Chitti Reddy Bhasker V. Union of India

WP/13460/2021

AI Insights

The case involved two petitioners, Chitti Reddy Bhasker and Vijaya Chitti Reddy, who were directors of private companies. Their DINs were deactivated, and they were disqualified from being directors for failing to file financial statements or annual returns for three consecutive years, as per Section 164(2) of the Companies Act, 2013. This provision came into effect on April 1, 2014. The petitioners challenged the disqualification and DIN deactivation, arguing that the law was applied retrospectively, which was not permissible. The court agreed with the petitioners, noting that the law should be applied prospectively from April 1, 2014, and not retrospectively.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 736744 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 31-08-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central)-T, New Delhi v. Vatika Township Private Limited, Yashodhara Shroff v. Union of India, Gaurang Balvantlal Shah s/o Bilvantlal Shah v. Union of India, Bhagavan Das Dhananjaya Das v. 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: M M VISWARAJ
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective operation; Writ of Mandamus
• Section: 151; 226; 403; 455; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAO (Special Original Jurisdiction) TUESDAY,THE THIRTY FIRST DAY OF AUGUST TWO THOUSAND AND TWENTY ONE PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 13460 OF 2021 Between: AND '1 . 2. 2 Chitti Reddy Bhasker, DIN No- 02299797, S/o.Chitti Ranga Reddy, Aged about 54 years, Occ. Business, F/o.B-7-38/1 , R R Nagar, Old Bowenpally, Kukatpally, Hyderabad- 50001 1. Vijaya Chitti Reddy, DIN No -02299778, S/o.Chitti Ranga Reedy, Aged about 55 yeais, Occ. Business, R/o. FVo.8-7-38/1 , R R Nagar, Old Bowenpally, Kukatpally, Hyderabad- 500011 ...pETrroNERS Union of lndia, Ministry of Corporate Affairs, A-Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - I 10001 , Rep.by lts 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,.NDENTS 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 of N,4andamus, or any other appropriate writ, order or direction, dectaring the action of the respondents in deactivating the DIN numbers of the petitioners l.e. Petitioner No.1 Chitti Reddy Bhasker, DIN No. 02299797 and Petitioner No.2 Vljaya Chitti Reddy, DIN No. 02299778 and making him disqualified as a Director, as illegal, arbitrary, without jurisdiction, contrary to the provisions of the Companies Act, 2013 and Rule 11 of the Companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justice besides violatirig the petitioners rights guaranteed under Article 14 and Article 19(1 )(g) of the Constitution of lndia. 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 Court may be pleased to grant interim direction directing the respondents to restore the DIN number of petitioners i.e. Petitioner No.1 Chitti Reddy Bhasker, DIN No: - 02299797 and Petitioner No.2 Vijaya Chitti Reddy, DIN No: -02299778, so as to enable the petitioners to discharge the functions as a Director in other companies, to incorporate new companies under the Companies Act,20 13 and to get appoint as a Director in other companies including putting a digital signature, pending disposal of the above writ petition. Counsel for the Petitioner: SRI M. M. VISWARAJ Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST.SOLICITOR GENERAL The Court made the following: ORDER HoN,BLESRIJUSTICEABHINANDKUMARSHAVILI ORDER When the matter is taken uP for hearing, learne'l counsel on either side fairly conceded that the issue involvr:d in this writ petition is squarely covered by the order dated 05'08'2021 passed by this Court in W'P'No'11434 of 202l' Following the order dated 05'08'2021 in W'P'|Io'11434 of 2021, this Writ Petition is disposed of' No costs' Pending miscellaneous petitions' if any' r;hall stand closed. Sr)/-R.KARTHIK ASSISTAN EGIS f Telangana' erabad, OPUCI Advocate I o, Asst Solicitc r General' Advocate 1 EYAN TRAR FICER To, 10001 . 2. The Reg 2nd Floor, istrar o CorP - 500 f ComP orate B 068. anles ( hawan, ROc), GSI P at ost, Na Hydegole, B rabad, andlag For rhe State o 'rda HYd //TRUE COPYI/ SE NOF ThC S Bhawan, Rajen ecretary, Union dra Pra of lndia' sad Road, Ministry New of CorPo Delhi rate Affairs A-W astri 1. Telangana 3. on 4. On eCCto eCCto Sri Nama Sri M M varaPu Ra Viswaral' jeshwar Ra loPUC] 5. Two CD CoPies 6. One Spare CoP (A long with a Iopy of order dt:05/08 12021 inW'P'No'11434 of 2021) sm .-- OJ- g.P.No.13460 of 2021 HIGH COURT DATED:31/08/2021 ORDER WP.No.13460 of 2021 DISPOSING OF THE WP WITHOUT COSTS It srA 1 r€ 3 o ( J 0 3 j[Pz0?t i Crir - -_. .ra gO c 'r o; H ,,/ 5- HON'BLE SRI JUSTICE ABIIINANDKUMAR SHAVILI W.P.Nos.11434. 11941. 12240.13 780.14963.14992, 15r39. 158s6 & 16161 of202l 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 Act'). Some of the such companies are active' and someofthemhavebeenstruckofffromtheregisterofcompanies 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 2\"d respondent passed the impugned order under Section 164(2) of the Act, disqualifying them asdirectors' 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 1 ) deactivated. Aggrieved by the same, the present writ p(:titions have been filed. 