Karnataka High Court: Defaulting Director Can Be Disqualified from All Companies, Section 164 is a Reasonable Restriction Under Article 19(1)(g)

Karnataka High Court: Defaulting Director Can Be Disqualified from All Companies, Section 164 is a Reasonable Restriction Under Article 19(1)(g). Justice Suraj Govindaraj's judgment in Dilipraj Pukkella & Anr. v. Union of India & Ors. (W.P. No. 3465 of 2021), which was given by the Karnataka High Court on July 25, 2025, represents an important interpretation of the disqualification clauses under the Companies Act, 2013, specifically Sections 164(2) and 167(1)(a). The issue at hand was the automatic prohibition of directors for failing to meet legal filing requirements and the Director Identification Numbers (DINs) got blocked. The petitioners challenged the action as violative of their Fundamental Right under Article 19(1)(g). The Court was asked to determine whether such a disqualification could apply beyond the defaulting company and continue after the five-year limit. Upholding the legal framework, the Court ruled that the provisions are reasonable restrictions and essential for ensuring corporate discipline and the accountability.
Background of the Dispute
The dispute arose when M/s Vihaan Direct Selling (India) Private Limited, where the petitioners served as directors since 2016, failed to file its annual returns and financial statements for the financial years 2017–18 and 2018–19. When the company attempted to file its pending documents on the Ministry of Corporate Affairs (MCA) portal, a pop-up message appeared stating that the directors had been disqualified under the provisions of the Companies Act. This effectively blocked their Director Identification Numbers (DINs), thereby preventing any further statutory filings. The petitioners later discovered that their disqualification was not limited to Vihaan alone but extended to all other companies where they were listed as directors, irrespective of those companies’ compliance status. Despite multiple representations to the Registrar of Companies and the Regional Director, no relief was granted. As a result, the petitioners filed a writ petition under Articles 226 and 227 of the Constitution, challenging the validity and extent of the disqualification and seeking restoration of their DINs.
Relevant Statutory Provisions
The case primarily revolved around the interpretation and application of the following provisions of the Companies Act, 2013:
Section 164(2) of the Companies Act 2013 
which states that:
(2) No person who is or has been a director of a company which:
(a) has not filed financial statements or annual returns for any continuous period of three financial years ; or
(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debenture  on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.
Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.
Learn more about the process of Appointment of Director.
Section 169 of the Companies Act 2013 
which states that
(1) The office of a  director shall become vacant in case
(a) he incurs any of the disqualifications specified in section 164;
Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.
Article 19(1)(g) of the Constitution of India
Article 19(1)(g) of the Constitution guarantees the right to practice any profession or carry on any occupation, trade, or business. The petitioners contended that the disqualification of director under Section 164 of the Companies Act infringed this right, as it barred them from acting as directors even in companies where no default occurred.
However, under Article 19(6), the State may impose reasonable restrictions on this right in the interest of the general public. The Court held that the restrictions imposed by Sections 164 and 167 are legally valid and serve the purpose of ensuring statutory compliance and corporate accountability. Therefore, the provisions were upheld as constitutionally permissible restrictions.
Arguments by the Petitioners
The petitioners, directors of M/s Vihaan Direct Selling (India) Private Limited, advanced the following key arguments:
Limited Disqualification Scope
They argued that the disqualification under Section 164(2) should specifically be applied to the defaulting company (i.e., Vihaan) and should not apply to any other companies where they were directors, especially when those companies were compliant with statutory requirements.
Unconstitutional Deactivation of DINs
 The deactivation of their Director Identification Numbers (DINs) was challenged as arbitrary and unconstitutional, effectively preventing them from fulfilling their statutory duties, including filing pending returns and disclosures for Vihaan itself.
Violation of Fundamental Rights
The disqualification was alleged to be a violation of Article 19(1)(g) of the Constitution, as it restrained them from carrying on their profession as directors. The petitioners argued that such a blanket prohibition went beyond what was necessary or reasonable under law.
Submissions by the Respondents
The respondents, represented by the Additional Solicitor General, made the following key submissions in defense of the disqualification:
Serious Allegations Against the Company
 They contended that M/s Vihaan Direct Selling (India) Pvt. Ltd. was facing serious allegations, including operating a Ponzi scheme, which had caused financial loss to thousands of investors. In light of these violations, action was initiated against both the company and its directors under the Companies Act, 2013.
Statutory Basis for Disqualification
 The disqualification was enforced under Section 164(2)(b) due to failure in repayment of deposits or interest thereon, and non-filing of returns as per the prescribed timelines. Since these were statutory defaults, the consequences followed automatically.
