Dabhara Sashi Bhushana Naidu V. Union of India and Another

WP/9916/2021

AI Insights

The case revolves around the disqualification of Dabhara Sashi Bhushana Naidu, a director, under Section 164(2)(a) of the Companies Act, 2013, due to non-filing of financial statements or annual returns for three consecutive financial years. The disqualification and subsequent deactivation of his DIN were challenged in the High Court. 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 respondents contended that the disqualification was automatic under the law and did not require prior notice. The court examined the legislative intent, applicable rules, and previous judgments to conclude that the disqualification should not have retrospective effect and that the DIN could not be deactivated on the grounds cited.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721662 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 20-04-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central)-I 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 Qualifications of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: PAPIAH PEDDAKULA
• Keywords: Annual Returns; Director Identification Number; Financial Statements; Natural Justice; Writ of Mandamus; Disqualified Directors
• Section: 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE TWENTIETH DAY OF APRIL TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 9916 OF 2021 Betwee n: Dabhara Sashi Bhushana Naidu, S/o Chandramoull, Aged 41 years, Occ. Business, R/o.1/A, Hanuman Nagar, Near Shivalayam, l /anikonda, Puppalaguda, Ranga Reddy District ...PET',.NER AND 1. Union of lndia, Rep. by Principal Secretary, I /inistry of Corporate Affairs, 5-th Floor, A Wing, Sashtry Bhavan, Dr. Raiendg Prasad Road, New Delhi-1 100-01. 2. The Registra-r'of Comfanies, Telangaria, 2no Floor, -Corpolate Bhavan, GSI Post' Tattiann\"aram, Nagole, Bandlaguda. Hyderabad-50000s' retanSg;$$ft or*ra 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 an order or direction or any other proceedings of Writ Order or Direction more particularly one in the nature oi Writ of Mandamus by declaring the_ order of the ilespondents relating to the impugned order through List of Disqualified Directors 2016-2i (published ln the websit e on 14lOQt201 7), in so far as deactivating the Director identification Number 027gO142 (Dabhara Sashi Bhushana Naidu) of p\"tigon\",. uploaded in the website of the respondent No.1 as arbitrary, illegal without iriitOi.tion, .ontrary to the provisions.of the companies Act' 2013 and Rule 11 of the 'Companies (Appointment and eualifications of the Directors) Rules, 2014 and violaiive of t'he principles of natural justice besides violating the Petitioner rights grriini.ud under Article 14 and Articl'e 19 (1)(g) of the Constitution of lndia and set iiiO\" ,..,u list uploaded in the website oi Respondent No.1 with regard to the Petitioner and consequently direct the Respondents herein to permit the Petltioner t9 continueasDirectoroftheCompaniesandfilestatutoryreturnsi.e''annualreturns and financial statements of the companies which are active without any interference lA NO: 1 o F 2021 PetitionunderSectionl5lcPcprayingthatinthecircumstancesstatedinthe atiOavitiiteO in support of the petition, tn6 rign Court may be pleased,to-direct the n\"spona_\"nt, to iestore tne 'oirectoi ldentification Number (DlN) 02790142 of Dabhara Sashi Bhushana Naidu, the Petitioner herein so as to enable him to continue as Director of the companils anolor get appoint or reappointed.as Director of any Company/incorporateanewcompanyandfileStatutoryreturnsi'e.,.annua|returns ,'no finui.irr statements oithe actlve tompanies in which he is the director' pending disposal of the writ Petition Counsel for the Petitioner : SRI PAPAIAH PEDDAKULA Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO Assistant Solicitor General The Court made the following: ORDER THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAV1LI WRIT PETITION No'9 916 of202l ORDER: Aggrieved by the action of the respondents, in disqualifuing the petitioner as Director under Section 6aQ)@) of the Companies Act, 2013 and in deactivating his Director Identification Number (DIN), the present Writ Petition has been filed. 2. Learned counsel appearing for the petitioner contended that the /rs in the present Writ Petition is squarely covered by the common order dated 18.07 .2019 passed by tl.ris Court in W.P.No.5422 of 2018 and batch, and hence the same may accordingly be allowed. 3. Learned Assistant Solicitor Genelal appearing for respondents does not dispute the same. 4. The relevant pofiion of the order in W.P.No.5422 of 2018 and batch dated 18.07.2019, is as under: \"23.In view of the above lacts and circumslances and the judgrnents refered to supra, as the irnpugned orders in present writ petitions disqualifying the petitioners as directors under Section rcaQ)@) 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. 30. In view of the above l-acts and circumstances and the judgment refened to supra, the deactivation of the DINs of the petitionels for alleged violations under Section 164 ofthe Act, carutot be sustained. 31, For thc foregoing reasons, the impugned orders in the rvrit petitions to the extent of disquali$zing the petitioners under Section ftae)@) of the Act and deactivation ol 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 of1' con-rpanies. 32. It is lnade 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 164(2) of the'Act, giving the said provision prospective effect from 01.04.2014 and for necessary action against DIN in case of violations of Rule I 1 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberly to avail altcrnative remedy under Section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent indicated above.'\" Petition is also allowed mutatis mutandis, in terms of the cornmon order dated 18.07.2019 passed in W.P'No.5422 of 2018 and batch' No order as to costs Miscellaneous petitions pending, if any, shall stand closed' SD/-N.CHANDRA SEKHAR RAO ASSISTANT REGIS RAR ,TRUE COPY/i 1. The Principal S-ecretary, -Union of lndia, lVinistry \", \"\"*\"rrr\"tOl,:;:ffi::- ^ Wing_.Sashtry Bhavan, Dr. Rajendra prasad Road, ttew OelfriiftOti. -- \" , +lS,11:-q:!r* ?l CoTplnieq: Tetangana. 2\"] FJoo1, Corporate Bhavan, GSt post, I ar annararn. Naoote. c-andlaguda, Hyderabad_500068, Telangana Stbte. 9 9n. gg lo gri pafiaiah peooa(uri, ao'v\"i\"l\"loFubl 4. one cc to sri Namavarapu Rajeshwar Rao, Assistant Solicitor General topucl 5. Two CD Copies (along with a copy of the order dated i9roTtzolg in wp No.5422 of 2018 and batch) r Kj ) <_ To 5. In view of the same, and for the reasons alike, the present Writ HIGH COURT DATED:2010412021 ORDER WP.No.9916 ot 2021 ALLOWING THE WRIT PETITION WITHOUT COSTS. 