AI Insights
The case involves Chaitanya Challa and Priti Challa, who were disqualified from directorship and had their DINs deactivated due to alleged defaults in filing financial statements and annual returns for three consecutive years, as per Section 164(2) of the Companies Act, 2013. The petitioners challenged the disqualification and deactivation of their DINs, arguing that the action was arbitrary, illegal, and violated principles of natural justice and their constitutional rights under Articles 14 and 19(1)(g). The court examined whether the disqualification could be applied retrospectively and whether the procedural requirements were met before such drastic actions were taken against the petitioners.
Appeal Details
Counselvise Citation
[2020] 140 COUNSELVISE.COM (IT) 677450 (HC-TELANGANA)
Assessee PAN
Bench
Appeal Number
CRN Number
Appellant
Respondent
Appeal Type
Others
Pronouncement Date
14-12-2020
Assessment Year
misc
Judgement Text
"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) MONDAY ,THE FOURTEENTH DAY OF DECE[/BER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 22719 OF 2020 Between: 1. Chaitanya Challa, DIN Number - 06934113, S/o.Challa Ramana Jayanth, Aged about 38 years, Occupation - Business, Rl/o. H. No.7-1-71lN1 , Challa Hospital, Dharam Karan Road, Ameerpet, Hydera bad-50001 6. 2. Priti Challa, DIN Number- 06934115, D/o. Challa Ramana Jayanth, Aged about 37 years, Occupation - Business, R/o.H.No.7-1-71lA/1 , Challa Hospital, Dharam Karan Road, Ameerpet, Hyderabad-5000'16 ..,PETITIONERS AND 1. 2. Union of lndia, Ministry of Corporate Affairs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi -1 10001, Rep.by its Secretary. The Registrar of Companies (ROC), at Hyderabad, For the State of Telangana, 2ND Floor, Corporate Bhawan, GSI Post.Nagole, Bandlaguda Hyderabad, Telangana - 500068 ...RES'.NDENT' 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 a Writ Order or Direction more padicularly one in the nature of Writ of Mandamus declaring the action of the Respondents in disqualifying the Petitioners as Directors and deactivating the Director ldentification Number (DlN) of the Petitioners (Petitioner No. 1 Chaitanya Challa, DIN Number - 06934113, Petitioner No.2 Priti Challa, DIN Number 06934115) and listing their names as Disqualified Directors and thereby restricting the Petitioners to continue as Directors of the Active Companies. restricting the Petitioners to incorporate new Companies and/or get appoint or reappointed as Directors of any Company and file statutory returns i.e., annual returns and financial statements of the companies in which they are Director as arbitrary, illegal without jurisdiction contrary to the provision of the Companies Act, 2013 and Rule 1 1 of the Companies (Appointment and Qualification of Directors) Rules 2014 violation of the principles of natural justices besides violating the petitioners rights guaranteed under Article 14 and Article 19 (l) (g) of the Constitution of lndia. Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay the lmpugned order and restore the Director ldentification Number (DlN) of the Petitioners (Petitioner No. 1 Chaitanya Challa, DIN Number - 06934113, Petitioner No.2 Priti Challa, DIN Number 06934115) so as to enable them to continue as Directors of the Active Companies and/or get appoint or reappointed as Directors of any other Company and file statutory returns i.e., annual returns and financial statements of the active companies in which they are the directors without any interference and earn remuneration for their lively hood by serving the company as Directors. Counsel for the Petitioner :SRl M. M. VISWARAJ Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: ORDER lA NO: 1 OF 2020 THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No. 22719 of 2O2O ORDER: The petitioners challenge their disqualification from Dircctorship under Section 164 2) of the Companies Act, 20 13, for the alleged default in filing linancial stalement/ Annual Returns, and consequently seek restoration of their Director Identification Numbers (DlN) viz., 06934 1 13 and 06934 1 15 respectively. Learned counsel for the petitioners submits that the issue raised in the present Writ Petition common order dated 18.07.2019 in batch. 1S squarely covered by the W.P.No.5422 of 2018 and Sri Namavarapu Rajeshwar Rao, learned Assistant Solicitor Gcneral ol India, appearing for the 2ttct respondent - legistrar of Companies does nol. disput.t-- the aloresaid submission. Operative portion of the aforesaid order reads as under \"For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section f 6a(2)(a) of the Act and deactivation of their DINs, are set aside, and the 2\"d respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. It is made clear that this order will not preclude the 2\"d respondent from taking appropriate action in accordance with law for violations as envisaged under Section L6412) of the Act, giving the said provision prospective effect from O1.