Effect of Section 167(1)(a)
It was submitted that under Section 167(1)(a), once a director is disqualified under Section 164(2), he must vacate office in all companies except the one in default. Hence, the extension of disqualification to other companies was justified by statute.
Expiry of Disqualification Period
The respondents acknowledged that the five-year disqualification period which began in 2018 expired in 2023, and as such, the order had “spent itself”. There was no provision for further extension, and appropriate steps would be taken in accordance with law.
Pending Proceedings
The Court was informed that multiple legal proceedings and regulatory actions were ongoing against the company and its directors, based on complaints and violations discovered during inspection.
Issues Framed by the Court
While adjudicating the writ petition, the Karnataka High Court identified three central legal issues requiring determination. The first issue was whether a director disqualified under Section 164(2) of the Companies Act, 2013 could be barred not only from holding office in the defaulting company but also from continuing as a director in any other company, regardless of whether those companies were compliant with statutory requirements. The second issue pertained to the duration of the disqualifications specifically, whether the statutory five-year bar imposed under Section 164(2) could be extended or enforced beyond that period by the authorities. Lastly, the Court had to consider what appropriate relief or direction ought to be issued in the facts and circumstances of the case.
Court’s Findings
The Karnataka High Court, after examining the statutory provisions and arguments presented, delivered a detailed interpretation of Sections 164(2) and 167(1)(a) of the Companies Act, 2013. On the first issue, the Court held that disqualification under Section 164(2) is director-centric, not company-specific. It clarified that when a director incurs disqualification due to defaults in one company such as failure to file financial statements or repay deposits they become ineligible to act as a director in any other company for a period of five years. This is further reinforced by Section 167(1)(a), which mandates that such a director must vacate office in all other companies, except the defaulting one.
On the second issue, the Court clearly stated that there is no statutory authority to extend the disqualification beyond five years. Since the disqualification of the petitioners occurred in 2018, it had automatically expired in 2023, and no further restriction could lawfully continue thereafter. The respondents also conceded that the five-year period had lapsed and that the order had "spent itself."
Regarding the third issue, the Court found no merit in the petitioners’ challenge to the validity of the disqualification provisions. It held that Sections 164 and 167 impose reasonable restrictions on the interest of corporate discipline and hence do not violate the petitioners’ fundamental right under Article 19(1)(g). Consequently, the Court dismissed the writ petition, while observing that the petitioners’ disqualification had already ceased by operation of law.
Judicial Observations
In its reasoning, the Karnataka High Court made several important observations on the nature and purpose of the disqualification provisions under the Companies Act, 2013. The Court emphasized that Sections 164 and 167 are preventive and regulatory provisions, intended to ensure compliance with statutory duties by directors and to promote corporate accountability. The disqualification is not a punishment, but a consequence of non-compliance, aimed at protecting stakeholders, especially shareholders and depositors.
The Court also clarified that the disqualification applies by operation of law, and no separate adjudication is required for it to take effect. The language of Section 167(1)(a) was particularly highlighted, which provides that when disqualification under Section 164(2) is incurred, the office of the director becomes vacant in all other companies, except the defaulting one. This mechanism, the Court noted, ensures that a disqualified individual cannot continue managing multiple companies while avoiding consequences for corporate defaults.
On the constitutional issue, the Court observed that while Article 19(1)(g) protects the right to carry on business, this right is subject to reasonable restrictions under Article 19(6). The Court held that disqualification arising from statutory non-compliance is a reasonable and proportionate restriction, enacted in the public interest to promote sound corporate governance. It further stated that a director who fails to ensure compliance cannot claim protection under Article 19(1)(g) without showing that such failure was beyond their control.
Conclusion
The judgment of the Karnataka High Court in Dilipraj Pukkella & Anr. v. Union of India & Ors. reaffirms the legitimacy and enforceability of director disqualification provisions under the Companies Act, 2013. By holding that a disqualification under Section 164(2) extends to all companies in which the individual serves as a director, the Court has reinforced the importance of individual responsibility in corporate compliance. Furthermore, the Court’s recognition that such disqualification constitutes a reasonable restriction under Article 19(6) of the Constitution balances the fundamental right to carry on business with the need to ensure transparent and accountable corporate governance. The ruling serves as a caution to company directors to proactively ensure compliance with statutory obligations and clarifies that disqualification is not merely punitive, but a critical mechanism to uphold the integrity of corporate administration in India.