4. This court granted interim orders in the yrrit petitions directing the 2nd respondent to activate DINs of the potitioners, to enable them to functionother than in strike off companies. )i 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri Namavarapu Rajeswara llao, learned Assistant Solicitor General for the respondents - Union of India. 6. Learned counsel for the petitioners, contenJ that before passing the impugned order, notices have not been is,sued, 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. 7. Learned counsel submiti that Section 162,(2)(a) of the Act empowers the authority to disqualify a person to tre a director, provided he has not fired financiar statements or annuar returns of the company to which he is director, for any continuous pe:riod of three financial years. Learned counsel further submits that r:his provision came into force with effect from L.4.2Ot4, and prior thereto i.e., under Section 27C(t)(g) 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 contt:nd that this provision under Act 18 of 2013, will have prospective ,tperation and hence, if the directors of company fail to comply with 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 2nd respondent, taking the period 3 prior to 7.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary, B. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and canceltation 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 havinq 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 appealis 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' g. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme dated 29.t2.2ot7 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 is not applicable to the companies which are struck off under Section 2a8(5) of the Act' In case of active companies, they can make application 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 Section 252 onlythe companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business' cannot 1 approach the Tribunal For restoration. They submit that since the peinal provision is given retrospective operation, de hor; the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 ot the Constitution of India. 10. With the above contentions, learned couns;el sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solir:itor General submits that failure to file financial statements or annu;rl returns for any continuous period of three financial years, autom.rtically entail their dlsq ua lification under Section 16a(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 thestatutory requirement under Section 764 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming provis;ion. Learned counsel further submits that the petitioners have alternative remedy ofappeal under Section 252 of the Act, and hence writ tetitions may not be entertained. 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to lre considered, and the same is extracted as under for better appreciat on: 252. Appeal to Tribunal (1) Any person aggrieved by an order of t e Registrar, notifying a company as dissolved under SectiJn 248, may file an 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 oi the name of the company from the register of companiesis not justified in view of the absence of any of the grounds on which the orcter was passed by the Registrar, it may order restoration of the name of the company in the register of companies; Provided that before passing an order under tlis section/ the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Regisiar, ) the company and all the persons concerned: Provided further that if the Registrar is satisfiedt that the name of the company has been struck off from the register 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 from the date of passing of the order dissolving the companY under Section 248, file an application before the Tribunal seeking restoration of name of such comPanY. (2) A copy of the orper passed by the Tribunal shall be filed by the companYwitll 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 reitored in the register of companies and shall issue a fresh certificate of incor oration. (j) If a companYt or any member or creditor or worker 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, creditoror workman before the expiry of twentY years from the pubtication in the Officiat Gazefie of the notice under sub-lsection (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the companY to be restored to the reqister of companies, and the Tribunal maY, bY the order, give:uch. other directions and make such provisions as deemed just for placing the companY and all other persons in the same jotition 'rt nearly as may be as if the name of the 'rorpuny has not been struck off from the register of companies. 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 from the register of companies' It does not deal disqualifrcation of the directors, and deactivation 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 thelearnedAssistantSolicitorGeneral,inthisregard/meritSfor company with the rejection. 