Alluru Venkata Ramana Raju V. Union of India

WP/3789/2021

AI Insights

The case involves Alluru Venkata Ramana Raju, the petitioner, who challenged his disqualification from directorship and the deactivation of his DIN by the Registrar of Companies, Telangana. The disqualification was based on alleged defaults in filing financial statements and annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioner argued that the action taken was arbitrary, illegal, and violated principles of natural justice, as it was based on a retrospective application of the law. The court examined the applicability of Section 164(2)(a) and its retrospective effect, referencing various judgments and circulars, and concluded that the provision should be applied prospectively, starting from 01.04.2014.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677424 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 19-02-2021
• Assessment Year: misc
• Other Referred Cases: Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: P MUKHERJI
• Keywords: Director Identification Number (DIN); Disqualification of director; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151; 226; 248; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original J urisdiction) FRIDAY, THE NINETEENTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO. 3789 OF 2021 Betwee n: Alluru Venkata Ramana Raju, Business Flat No.5A, Jains Habsiguda, Hyderabad 500007 S/o. Alluru Subba Raju Aged about 63 years, Occ Bhavani Residency, Street No.3, Kakatiya Nagar, ...PETITIONER AND 1. Union of lndia, Rep by its Secretary, IVinistry of Corporate Affairs, Shastry Bhavan, Dr. Rajendra Prasad l ,4arg, New Delhi. The Registrar,' Office of Registrar of Companres,. Telangana, 2nd Floor, Corporate Bhavan, Bandlaguda, Nagole, Hyderabad Telangana.RESpONDENTS 2 Petition under Article 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue any appropriate writ, order or direction more particularly in the nature of a writ of Mandamus a. that the list of directors placed by the l/inistry of corporate Affairs (MCA) on its website, i.e. www.mca.gov.in, as arbitrary, illegal, without iurisdiction' contrary of the provisions of the Companies Act, 2013 and Rule ll of the Companies (Appointment of Directors) Rules, 2014, violative of the prlnciples of natural justice besides violating the rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia and quash set-aside the Same to the extent it declares / treats the Petitioner as disqualified in terms of section 164 (2) (a) of the companies Act 2013, ln the interest of justice b. writ of mandamus or any other appropriate writ, order or direction commanding the Respondents to restore the DIN of Petitioner'S bearing DIN: 01956095. lA NO: 1 OF 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High courl may be pleased to stay of the d isq ua iification of directorship of the petitioners by activating the DlNs of Petitioner herein i.e., 01956095 in so far as the Petitioner herein is concerned, pending disposal of the above writ petition. Counsel for the Petitioner: SRI P. ANIL MUKHERJI Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI W II PETITIO NNo.3789 ol 2 1 ORDER The pelilioner chollenges his disquolificoiion from Directorship under Section 164(21 ot the Componies Act,20l3, for ihe orreged defoufi in firing finoncior srolement/Annuor Returns. ond consequen'y seek resrorotion of his Director rdentificotion Number (DlN) vi2.,01956095. Leorned counsel for the petitioner submits lhot lhe issue roised in the preseni Writ pelilion is squorely covered by lhe common order doted ig.07.2019 in W.p.No.S422 of 20lg ond bqtch. Leorned Assislont Solicitor Generol oppeoring for ihe 2nd respondenl - Registror of Componies does nol dispute the oforesojd su bmission. Operotive porlion of the oforesoid order reods os under: \"For lhe foregolng reosons, lhe impugned orders in the wril pelilions to the extenl ot disquolifying the pelitioners under Seclion 164(2Xo) of lhe Acl ond deoclivotion o, lhek DlNs, ore sel oside, ond ,he 2\"d respondenl is dkecled lo oclivote lhe DlNs of the peiilioners, enobling lhem lo luncllon os Direclors other lhon ln strlke otl componies. ll is mode cleor lhol lhis order will nol preclude the 2nd respondent fiom loking opproprlole oclion in occordonce wirh low tor viololions os envisoged under Section 164(2) ol lhe Acl, giving ,he sold provision prospeclive eftec, from Ol.O4.2Ol4 ond tor necessory oction ogoinsl OIN in cose o, violorions of Rule .l t ot the R ules. It is olso mode cleor lhot it rhe petilioners ore oggrleved by the oction ol lhe respondents in striking ot lheir componies under Seclion 248 of the Act, lhey ore ot liberly lo ovoll ollernolive remedy under Seclion 252 of lhe Acl. All the wril pelitions ore occordingly ollowed lo lhe exlent indicoled obove.\" ln view of the soid order doled 18.A7.2019 ond for the reosons recorded therein, thls Writ Petition is olso ollowed in terms thereof' No cosls. Miscelloneous Petitions, if qny pending, sholl siond closed' SD/.K.ONESIM //TRUE COpy// ASSTSTANT REGTS]RAR To, sEcTtoN_oFFtCER l The secretarv. IVlinistry of corporate Affairs, union of rndia, Shastry Bhavan, Dr. ^ Bajendra Pra3ad N/arg, trtew OEfni'- 2 I!q Regis]rar, Offic-e of Regiiirar of Companies, Tetangana, 2nd Floor, uorporate Bhavan. Bandlaguda. Nagole, Hyderdbad fela;;;;;- 3 Qne CC to Sri p. Anit tvlukhtrii, nordJi\" i6pijci 4. one cc to sri Namavarapu ndleshwii nio, nsi[tant soricitor Generar (opuc) 5. Two CD Copies. Along with a copy of the common order dated 18.o7.zo1g in w.p.No.s422 of 2018 and batch. - MP AX{y ' HICiH COURT DATED:1910212021 ORDER WP.No.3789 of 2021 ALLOWING THE WRIT PEI-ITION WI'THOUT COSTS l n a3 MAH 2021 * z PA a 14 E s H 1 o O COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Acl')' Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies' and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 154(2) of the Act, disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrieved by the same, the Present writ petitions have been filed' THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOs,5422. 