Justice Suraj Govindaraj's judgment in Dilipraj Pukkella & Anr. v. Union of India & Ors. (W.P. No. 3465 of 2021), which was given by the Karnataka High Court on July 25, 2025, represents an important interpretation of the disqualification clauses under the Companies Act, 2013, specifically Sections 164(2) and 167(1)(a). The issue at hand was the automatic prohibition of directors for failing to meet legal filing requirements and the Director Identification Numbers (DINs) got blocked. The petitioners challenged the action as violative of their Fundamental Right under Article 19(1)(g). The Court was asked to determine whether such a disqualification could apply beyond the defaulting company and continue after the five-year limit. Upholding the legal framework, the Court ruled that the provisions are reasonable restrictions and essential for ensuring corporate discipline and the accountability.

Background of the Dispute

The dispute arose when M/s Vihaan Direct Selling (India) Private Limited, where the petitioners served as directors since 2016, failed to file its annual returns and financial statements for the financial years 2017–18 and 2018–19. When the company attempted to file its pending documents on the Ministry of Corporate Affairs (MCA) portal, a pop-up message appeared stating that the directors had been disqualified under the provisions of the Companies Act. This effectively blocked their Director Identification Numbers (DINs), thereby preventing any further statutory filings. The petitioners later discovered that their disqualification was not limited to Vihaan alone but extended to all other companies where they were listed as directors, irrespective of those companies’ compliance status. Despite multiple representations to the Registrar of Companies and the Regional Director, no relief was granted. As a result, the petitioners filed a writ petition under Articles 226 and 227 of the Constitution, challenging the validity and extent of the disqualification and seeking restoration of their DINs.

Relevant Statutory Provisions

The case primarily revolved around the interpretation and application of the following provisions of the Companies Act, 2013:

Section 164(2) of the Companies Act 2013

which states that:

(2) No person who is or has been a director of a company which:

(a) has not filed financial statements or annual returns for any continuous period of three financial years ; or

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debenture on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b), he shall not incur the disqualification for a period of six months from the date of his appointment.

Learn more about the process of Appointment of Director.

Section 169 of the Companies Act 2013

which states that

(1) The office of a director shall become vacant in case

(a) he incurs any of the disqualifications specified in section 164;

Provided that where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become vacant in all the companies, other than the company which is in default under that sub-section.

Article 19(1)(g) of the Constitution of India

Article 19(1)(g) of the Constitution guarantees the right to practice any profession or carry on any occupation, trade, or business. The petitioners contended that the disqualification of director under Section 164 of the Companies Act infringed this right, as it barred them from acting as directors even in companies where no default occurred.

However, under Article 19(6), the State may impose reasonable restrictions on this right in the interest of the general public. The Court held that the restrictions imposed by Sections 164 and 167 are legally valid and serve the purpose of ensuring statutory compliance and corporate accountability. Therefore, the provisions were upheld as constitutionally permissible restrictions.

Arguments by the Petitioners

The petitioners, directors of M/s Vihaan Direct Selling (India) Private Limited, advanced the following key arguments:

Limited Disqualification Scope

They argued that the disqualification under Section 164(2) should specifically be applied to the defaulting company (i.e., Vihaan) and should not apply to any other companies where they were directors, especially when those companies were compliant with statutory requirements.

Unconstitutional Deactivation of DINs

The deactivation of their Director Identification Numbers (DINs) was challenged as arbitrary and unconstitutional, effectively preventing them from fulfilling their statutory duties, including filing pending returns and disclosures for Vihaan itself.

Violation of Fundamental Rights

The disqualification was alleged to be a violation of Article 19(1)(g) of the Constitution, as it restrained them from carrying on their profession as directors. The petitioners argued that such a blanket prohibition went beyond what was necessary or reasonable under law.

Submissions by the Respondents

The respondents, represented by the Additional Solicitor General, made the following key submissions in defense of the disqualification:

Serious Allegations Against the Company

They contended that M/s Vihaan Direct Selling (India) Pvt. Ltd. was facing serious allegations, including operating a Ponzi scheme, which had caused financial loss to thousands of investors. In light of these violations, action was initiated against both the company and its directors under the Companies Act, 2013.

Statutory Basis for Disqualification

The disqualification was enforced under Section 164(2)(b) due to failure in repayment of deposits or interest thereon, and non-filing of returns as per the prescribed timelines. Since these were statutory defaults, the consequences followed automatically.