6 13. Under Section 16a(2)(a) of the Act, if the t)irector of a company fails to file financial statements or annual returns for any continuous periodof three financial years, he shall not be eligible to be re-appointed as a director of that company or appoirted 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 01.04.2AL4, and the p€:titioners are disqualified as directors under the said provision. At th s stage. the issue that arises for consideration is - whether the d irrq ualification envisaged under Sectian 164(2)(a) of the Act, which provision came into force with effect from 01.04.2014, 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 16a(2)(a) of the Act, has to be :alculated, 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.0B/14 dated 4.4,2014 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of accot,nt, preparation, adoption and filing of financial statements (dnd documents required to be attached thereto), Auditors reports and the Board of Directors report (Board,s report) hNe been brought into force with effect from 1st Aprjl, 2014. provisions ot Schedule II (us:ful lives lo compute depreciation) and Schedule III (forma. of ttnanctat statements) have also been brought into force ft om that date. The relevant Rules pertaining io these provistons have.also been notified, placed on the website of the Mini.;try and have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from wnich such provisions of the new Act retating to maintenanat of books of account, preparation, adoption-and filing of finar cial statements (and attachments thereto), auditoi report and Board's report will be applicable. . Although the position in this behalf is quite ctear, to rr.ake things absolutely clear it is hereby notified that thi nnancit statements (and documents required to be atta(hed thereto), auditors report and Board,s repoft in respect of financial yearsthat commenced earlier than l't April shall be governed by the relevant provisions/schedules/ rules of the Companies Act, 1956 and tbat in respect af financidl yedrs commencing on or after l't April, 2014, the provisions of the new Act shall apply.\" 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 Ot.O4,2Ot4, 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. 14. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 274(L)(g) of Act 1 of 1956' The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 2?4(71 A person shall not be capable of beinq appointed diredor of acomqanY, if - (g) such person is already a director of a public company which, (A) has not filed the annuat accounts and annual returns for anY continuous three financial Years commencing on and after thefirst day of April, 1999; or (B) Provided that such person shall not be eliqible 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 failed 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 appointed director of a company and such person is already a director of a public company, which has not filedannualaccountsandannualreturnsforanycontinuousthree financial years commencing on 7 8 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 thedate 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 annuirl returns, is placed on the directors of a'public company'. There is no provision under the Act 1of 1956, which places similar obligat.ions on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the privzte company, will not disqualify them as directors under the provisiorrs of Act 1of 1956. 15. Under Section 164(2) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private cornpany. or a 'public company' is made and as per the said provision goes to show that no person who is orhas been a director of a 'company,, fails to file financial statements or annual returns for ar)y continuous period of three financial years, will not be eligible for a6rpointment as a director of a company. As already noted above, the s,aid provision, came into force with effect from 01.04.2014. 16. Coming to the facts on hand, the 2nd re:spondent has disqualified the petitioners under Section 16a(2)(a) of the Act 18 of 2OL3, fot not filing financial statements or annual returns, for period prior to 0L.O4.20L4. The action of the 2nd respondent rL ns contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of2013, retrospective effect, which is im perm issible. 9 17. The Apex Court in COMMISSIONER OF INcoME TAX (CENTRAL)-T, NEW DELHI V. VATIKA TOWNSHIP PRIVATE LIMITEDT has dealt with the general principles concerning retrospectivity. The relevantportion 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 words printed on papers. 28. However, conceptually it is a great deal more than an ordinary prose' There is a special peculiaritY in the mode of verbat communication by a legislation' A legislation is not iust a series of statements, such as oie finds in a work of fiction/non fiction or even in a judgment of a court of law' There is a technique 're{uired to draft a legislation as well as to understand a legislation. Former technique is known as legislative diaftino and latter one is to be found in the various ,iriniii\"t of 'lnterpretation of Statutes' Vis-d-vis 'ordinary prose, a legislation differs in its provenance' iai-out'aha features as also in the implication as to its- ieiiinq tnat arises bY presumptions as to the intent of the maker thereof. 29. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a iitra,y intentioi appears, a legislation is presumednot ii Oe ihtenaea b have a retrospective operation' The iiea behind the rule is that a current law should govern iiirent activities. Law passed todaY cannot apply to!he. .uuitt of tn\" past. If we do something today, we .do it Leeping in tie law of today and in force and not tiiori*'s backward adjustment of it' Our belief in the iature of the law is founded on the bed rock that every nuian Oeinq is entitted to arrange his affairs by.relying .oi ine uristing law and should not find that his plans i,*i L\"ii ni.tpectivelY upset' This principle of law is. iioii ,t lex prospicit non respicit : law looks forw-ard iiot iucxwara'. As was observed in Phillips vs' EYrg iii*ol tn 6 QB 11, a retospective legislation .is ';;;;r;h lt the- senirat principte that tesistation .bv which ihe conduct of mankind is to be regulated wnen iiliaiiua for the first time to deal with future acts \";;;ht-;;i b change the character of past transactions ciiriea on upon tha faith or the then existing law' io,The obvious basis of the principle against *iiiiiitirw is the principle of 'fairness\" which must ';;'t;;-;;;:i; o1 \"r\"ry tesat rute as was observed in i;\"\"';\";;t;; - reioied -in L'office cherifien des ';;\"\";;;;;; \". Yamashita-shinnihon steamshiP co' L-td'. 7;,'{;; ' ; ;; iaat. inot, tesistations which modiried '\"irZir\"ii ,iqntt or which impose obligations or impose. 'r\"\"*\"i\"til ii \"iirch a new disabilitY have to be.treated lZ\"piiiiittriiitess the tegistative intent is cteartv to irZ ti\" \"rurtr/,.nt a retrospective effect; \"1\"-t: ,':: ieoislation is for purpose of supplying an obvtous 'iiriti,ri\",, i iir*[, isistutior. or to exptain a rormer i;;,;i;;;;' w\"-n.ia n;t note that cornucopia or'case 'EY\"''Zrlii)aii- ,,- 'tine suoject because aroresaid tesat. 'i\".,riri\"i\"ritr- i^erges from the various decisions a-nd i;;;i;;\"i;;;;itt;, iii co\"eaeo bv the counset ror the ' (zots)t scct l0 parties, In any case, we shall refer to contatotng this dicta, a ltde later, few judgments 31. We would also tike to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. lf a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generallL and whereto confer such benefit appears to have. been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exac y is the justifi-cation to treat procedural provisions as retrospective, In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine if fairness was held to be relevant fictor to construe a statute conferring a benefit, in the context oF it to be g-tven a retrospective opention. The same doctrine of tatrness, to hold that a statute was retrospective in tl?t:rre, was apptied in the case of VAay v. State of Maharashtra & Ors., [(2006) 6 SCC 2Ag].' tt wis neia that where a law is enacted for ihe benefit of community as a whole, even in the absence of a provision.the statute may be hetd to be retrospective in nat?re:. Hotyevea we are (sic not) confronted with any such situation here. 32: In such cases, retrospectivity is attached to beneftt the persons in contradistinction to the provision imposing some burden or liabitity where the presumption attached towards prospectivity, In the instant case, the proviso added io Section ilS of lne Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assesiee. Therefore, in a case like this, we have to proceed iiih the no.rmal_.rule of presumption against retrospective operation. Thus, the rule against retrospective operdtion is a fundamental rule of law that no statute'shall be construed to have a retrospective operation unless such a\" construction appears very ctearly in the terms of the AcL or..anses-by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece oF 1r-id:!u tha.t ctarifies that provision o\"vona iri iitelr o,!ior_ y,r.:. the .understanding of CBDT itseff ;egarding tnts provision. It is contained in CBOT Circular -No.B if 2-0^92 daled 27.e.2002, with the subject \"Fi;an;;'A;. zu_uz -, txptanatory Notes on provision relating to Direc't ta-xes , this circular has been issued after tie oassinto of the Fina_nce Act, 2002, by wnici ;r;;;;;;;';Z sectrcn 113 was made. In this circular, ;a;io;; amendments to the Income tax Act are discusiea \"iitl, oemonstrating as to which amendments ;;. clarificatory/retrospective in operation and which a m endm ents a re p rospective. F:r ?xaryple, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentiiiii-ini amendments in Section 145 whereby proririiri' of tha_t:eatio! a19 made appticable to btock a'ssesimeits-is made ctarificatory and would fake effect retrospectiietl t:!: ,r\" day -of )uly, 1gg|. When it comes -io amendment to Section 113 of the ect, this very ciicuir provides that the said amendment ,l;r; ;i;;\";; amendments in Section ISI_BE, would Oi'pririlriirZ i.e., will take effect from 1.6.2002.- 11 18. Thus, the Apex Couft in the above judgment, has made it clear that unless a contrary intention appears, 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 intention, to make the said provision applicable topast 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, asalready noted above, the Ministry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.2074 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 01.04'2014, the same is contrary to the circular' and also contrary to the law laid down by Apex Court in the above referred judgment. 19. If the said provision is given prospective effect' as per the circulardat ed 4.4.2014 and the law laid down by the Apex Court' asstatedinthewritaffidavits.thefirstfinancialyearwouldbefrom o1-04.2014to31.03'20l5andthesecondandthirdyearsfinancial 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 t2 of the company, and as per the first 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 r€turns under Section 92(4) ot the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought t() have been held with normal fee, and within 270 days with addition.rl Fee as per theproviso to section 403 oF the Act. Learned counser submit that if the said dates are calculated, the last date for filing the annual returns would be 30,11.2017, and the balance sheet was to be filed on 30.10,2017 withnormal fee and with additionat fee, the last date for filing annual returns is 27.07.20Lg. In othe- words, the d isqua lification could get triggered only on or after 27.J7,2Otg. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqua lifical:ion, pertains prior to 07.04.2014. Therefore, when the omission, rvhich is now pointed out, was not envisaged as a ground for disq ua lification prior to L.4.2014, the petitioners cannot be disqualified on th(r said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which statesthat \"No person sha be convicted of any ctffence except for violation of a lawin force at the time of the commis:;ion of the act charged as an offence, nor be subjected to a penalty greater than that which might have been infticted 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 13 INDIA2 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. he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aForesaid discussion, I have affived at the fol I ow i ng co ncl usi ons : (a) It is held that Section 164(2)(a) of the Act is no.t .ultra virus Article 14 of the Constitution' The said provision is not manifestlY arbitrary and also does not fall within the scope of the doctrine of propoftionality Neither doe.s the said provisionviolate Afticle 19(1)(g) of the Con.stitution. as it ii made in the interest of general public and a reasonable restriction on the exercise of the said right' The object and purpose of the said provision is to stipulate the cinsequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountabititY, and transparency in corPorate governance. (b) That Arttcle (sic) Section 164(2) of the Act applies .by '-' oiperation of iaw'on the basisof the circumstances stated therein, the said provision does not envisage any hearing' iiitnei pre-aisqualification nor post-disqualific.ation and tiis is not in vio;ladon of the principles of natural justice' is not ultra vires Article 14 of the Constitution' k) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unre.asonable nor alrbitrary, in view of the interpretation placed on the same' (d) ... (e) Insofar as the private companies are concerned'. ' ' iisjuahtication on account of the circumstances stated iiiier Section 16a(2)(a) of the Act has been brought into force for the first time under the Act and the consequences ;f disquatification could not have been imposed on iir\"itort of private companies by taking into consideration. any period prior to O1 04'2O14 for the purpose of ,irxohing continuous period of three financial years under ni iaii provision' The said conclusion is based on the irinini 6ru*n bY waY of analogy from Article 20(1) of the 'constitution, as at no point of time prior to the iitorr.^\"ni of the Act, a disqualification based on the circumstances under Section rca?) of the Act was ever iniisaged under the 1956 Act vis-b'vis directors of private- ;.;;;i;. such a disquatification could visit a director of only a public company under Section 274(1)(9) of 1-956 nri unb ,\"r\", a director of a private companY' such- disqualification of the petitioners who are directors ot private companies is hence quashed' o lol Conseouentlv, where the disqualification under Section \"' lCid it tie act is based.on a continuous period of three financial years commencing from 01'04'2014', *htl:'-1 financiat statements or annual returns have not been ttleo iii i iuotic or private company, the directors of such a 2 w.P.No.5291 I of 201? and batch dated 12 06 2019 1.1 company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 27. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL $HAH s/o BIILuANTLAL SHAH vs. UNION OFINDIA3 expressed similar view as, that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of ZOL3, which had conre into force with effect from 1.4.2014 would have prospectivt:, and not retrospective effect and that the defaults contemplated urder Section 16a(2)(a) with regard to non-filing of financial statements or annual returns for any continuous period of three firancial years would bethe default to be counted from the financial year 2014_15 only and not 2013- 14. 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. IINION OF INDIAa atso expressed similar view. The relevant portion is as under 29. In fine, (a) When the New Act 2013 came into effect from 1.4.2014, the second respondent hetein has w.pngly given retrospective effect and erroneously disqualified the petitioner - directors from 1,1.2C16 itseif before the deadline commenced wrongly fixing the first financial year from 1.4.2013 to 31.3,2014. (b) By virtue of the new Section 164(2)(e) of the 2013 Act using the expression ,for any continuous period of three financial year,, and in the light of section 2(41) defining ,,financiat year,, as welt al their own General circular No,0B/14 dated 4.4,2014, the first financial year would be from 1,4..2014 to 31.3.2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third finan:ial year would be from 1.4.2016 to 31.3.2017, whereas the se-cond respondent clearly admitted in paras l5 and 22 of the counter affidavit that the default of filino statutory returns for the finalyears commer ces froi 35pecial Civil Application No.22435 of20l7 and batch dated 18.12.201g o w.p.No.2s+55 of 2017 and batch d ated27.o,t.2OtB l5 2013-14, 2014-15 and 2015-16 i,e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. 