12184. 13520. 13783. 13855. 14166. 24051.30993. AND 40953 0F 2018, 5547, 5582. 5669, 5687, 5785. 6047. 6087. 6t40. 64A4. 6753, 6a5a, 695A, 69At. 700L, 700a. 70L4. 7046. 7069. 7073. 7 LOs. 7432. 7454. 7572. 759s, 7732. 776s. 7768, 7A24. 7978, 8111. 8223. 8585. 8590. 9333. 9340. 9381. 9468. 9563. 9584. 9623. 9726,9737.1OO58, tOO99, LL208, 11223. L1239. LL263, L1A89. Lt99t, L20rA. 12036, L2040. t2069. t2LOa. t2144. r2LA6, L2194. L2200. !2209,122t5, L22r7, L2243, L2260. t2262. L22AA, L2342. L2350. L24L7. t2432. 12472. L249A. 12506. t2s74. t2594, 12621. 12702. 12735. 12740. 12845. 12850. 12865. 12866. 13013. 13618. t3730, L3749. L3779.l37AA. L3a39. t385s. L3A7A. 139L2. L39r7. 13945, L4tOt, L4t74, 14207. L4350. 14361, L4390. t4392, L4397. 14409, L45A2 ANO L4597 0F 20L9 -) 4. This court granted interim orders in the writ petitions directing the 2\"d respondent to activate DINS of the petitioners, to enable them to function other than in strike off companies. 5, Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicito for the respondents - Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. General a ppearing f h.rs not flled financial statements or annual return:; of the company to which fina ncia I years. Learned he: is director, for any counsel further submits continuous period of th ree that lhis provision came into force with effect from 7,4.2014, and prior thereto i.e., under Section 27aQ)@) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 oF 2013, will have prorp\"ltir\" operation and j hence, if the directors of company fail to comply witli the requirements mentioned in the said provision subsequent to the said,date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2'd respondent, taking the period prior to 1.4.2014, i.e,, giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary. 7. Learned counsel submits that Section empowers the authority to disqualify a person to be 8. With regard to deactivation of DINs, Iearned petitioners submit that the DINs, as contemplated under Companies (Appointment and Qualification of Directors), 164(2)(a) of the Act a director, provided he counsel for the Rule 2(d ) of the Rules,2014 (for short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1\" respondent - Government of India represented by the tr4inistry of Corporate Affairs, has f|oated a scheme dated 29.12.2017 viz,, Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINS of the Directors to be activated However' such scheme ls not applicable to the companies which are struck off under Sectlon 248(5) of the Act. In case of active companies, they can make applicationtoNationalCompanyLawTribunalUndersection252oftheAct, seekingforrestoration,andtheTribunalcanorderforreactivationofDlNof such directors, whose DIN are deactivated' However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme' they are entitled to invoke the jurisdiction of this court under Articte 226 of the Constitution of I ndia. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions' 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period ,+ of three financial years, automatically entail their disqualification under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of principles of natural justic€r, as it is a deeming rprovision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. f2, To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 257. Appeal to Tribunal (1) Any person aggrieved by an order of the Registrar/ notifying a company as dissolved under Section 248, may file .rn appeal to the Tribunal within a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the t)ame of the company from the register of companies is not justified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of com panies; Provided that before passing an cTder under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the reqister of companies either inadvertently or on basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years frorn the date of passing oF the order dissolving the company under Section 248, file an applicatioi] before the Tribunal seekinq restoration of name of such company. (2) A copy of the order passed by the Tribunal shall be filed by the company with the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shail issue a fresh certificate of incorporation. (3) lf a company, or any member or creditor or workeT thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publicatjon in the Official Gazette of the notice under sLrb-section (5) of Section 248, if satisfied that the company was, at t.le trme oF its name being struck oFf, carrying on business Or in operation or otherwise it is just that the name of the company be reslored to the register of companies, order the name of:he company to be restored to the register cf companies, and the Tribunal may, by the order, give such other directions and make such provisions as deeme,J just for placing the conrpany and all other persons n the same position as nearly as may be as if the name of the company has not been struck off from the register of companies, l