition asserting that they were Directors of the Company during the said period".

In such circumstances, the Court said it was refraining from ordering their disqualification due to insufficient pleadings.

"Disqualification of Directors for reappointment or appointment in any Company is a serious matter affecting rights of Directors to hold office of the Director not only in the defaulted company but also in other companies. Therefore, it will not be advisable and would indeed be improper to declare that respondents 4 to 7 are disqualified for reappointment in the Yogam, in view of Section 164(2) of the Companies Act, 2013 in the absence of sufficient pleadings".

However, as the Court found that the allegations made by the petitioner have strong legal footing, it directed the competent authority, the Inspector General of Registration under the Government of Kerala, to decide on Sanoo's complaint within 3 months, after giving an opportunity of hearing for all parties likely to be affected.

Click here to read/download the judgment