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. It is also made clear that if the petitioners are aggrieved by the action of the respondeats in striking off their companies under Section 248 of the Act, they are at I Iiberty to avail alternative remedy under section 2s2 of the Act. All the writ petitions are accordingly allowed to the extent indicated above.', ln vielr' oI the said Order dated lB.OT.2Olg and for rhe reasons recorded therein, this Writ petition is also allowed in terms thereol. No costs, Miscellaneous Petitions, if ant' stand closed. SD/.M.RAMANA ASSISTANT RE KRIS R SEC OFFICER //TRUE COPY// To, 1. The Secretary, Union of lndia, IVlinistry of Corporate Affairs, A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi -1 '10001. 2. The Registrar of Companies (ROC), at Hyderabad, For the State of Telangana, 2ND Floor, Corporate Bhawan, GSI Post.Nagole, Bandlaguda Hyderabad, Telangana - 500068 3. One CC to Sri M. M. Viswaraj, Advocate [OPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General, Advocate loPUCl 5. Two CD Copies (along with b copy of the order paned in WP No 5422 ol2018 and bacth dated 1B-07-2019) SM HIGH COURT OATEOi14t12l2O2O ALLOWING THE WP WITHOUT COSTS o I irc, b ,.qi ._ t o^ / DEcZMo ii -:. / -!.'/ '-)7 ( /i 21 ORDER WP.No.22719 ot 2020 I t -. $i^a* W.P.NOs.54 2. L2t84, 13520 1378s. 13855, 4L66. 24051.30 993, D 7 o4 7 7 432 7 7 7 2 7 77 1 9 1 4 4 2 9726.9737. LOO58, 10099, 1120A. rr223. tt23 . t1263, 11a89. LL99l. t2018. 12036. L2040. 12069. L2tOa, L2t44. L2LA6, L2194, 12200, L2209. t22L5, L22t7. t2243. t2260. L2262, L22a8. t2342, 1235o. L24L 7. 1 24 3 2 t2472 sa, 1r5()6_ 1)5'ra. 125Ca. 1)621. 1 24 4 95 t2702, t2735, t2740, 12845, 12 50. 12a65. 2a66. 13013. 13518. 13730. 13749. 13779. 13788. 13839. 138ss. 13878.. 13912. 13917. L3945. 14 101 . 1417 4_ 1 20 t4 5()_ 14361. 1439O, 14 g2 1 4497 . 4 7 L4409,14582 AND 14597 0F 2019 Since, the issue rnvolved in all the writ petitlons is one and the same' they are heard together and are being disposed of by this common order Z. The petitloners are the directors of the private companles' registered under the companies Act, 2013 (18 of 2013) (for short'the Act')' 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 sard 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 2'd respondent passed the impugned order under Section 164(2) of the Act' disqualifying them as directors, and further making them inerigible to be re-appointed as dlrectors of that company, or any other company, for a period of five years from the date on which the respectlve companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrleved by the same' the present writ petitions have been filed' THE HON'BLE SRI JUSTICE A,RAJASHEKER REDDY COMMON ORDER \") 4.ThiscourtgrantedinterimordersintheWritpetitionsdirectingthe 2nd 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 wrlt petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India' 8. With regard to deactivation of DINs, learned counsel fcr the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 20t4 (for 6. Learned counsel 1'or the petitioners, contend that beFore passinq the impugned order, notices have not been issued, giving them opportunity' and this amounts to violatlon of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Acl empowers the authority to disqualify a person to be a director, provicled he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 7.4.2O!4, and prior thereto i.e., under Section 27a(1)(9) 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 prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provi:;ion subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period prior to 1,4.20L4, i.e., givrng the provision retrospective effect, disqualified the petitioners as directors, which is illegal and a rb itra ry. I I I short 'the Rules)' are granted for rife time to the appricants under Rure 10(6) oF the said Rules, and cancellatjon 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 inerigible 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 Section 248 of the Act. against the dissolution of the company under 9. Learned counsel further submits that 1sr respondent _ Government of India represented by the 14inistry of corporate Affairs, has froated a scheme dated 29.12.2Ot7 viz., Condonation of Detay Scheme _ 201g, wherein the directors, whose DINs have been deactivated by the 2\". respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicabre to the companies which are struck off under Section 248(5) of the Act. In case of active companies, they can make applicatlon to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Secuon 252 only the companies, which are carrying on the buslness, 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 lnvoke the jurisdiction of this court under Article 226 of the Constitution of India. 