4. *- :::o Fri'i IAr.q S i_ il +. C 1 0 20 MAY 21 I (, s\" TH EHO ,B LE SRI JUSTI EA, A]AS EKE REDDY P 47 4 4 7 7 7 4 4 L4409, 14582AN L4s97 F2019 COMMON ORDER the Act. o 7 2 1 3. The petitioners, who were directors of the struck off companies' andwhoarepresentlydlrectorsofactivecompanies,duringtherelevant period in question, failed to file financial statements or annual returns for a continuousperiodofthreeyears.Therefore,the2ndrespondentpassedthe impugned order under section 764(2) ot 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 companies failed to do so. The Director also deactivated. of the Petitioners were date on which the respective Identification Numbers (DINs) Aggrieved by the same, the present writ petitions have been filed' 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 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 ) 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to function other than in strike off companies. 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. 7. Learned counsel submits that Section 16a(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided 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 1.4.2074, and prior thereto i.e., under Section Zl +(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 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 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 prior to 7.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors. which is illega I and arbitrary. 8. 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 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 1 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't respondent - Government of India represented by the f4inistry of Corporate Affairs, has floated a scheme dated 29.12.2Ot7 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 248(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 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no buslness, 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 Article 226 of the constitution of I nd ia. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. ll.ontheotherhandlearnedAssistantSolicitorGeneralsubmitsthat failure to file financial statements or annual returns for any continuous period 1 ofthreefinancialyears,automaticallyentailtheirdisqualifiCationunder 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 Violationofprinciplesofnaturaljustice,asitisadeemingprovision.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. t2,ToconsiderthecontentionofthelearnedAssistantSolicitor 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 ofthe Regiltrar, notifying a company as aissoivlO unOir Sectioi)+g, may file an appeal to the Trib-unal within a period of inr,\"\" v\"i* fi\". ttre date ot the order of the Registrar and if the Tribunal is of the oointn tnat the removal of the name of the company from the register of companies i=';;i j\";iifi\";;\" ;iew of the absence of anv of the grounds on which the order was puir\",i Ov the Registrar, it may order restoration of the name of the company in the register of comPanies; Provided that before passing an order under this section' the Tribunal shall give a reasonable opportunity of miting representations and of being heard to the i.egistrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the .oapuny nit O\"\"n struck off from the register of companies either inadvertently or on fjasti of incorrect information furnishid by the company of its directors, which i\"qri.\"t t\".toiution in the register of companies, he may within a period of three y;;;;;;\"; the date of passing ofthe order dissolving the company under s-ection lqg,-rii\" \"\"'application befori the Tribunal seeking restoration of name of such company. (2) A copy of the order passed by the Tribunal. shall ,be flled by the company withtheR.egistrarWithinthirtyd.aysfrom,thedateoftheorderandonreceiptofthe oiJur, inu \"Registrar shall cause ih\" nurn\" of the company to be restored in the i\"g i.i\". of .oripu n ies and shall issue a fresh certificate of incorporation' (3) If a company, or any member or creditor-or.worker thereof feels aggrieved'by the company having its name struck off from the register of .6irpunies, t'he Tribunal or an application made by the. company, member' creditor ol- wortman before the expiry oi twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the .-o*plnv-*\"i, at the time of its name being struck off, carrying on business or.in ;;;i\"ii\"; oi otherwise it is just that the name of the company be restored to the ,JErt\"i \"ti\"*p\"nies, orderihe name of the company to be restored to the register oiiorpanie=, and tfie Tribunal may, by the order, give such other directions and ,uk\" sl.n provisions as deemed just for placing the company and all other persons i;lh;;\";; position as nearlv ai may be as if the name of the company has not been struck off from the regrster of companies' 5 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 deactivation of their DINs. In the present case, the petitioners are only aggrieved by their d isq ua lification 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. 13. Under Section t64(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 1B of 2013, came into force with effect from 01.04.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disq ua lificatio n envisaged under Section 16a(2)(a) of the Act, which provision came into force with effect from 07.O4.2014, 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 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 circu la r is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 6 effect from 1't April, 2014. Provisions of Schedule Il (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has-ieceived requests for clarification with regard to the relevant financial years with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified 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 1st April shall be governed by the relevant provisions,/schedules/rules of the Companies Act, 1956 and that in respect of financiat years commencing on or after 1st April, 2014, the provisions of the new Act sha ll 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 0I.04.2074, shall be governed by the provislons under the Companies Act, 1956 and in respect of financial years commencing on or after 07.04.2014, the provisions of the new Act shall apply. 14. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 274(t)(g) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable of being appointed director of a company, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual 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 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 filed annual accounts and annual returns for any continuous three financial years commencing on 7 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. 