A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualification of the directors, and deactivatlon of their DINs. In the present case, the petitioners are only aggrieved by their disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. \"A number of provlsons of the Companles Act, 2013 including those relating to maintenance of books of account, preparation, adoption and f ling of flnancial statements (and documents required to be attached thereto), Auditors reports and ihe Board oi Directors report (Board's report) have been brought into force with 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not 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 The said provision under the Act 18 of 2013, came into force with effect from 07.04.20f4, and the petitioners are disqualified as directors under the said provision.Atthisstage,theissuethatarisesforconsiderationis-whether the disqualification envisaged under section 164(2)(a) of the Act, which provision came into force with effect from 07'O4'2Ot4' can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year' the default envisaged under Section 164(2)(a) of the Act' has to be calculated' to hold thedirectorofthecompanyliable?Inthisregard'thelearnedcounsel brought to the notice of this Court' the General Circular No'08/14 dated 4.4.2oT4issuedbytheMinistryof'Corporationaffairs'whichclarifiesthe applicabilityofthereIeVantfinancialyearS.Therelevantportionofthesaid circular is as under: 6, I i effect from 1st April, 2014. Provisions of Schedule Ii (usefui ,l dep.eciation) and Schedule III (format of financial statementS) brought into force from that dale. The relevant Rules pertainingito have also been notified, placed on the website of the Ministry ahd force from the same date, The lYinistry has received requests for clarification with regard to the relevant financial years with effect front which such provjstons of the new Act relating to maintenance of books oF account, preparation, adoption and filing of financial statements (and attachments thereto), iluditors report and Board,s repoft wjlt be a pplica ble. Although the positron in this behalf is quite clear, to rrake things absoiutely clear it is hereby notifed that the financial statements (and documents required to be attached thereto), auditors report and Board,s report in respect of financial years that commenced earlier than 1sr April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in resoect oF financial years cornmencing on or after 1s: April, 2014, the provisions of the new Act shall apply. \" ives to compute have also been these provisions have come into provision to Section 164(2)(a) required to of the A,ct 18 Act l. of 1956. The said provi:;ion under Act for ready reference: Section 27411) A nerson company, if - 14. At this stage it is be n oticed at the analogous of 2013, is 1 of 1956 Section 274(1)(g) of is extracted as under any the (es it clear that if a rh sha I not be capallie of being appointed director of a (g) such person is already a Cirector of :r pub c compa|y which, - (A) has nol filed the annu,t accounts anC annual returns for contnuous three Fnancial years comn.tenctng on and after first day oF Apr l, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any olher pubiic company for a period of five years from the date on which such public c,lmpany, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or inte/est o. l.\"A\"urrl ii, debentures on due date or pay dividend referred to in clause (B), A reading of the above provision under Act 1 of 1956, ma person capable of being appointed director of a company already a director of a public company, which has not fil an l \"ia d such person is annual accounts commencing on and annual returns for any continuous three financial yea rs A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board,s report in respect of financial years that commenced earlier than O:..O4.ZOl4, shall .be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01,04.2014, the provisions of the new Act shall apply. : 1 15, Under Section 164(2) of the new leglslation i,e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a'company', fails to file financlal statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provlsion, came into force with effect from OL.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disquallfied the petitioners under Section rcaQ)@) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04 2014 The action of the 2nd respondent runs contrary to the circular issued by the MinistryofthecorporateAffairS,andhehasgiventheprovisionsofActlSof 2013, retrospective effect, which is impermissible. 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITED' has dealt with the general principles concerning retros pectivity. The relevant portion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of u/ords printed on papers However, ' (zo t5) t scct and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company/ will not disqualify them as directors under the provisions of Act 1 of 1956. 