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 4 of three financial years, automatically entail their disqualiflcation under Section 164(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners' who statutory requirement under Section 164 counsel appeal have failed to comPIY with the of the Act, cannot comPlain of violation of principles of natural justice' as it is a deeming provision Learned further submits that the petitloners have alternative remedy of UnderSection252oftheAct,andhenceWritpetitionsmaynotbe entertained, 12. 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: 252. Appeal to Tribunall (1) Any person aggrieved by an order of the Reqistrar, not fying a company as dissolved under Section 248, may file an appeal to the Tribunal within a perlod 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 name 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 ln the register of compa nies; Provided that before passing an order under this section, the Tribunal shali give a reasonable opportunity of making Tepresentations and of being heard to the Registrar, the company and all the peTsons concerned: Provided further that lf the Registrar is satisfied, that the name of the company has been struck off from the register of companles either inadvertently o- on basis of lncorrect information furnished by the company or ts dlrectors, whlcfr requ res restoration n the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Secticn 248, lile an application before the Trlbunal seeking restoration of name of sucll co m pa ny, (2) A copy ofthe order passed by the Tribuna shall be f led by the compan5, w th the Registrar within th rty clays from the date of the order and on recelpt of the order, the Reglstrar shall cause the name of the company to be restored n the reg ster of conrpanies and sha I issue a fresh certificate of ncorporalron. (3) lf a company, or any member or cred tor or urorker thereoF fee s aggrieved by the company having its name struck off from the req ster oF companies, the Tribunal or an application made by the company/ member, credrto!- or workman before the expiry of twenty years from the publ cation in the Offic al Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the t me of its name being struck off, carrying on business or in operation or otherwlse it is just that the narne of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the cornpany a.nd all other persons in the same position as nearly as may be as if the name of the company has no.: been struck off from the register of companies, : I 5 A .eading ot above p,ovisjon goes to show that if the company js dissolveo under section 248 of the Act, any person aggrieved by the same, can Fire an appear' Thus the said provision provides the forum for redressar against the djssolution and striking off the company from the register oF companies, It does not deal with the disqualification of the dlrectors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disquarification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 2S2 of the Act, cannot be an alternative remedy for seeking that rerief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to fire financiar statements or annuar returns for any continuous period of three financial years, he shall not be eligible to be re_appojnted 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 falls to do so. The said provision under the Act 18 of 2013, came into force with effect from OL.04,2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 0L.O4.20L4, can be made applicable with prospective effect, or has to be given retrospective operation? I r'1 other words, the issue would be, from which financial year, the default envisaged under Sectlon l6a(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court,' the General Circular No.08/14 dated 4.4.2074 issued by the Ministry of Corporation affairs, which clarifies the applicability oF the relevant financial years. The relevant portion of the said circuiar is as under: \"A number of provsions of the Companies Act, 2013 including those relating to ma ntenance of books of account, preparation, adoption and filing of financral statements (and documents requrred to be attached thereto), Auditors reports and the Board oF D rectors report (Board's report) have been brought into force with 6 effecr from lstApril, 2014. -Provisions of schedul.e li.