Effect of Section 167(1)(a)

It was submitted that under Section 167(1)(a), once a director is disqualified under Section 164(2), he must vacate office in all companies except the one in default. Hence, the extension of disqualification to other companies was justified by statute.

Expiry of Disqualification Period

The respondents acknowledged that the five-year disqualification period which began in 2018 expired in 2023, and as such, the order had “spent itself”. There was no provision for further extension, and appropriate steps would be taken in accordance with law.

Pending Proceedings

The Court was informed that multiple legal proceedings and regulatory actions were ongoing against the company and its directors, based on complaints and violations discovered during inspection.

Issues Framed by the Court

While adjudicating the writ petition, the Karnataka High Court identified three central legal issues requiring determination. The first issue was whether a director disqualified under Section 164(2) of the Companies Act, 2013 could be barred not only from holding office in the defaulting company but also from continuing as a director in any other company, regardless of whether those companies were compliant with statutory requirements. The second issue pertained to the duration of the disqualifications specifically, whether the statutory five-year bar imposed under Section 164(2) could be extended or enforced beyond that period by the authorities. Lastly, the Court had to consider what appropriate relief or direction ought to be issued in the facts and circumstances of the case.

Court’s Findings

The Karnataka High Court, after examining the statutory provisions and arguments presented, delivered a detailed interpretation of Sections 164(2) and 167(1)(a) of the Companies Act, 2013. On the first issue, the Court held that disqualification under Section 164(2) is director-centric, not company-specific. It clarified that when a director incurs disqualification due to defaults in one company such as failure to file financial statements or repay deposits they become ineligible to act as a director in any other company for a period of five years. This is further reinforced by Section 167(1)(a), which mandates that such a director must vacate office in all other companies, except the defaulting one.

On the second issue, the Court clearly stated that there is no statutory authority to extend the disqualification beyond five years. Since the disqualification of the petitioners occurred in 2018, it had automatically expired in 2023, and no further restriction could lawfully continue thereafter. The respondents also conceded that the five-year period had lapsed and that the order had "spent itself."

Regarding the third issue, the Court found no merit in the petitioners’ challenge to the validity of the disqualification provisions. It held that Sections 164 and 167 impose reasonable restrictions on the interest of corporate discipline and hence do not violate the petitioners’ fundamental right under Article 19(1)(g). Consequently, the Court dismissed the writ petition, while observing that the petitioners’ disqualification had already ceased by operation of law.

Judicial Observations

In its reasoning, the Karnataka High Court made several important observations on the nature and purpose of the disqualification provisions under the Companies Act, 2013. The Court emphasized that Sections 164 and 167 are preventive and regulatory provisions, intended to ensure compliance with statutory duties by directors and to promote corporate accountability. The disqualification is not a punishment, but a consequence of non-compliance, aimed at protecting stakeholders, especially shareholders and depositors.

The Court also clarified that the disqualification applies by operation of law, and no separate adjudication is required for it to take effect. The language of Section 167(1)(a) was particularly highlighted, which provides that when disqualification under Section 164(2) is incurred, the office of the director becomes vacant in all other companies, except the defaulting one. This mechanism, the Court noted, ensures that a disqualified individual cannot continue managing multiple companies while avoiding consequences for corporate defaults.

On the constitutional issue, the Court observed that while Article 19(1)(g) protects the right to carry on business, this right is subject to reasonable restrictions under Article 19(6). The Court held that disqualification arising from statutory non-compliance is a reasonable and proportionate restriction, enacted in the public interest to promote sound corporate governance. It further stated that a director who fails to ensure compliance cannot claim protection under Article 19(1)(g) without showing that such failure was beyond their control.

Conclusion

The judgment of the Karnataka High Court in Dilipraj Pukkella & Anr. v. Union of India & Ors. reaffirms the legitimacy and enforceability of director disqualification provisions under the Companies Act, 2013. By holding that a disqualification under Section 164(2) extends to all companies in which the individual serves as a director, the Court has reinforced the importance of individual responsibility in corporate compliance. Furthermore, the Court’s recognition that such disqualification constitutes a reasonable restriction under Article 19(6) of the Constitution balances the fundamental right to carry on business with the need to ensure transparent and accountable corporate governance. The ruling serves as a caution to company directors to proactively ensure compliance with statutory obligations and clarifies that disqualification is not merely punitive, but a critical mechanism to uphold the integrity of corporate administration in India.