8 conceptually it is a great deal more than an ordinary prose There is a special peculiarity in the mode of verbal communication by a legislation, A legislation is not just a series of statements, such as one frnds in a work of ftctron/non Fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the vaflous principles of interpretation of Statutes'. Vis-A-v s ord nary prose, a legislation difFers ln its provenance, lay-out and Feaiures as also llr the mplicatron as to ts meaning that arses by presumptions as to the intent of the maker thereof 28, Of the vaTrous TU es giriding how a iegislation has to be interpreted, one established rule ls that unless a contrary intention appears, a legislation is presurned not to be intended to have a retrospecti'/e operation, lhe idea behind the rule is that a current aw should govern current activities. Law passed today cannot apply to the events of the past. If we do some:h ng today, we do it keeping in the law oF today and in for:e and not tomorrow's backward adluslmenl of it. Our belief in the nature oF the l.rw is founded o t the beci rock that every human being is entltled lo arrarlge his affairs by relyrng on the existing law and should not find thal h 6 plans have been retrospectively upset. fhis principle of law rs known as lex prospicil non respcit : law ooks forward not backward. As was observed in Phillips vs. Eyre [(1870) LR 6 Qi] 11, a retrospect ve legislation is contrary to the general principle that legislation by ,hich the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactior'rs carried on upon the faith of the then existing law. 29. The obvlous basis of the principler against retrospectivity rs the principle of 'fairness', which rnust be the basis of every legal rule as waF observed in the decision reported in L'Office Cherifien des Phosphates v. Yeimashita-Shinnihon Steamship Co. Ltd, [{1994) 1 Ac 486]. Thus, legislations whicli modified accrued rights or which impose obligations or impose new duties or attabh a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a formbr legislation. We need not note that cornucopia of case law available on the subjeci because aforesaid legal position clearly emerges from the various decisions and thiS legal position was aonceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a littie later, 30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction js diFferent. If a leglslation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public Aenerally, and where to confer such beneft appears to have been the legislators object, then the presumption would be that suEh a legislatlon, giving it a purposive construction, would warrant it to be glven a retrospective effect. This exactly ls the justification to treal procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Assocration, [(2005) 7 SCC 396], the doctrine offairness was held to be relevant factor to construe a stalute conferring a benefit, in the context of lt to be qiven a retrospeclive operalon. The san're doctTine of fairness, to hold that a statute was retrospectir'e in nature, was applied in the case of Vi.jay v. State of l'laharashtra & Ors., [(2006) 6 S;CC 289]. It was held that where a law ls enacted for the benefit of communrty a:i a whole- even in the absence of a provision the 5ilatute nray be held to be retrospective in nature, However, we are (slc not) c;onfronted with any such situaiion l'rere. 31, In suclr cases, retrospectivity is attached to benefit the persons in (ontradlstinction to the provision imposing some burclen or liability where the presLrmption attached towards prospectivity, In the instant case, the proviso added to Section 113 oF the Act is not benefrcral to the assessee. On the contrary, it is a provision which is onerous to thr) assessee. Therefore, in a case, iike this, ;e have to proceed with the normal rule of presumption against retrospective operation. \"l-hus, the rule against retrospectjve operation is a fundamental iule of law that no statute shall be construed to have a retrospective operatiqn unless such a construction appears very clearly in the terms of the Act, or arisei by necessary and distinct implication. Dogmatica Iy fran'red, the rule is no more t(an a presumption, and thus could be displaced by out weighing factors. i 43. There is yet another very interesting piece of evidencei that clarifies that provision beyond any pale of doubt viz., the understanding of CEpT itself regarding this provision. It is contained in CBDT Cir,:ular No.B of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanal.ory Notes on provisiori relating to Direct Taxes\". This circular has been issued after the passing of the Finbnce Act, 2002, by u/hich amendment to section 113 was made, In this circular, various amendments to the lncome tax Act are discussed amply demonstrating as to which amendments are clarlflcatory/retrospective in cperation and which amendments are prospective. 9 For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 !vhereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day of luly, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., wil take effect from 1.6.2002.\" 18. Thus, the Apex Court in the above judgment, has made i! clear that unless a contrary intention appearsi a legislation has to be presumed to have prospective effect. A reading of Section 164 of. the Act does not show that the legislation has any lntention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2nd respondent / competent authority' has disqualified the petitioners as directors under Section 164(2)(a) of the Act 18 of 2013, by considering the period prior to 01.04.20t4, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above refe rred judgment. lg.Ifthesaidprovisionisgivenprospectiveeffect,asperthecircular dated4.4.2oL4andthelawlaiddownbytheApexcourt,asstatedinthe writaffidavits,thefirstfinancialyearwoutdbefrom0l-04-2014to 31.03.2015 and the second and third years financial years would be for the years ending 31.03.2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting of the comPany, and as per the first t0 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92(4) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculated, the last date for filing the annual returns would be 34.fi.2017, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for filing annual returns is 27.07.2018. In other words, the disq ualification could get triggered only on or after 27.O7.201,8. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disq ua lification, pertains prior to 01.04.2014, Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification prior to 1.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 2O(1) of the Constitution of India, which states that \"/Vo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\". In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the same is liable to be set aside. 20. A learned Single Judge of the High Court of Karnataka in 'YASHODHARA SHROFF vs, UNION OF INDIAz considering Section 164(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned Judge, pertainlng to : u'I, Nn.52gII ol'201? a c barch d:rred l2 06.2019 lt private companies, which are relevant.for the present purpose, are extracted as under: 208. in view of the aforesaid discussion, I have arrived at the following conclusions (a) lt is held that Sectlon 164(2)(a) of the Act s not u/tra v/rus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(9) of the Constitution as it ls made in the interest of general public and a reasonable restnctron on the exercise of lhe sald right The object and purpose of the said provision is lo stlpulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance. (b) That Article (slc) Section 164(2) of the Act applles bv operation of law on the basis of the circumstances stated therein, the said provision does not envisage anY hearing, neither pre-disqualrfication nor post-disqualrficatron and this is not in violation of the principles of natural justlce, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and rs therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the sa me. (d) . . . (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into forceforthefirsttimeundertheActandtheconsequencesofdisqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous perioi of three financial years under the said provision The said conclusion is based on the principal drawn by way ofanalogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section 164(2) of the Act was evei envisaged under the 1956 Act vis-e-vis directors of private companies Such a disqualifiiation could visit a director of only a publlc company under Sectron 274(1)(g) of 1956 Act and never a dlrector of a private company Such Olsqujtiflcatlon of the petitioners who are directors of private compan es ls hence quashed. (0... (9) Consequently, where the disqualification uncler Section 164(2) of the Act is basecl '-' on a contrnuous perrod of three fLnancial years commencing from 01 04 2014' whereinfjnancialstatementsorannUalreturnshavenotbeenfiledbyapUbllcor prlvate company, the directors of such a company stand disqualified and the consequences of the said d squalifrcation wouid apply to them under the Act' 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH VS. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High CourtofKarnataka(lsupra),andheldthatSection164(2)oftheActof 2013, which had come into force with effect frcm l'4'2014 would have prospective, and not retrospective effect and that the defaults contemplated under section 16a(2)(a) with regard to non-filing of financial statements or r r/Special Civil Application No.22435 of201'7 and batch dated 18 12 2018 l2 annual returns for any continuous period of three financial years would be the default to be counted from the financlal year 2014-15 only and not 2At3-L4. 22. A leamed single Judge of the High Court of lvladras in BHAGAVAN DAS DHANANJAYA DAS vs, UNION OF INDIA4 also expressed similar view. The relevant portion is as under: 29. in fin e, (a) When the New Act 2013 came into efFect from 1.4.2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the iirst financial year from 1,4.2013 to 31.3.2014. (b) g,y virtue of the new S€:ctton 164(2)(i:) of the 2013 Act using the expression 'for any continuous period of three financiai year\" and jn the light of s3ction 2(41) defining \"financial year\" as well as their own General circular No.08,/14 dated 4.4.2014, the first l'inancial year would be from 1.4,2014 to 31..1,2015, the second iinancial year would be from 1.4.2015 to 31.3.2016 and the third financial year would be from 1.4.2016 to 31.3.2017, whereas the second respondent clearly admitted in para!i 15 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 2013-14, 2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable Iegal infirmity that vitiates the entire impugned proceed in gs. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready refe re n ce: 164. Disqualification for appointment of director: o v1.1,.No.25455 0f 2rl l7 anri barch dated ?7.07.2018 l.l (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) Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides d isq ua lification on happening of an event i.e., if a person who ls or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the Hlgh Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 16+(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said proVisiondoesnotenVisageanyhearing,neitherpre.disqualificationnor post-d isq u a lification and this ls not in violation of the principles of natural justice and hence, is nol ultra yires Article 14 of the constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disq u a lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. ll (a) (b) (c) (d ) 26, The next gr evance