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 16a(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 regardlng 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 reference: 164. Disqualification for appointment of director: (2) No person who is or has been a director of a company which- (a) has not fited tinancial 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 disq ua liFication on happening of an event i.e., if a person who is or has beena 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 16 date on which the said company fails to doso. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single _udge of the High Court of Gujarat at Ahmedabad in Gaurang BalvanUal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and try relylng on various judgments of the Apex Court, held that Secilon 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the saidprovision does not envisage any hearing, neither pre-disq ua lification norpost-disqualification and this is not in violation of the principles of natural justice and hence is noL ultra vrTes Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Sect on 164(Z)(a) of the Act is a deeming provision and the disq ua lification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for is:;uance of any prior notice, but the respondents notified d isq ua lificatior-r even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act. 26. The next grievance of the petitioners is ,^/ith regard to deactivationof 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 deactivated, and the violation mentioned under Sectiol 16a(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11. and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. 17 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 purpose, is extracted as under for ready reference: 77, Canceltation or surrender or deactivation of DIN: The Central Government or Regional Director (Not'thern Region), Noida or any officer authorized bY the Regional Director may, upon being taiitfied on verification of particulars or documentary proof attached with the application received from any person, cancel ordeactivate the DIN in case - (a) the DIN is found to be duplicated in respect of the same person 'piovided the data related to both the DIN shall be merged with the validly retainednumber ; (b) the DIN was obtained in a wrongful manner 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 comqetent Court; if the conZerned i-ndividuat has been adjudicated an insolvent; (c) (d) (e) Provided that before cancellation or deactivation of OIN pursuant to clause (b),an opportunity of being heard shall be given to the concerned individual; tf on an aDolication made in Form DIR-' by the DIN holder to surrender his oi ner otv along with declaration that he has never Gei appointed as director inany company an! the said DIN has ,uu.r 6.\", 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 Centra lcove rn m ent sha I I verifY e' reco rds' Explanation: for the purposes of clause (b) - lcl The terms \"wrongful manner\" means if the DIN is obtained '\" o, tii itirgth oi documents which are not legallv valid or incomptete iocuments are furnished or on suppression of marc;iat information or on the basis of wrong ceftification or bY ;;irg misteading or false information or bv misrePresentation; /ii rhA r?rm \"fraudulent means\" means if the DIN is obtained with tt) ')', tiiiri;;-;;;;ir; \";v other person or anv authoritY inctudinq the Central Gavernment' 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 18 Section 164(2)(a) of the Act. Therefore, for the alleg(:d violation under Section L64 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 ofthe Rul€s. 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 DINi oF the pei.itioner as a consequence of the impugnedlist? In 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 1e has been allotted the Director ldentification Number under .iection 154. .Section 153 requires every individual intending to be appointed as Director of a Company to make an appti;a:ion for allotment of DIN to the Central Government in such fo;m and manneras may be prescribed. Section l54 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such ma.nner as may be prescribed. Section 1SS prohibi:s any individual, who has already been alloxed a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the pncedure for making application for allotment and for the allotment ofDIN, and further provide that the DIN a oXed by the Central Government under the said Rules would be valid ior the .ife time of the applicant and shall not be altotted toany other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN, Accordingly, the Central Governtnent or Regional Director or any authorized officer of Regional Dirictor mayt on being satisfied on verification of -partialars of documentary proof attached with an application fro,m any person, cancel or deactivate the DIN on any of the grounds i {niiinea in glausg G) to (0 thereof. Tite said -Rute ll oiei- not contemplate any suo motu powers either with the Centrat Government or with the authorized officer or Aegionai Oi\"eclcrl) rc cancel or deactivate the DIN altotted to the Dir;cbr, i, iiii ,r the ctauses mentioned in the said Rutes ,ort\"ipiiiir'ui ,Jtit,on or de_activation of DIN of the Director of the \"rtruri oiirriiiry- or of the .Director having become inetigibte urai, i\"ctiin iZ