(!::!Yl lives to compute deoreciation) and schedule t\" ii;;;;i \"i ri\"\"\"itr statements) have also been brouoht into force from tnut o\"t\")'in\"\"t\"riuuni a'r\"s o':rta i:1lr]9- to these provrsions have also been notifred, plact:o on itil *\"u\"t\" of the Minrstry and l'ave come into force from the same date' The Ministry has received requests for clarrficatron,w^lth'Jegard to the relevant frnancial years with effect f,.c.n'*nici'' such prsvrslons of t e new Act reratrg to marntena..rce of books o, u..orii,'\"rr\"OaraJon, aaoption, and 'rling of frnancral statements (and attachments t*|-JtJl' -lLlO 'to\" repo;t ard Boa-os 'eport wrl' be appLicable. Althougn the posrton ln tnr3 beha'f 's qL'le c ear' to F-ake th-rngs aDSo'Ltely clear r rs hereby notrfied that tne r'narciaf statemelts (a'lo docuTents reoulred to le attached thereto), auditors report and Board's report in respect oF financial years ;;;,' .';.;;\"*;' earlier th;in 1'( Aprrl shall be -go-verned bv the relevant provisrons/schedules/rules of tn\"-co'-Juni\"t Act' 1986 and that in respect of financial years commencinq on or after i't April' 2014' the prov sions of the new Act shall apPlY. \" Areadingoftheabovecircu|armakesitCleartheflnanciaIstatemenlsand thedocumentsrequiredtobeattachedthereto,auditorsreportandBoard's report in respect of financial years that commenced earlier than 0l'04'2014, 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. prov rs ro n Act 1 of 14. At this stage it is to Section 76a(2)(a) required to of the Act 18 1956. The said provision under Act be noticed that the analogous of 2013, ls Section 27a )G) of 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable oF being appornted director of a company, if - (9) such person is already a director of a public company which, (A) has not filed the annual accounts and annua returns for any continuous three financial years commencing on and after the first day of April, 1999; or (B) Provided that such person 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 under sub-clause (A) or has faiied to repay its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appolnted director of a company and such persr:n is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on I I and after the first day of April 1999, shall not be eligible to be appointed as a director of any other pubric company for a period of five years from the date on which such public company, in which he is a director, failed to file annuar accounts and annual returns so the statutory requirement of firing annuar accounrs and annuar returns, is praced on the directors of a 'pubric company'. There is no provision under the Act 1of 1956, which places similar obligatrons on the directors of a ,private company,. Therefore, non_ filing of annuar accounts and annuar returns by the directors of the private company, wjll not disqualify them as djrectors under the provisions of Act 1 of 1956. 15. Under Section 164(2) of the new legislation 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', fairs to fire financiar statements or annual returns for any continuous period of three financial years, wiI not be erigible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 01.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 1B of 2013, for not filing financial statements or annual returns, for period prior to 01,04,2014. The action of the 2\"d respondent runs contrary to the circular issued by the tvlinistry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. lf . The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectivity. The relevant portion of the judgment is thus: 27. A egislation, be it a statutory Act or a statutory Rule or a statutory Notiflcat on, may physically consists of words printed on papers. However, '(20i5)r scc r S conceprLa,ry it is a erea,t 1::i :;;\".Ti:\"1:\"\";t, :-,'J, ::;,::. I U Jiliii!:j 0\"a\"1;3rity 'n the rnode of verDal -_ ^-^ ri^^. in : work ot trctron/non fiction or even lJst a series of statements' sLcn - '{l ll-E .rl r '-\" 'f ^.'\": ;;\" rp.r,rred to d'aft a Ieg'slatio') in a tudgment of a court of lav'/ llrere town as legrslatrve .'\"*\",, i' l\" understand a reE':iatlln:^ I:T,:: :::'l:i'.:oii.^oi:in,J'p.\"*,,on ,r oraFtrng and latter one lt::':-:'r'\"'\"\" \"ni.Li \"\"-ii,!,r r. rrs provenance, 'av-out :li;::i\".\"y;;\",;; :'i|:'x,::\"\"1;on\"u'\"io [' n'ean ns tqat a ses ov o/esunptor:; I.io in. ,\"t\"nt of the n'aker thoreot 28. Of the various rules gurding how a legrslatron lut^l:^bu rnterpreted' one established rule 1s that unress a ciniTarf rntentr6n appears' a leglslation is presumed not to be intended to nuu\" u l-.'t\".rp'ulti\"\"-op\"rut bn The rdea behind the rule is that a current law should gou\"rn'';;ini ui,,J,t,\"r. Lu* passed todav cannot applv to the events of the past. rr *\" oo r#uir'ring iooay, *e oo it keeping in the law of today and in force and no, ,o'''iiii oitt*ita aai'stment of lt our belief in the nature of the law is founded on th; b;d rock that every human being is entitled to \"i-ng\" nit irrairs oy relying on ir'\" e'isting law and should not find that his plans nrr\" 6\"\"\" retrospeciively upset. This principle of law.is kno!^/n as lex prospicrt non ,\".piii,l\"* f\"oks forwlrd not backward As was observed in Phillips vs Eyre t(1870) LR 6 QB 11, a ,\"tro.po.iiul legislation is contrary to the general principle ii.i ruq,rlution bv whlcn tne conouct of -mant
Other Referred Cases
COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA
Laws Referred To
Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
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