ofthe petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactlvated, and the violation mentioned under Section 16a(2)(a) of the Act, is not one of the grounds mentioned urrder clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 164(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present pLrpose, is extracted as unoer for ready reference: 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Drrector (Northe.n Region), Norda or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or locumentary proof attached with the application received From any person, cancel or deactivate the DIN in case - the DIN is found to be duplicated in respect of the same person provided the data related to both the DII'l shall be merged with the validly retained numberj the DIN was obtained in a wrongful manneT or by Fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a com petent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-s by the DIN holder to surrender his or her DIN along with declaration that he has never been appojnted as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms ''wrongful manner\" means if the DIN is obtained on the strength of docLrments which are not legally valid or incomplete documents are furnished or on suppression of matenal information or on the basis of !!rong certification or by rrakrng misleading or false rnformatron or by mrsrepresentation; (ii) the term \"fraudulent means\" means lf the DIN is obtained with an intent to deceive any other person or any authority including the Centra Government. 28, Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under (e) (D (i) l5 Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINS cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29, This takes the Court to the next question as to whether the respondents could have deactivated the DINS of the petitioner as a consequence of the impugned list? ln this regard, it would be appropriate to refer to the relevant provisions contained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section 154. Section 153 requires every indivldual intending to be appointed as Director oF a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Sectlon 153 a lot a DIN to an applicant in such manner as may be prescrlbed. Sectron 155 prohibits any individual, who has already been allotted a DIN under Section 154 from apply ng for or obtain ng or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for makrng appllcatron for allotment and for the allotment of blN, and further provide that the DiN ailotted by the Central Government under the saicl Rules wou d be valid for the lrFe trme of the applrcant and shall not be allotted to any other person, 30, Rule 11 provides for cancellatron or surrender or deactrvatron of DIN' Accordingly, the Central Government or Regional Drrector or any authorized officer of Regional Director may, on bernq satrsfred on verrfrcatron of partlculars of docum-entary proof attached with an application from any person' cancel or deactlvate the DIN on any of the grounds mentroned in Clause (a) to (f) thereof' The said Rule 11 does not contempl;te ary sua motu powers either with the central Government or with the authorized officer or Reqional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the ,\"io nrr\"i contemplates cancellation or deactivation of DIN of the Director of the iitrra[ off iorpuny\" or of the Director havlng become ineligible under Section 164 ofthesaidAct'TtlereaSonappearStobethatonceanindividual,Whoisintending io oe tne Director of a particular company is allotted DIN by the central iorlrn.\"nt, such DIN would be valid for the life time of the applicant and on the uasii or sucrr DIN he could become Director in other companies also. Hence, if one oi1h\" .orp.niut in which he was Director, is \"struck off\", his DIN could not be iuni\"fr\"O oideactivated as that would run counter to the provisions contained in the nrf\"li,-*ni.n specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. ln that view of the matter, the Court is of the opinion that the action of the ,espondents in deactivating tne Ott\"lt of the petitioners -.Dire.ctors along \"'vith the prtjii.jio\" -\"r the impuqieo lisl of Directors of \"struck off\" companies under 6\".tio\" ieg, also was not legaliy tenable Of course' as per Rule 12 of the said iriir, ,r1 i'ioi\"iJual who has-been allotted the DIN' in the event of anv change in i,s puril.rrur. ti\"ted in Form oig -: nut to intimate such change to the central ;;\";;.;;;i wltnin tne prescribed time in Form DIR-6' however' ir that rs not done' the DIN could not be cancelled;'-J\"utt uutuo The cancel ation or deactivation of the DIN coutd be resorted to by ine concerned respondents onlv as per the provrsions contained in the sald Rules \" 30.InviewoftheabovefactsandcircumstanCesandthejudgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained' t6 31. For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2nd respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. 32. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section L64(2) of the Act, giving the said provision prospective effect from 0t.04.2074 and for necessary action against DIN in case of ,r'iolations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents ln striking off their companies under section 24g of the Act, they are at liberty to avair alternative remedy under section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent inclicated a bove. 35. Interlocutor'/ applications pending, if any, shall stand closed. No order as to costs. A.RAJASHEKER REDDY,J DATE:18-07-2019 AVS "