15. Under Section t64(2) ot 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', fails to file financial 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 provision, came into force with effect from 0L.04.2Q14. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 16a(2)(a) 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 Ministry of the Corporate Affairs, and he has given the provisions of Act 1B of 2013, retrospective effect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectivity. 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 words printed on papers. However, ' (zors)r sccr 6 conceptually it is a great deal more than an ordinary prose There is a special peculiarity in the moie of verbal comrnunication by a legislation, A legislation is not iust a series of statements, such as one finds in a work of fiction/non fiction or even inl jrOgrn\"nt of a court oi law. There is a technique required to draft a legislation ur *itt i. to understand a legislation, Former technique is known as legislative aiufting una latter one is to be found in the various principles of'Interpretation of Statutei'. Vis-a-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in the law of today and in force and not tomorrow's backward adjustment of it our belief in the natuie of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward As was observed in Phillips vs Eyre t(1b70) LR 6 QB 11, a retrospective legislation is contrary to the general principle inat tegistation'Oy which the conduct of mankind is to be regulated when introduced for thJfirst time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision reported in L'Office Cherifien des Phosphates v Yamashita-Shinnihon Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability hJve 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 former Iegislation' We need not note that cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was coiceded by the counsel for the Fiarties. In any case, we shall refer to few judgments containing this dicta, a little 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 is different. If a legislation confers a benefit on some persons but without inflicting a corresponding deiriment on some other person or on the public generally, and where to confer suth 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 exactly is the justification to treat procedural proviiions as retrospective, In Government of India & Ors' v' lndian Tobacco Aisociation, t(2005) 7 SCC 3961, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operatlon The same doctrine of fairness, to hold that a itatute *as reirospectlve in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 2e9] It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature, However, we are (slc not) confronted with any such situation here. 31. ln such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity. ln the instant case, the proviso added to Section 113 ofthe Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have io proceed with the normal rule of presumption against retrospective operation Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises 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 evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. 1t is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 20O2 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. I For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day of July, 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., will take effect from f .6.2002.\" 18. Thus, the Apex Court 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 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 2\"d 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 O7.O4.2074, 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 circular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the flrst financial year would be from 01-04-2014 to 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 10 proviso to Sectlon 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 30.LL.2077 , 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 ua lificatio n could get triggered only on or after 27.07.20t8. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 07.O4.2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disq ua lificatio n prior to 7.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(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 INDIA2 considering Section 16aQ)@) 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, pertaining to 2 w.P.No.52911 0f 2017 and barch dared 12.06.2019 lt private companies, which are relevant for the present purpose/ are extracted as u nder: 208. ln view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 16a(2)(a) of the Act is not u/fra ylrus Article 14 of the Constitutlon. 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 is 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 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 9OVerna nce. (b) That Article (slc) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (c) That Section 764(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) (e) Insofar as the private companies are concerned, d isqua lificatio n on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disqualification 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 period of three financial years under the said provision. The said conclusion is based on the principal drawn by way of analogy 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 ever envisaged under the 1956 Act vis-e-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27aQ)G) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. (0... (9) Consequently, where the disqualification under Section !64(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would 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 Court of Karnataka (1 supra), and held that Section L64(2) of the Act of 2013, which had come into force with effect frcm t.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 of 201 7 and batch dated 18 12.201 8 annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2014-15 only and not 2013-L4. 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAYA DAS vs, UNION OF INDIA4 also 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 herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from L.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression'for any continuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as well as their own General circular No.08/14 dated 4.4.2oL4, the first financial year would be from 1.4.2074 to 31,3.2015, the second financial year would be from 1.4.2015 to 31,3.2016 and the third financial year would be from 1.4.2016 to 37.3.2017, whereas the second respondent clearly admitted in paras L5 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from Z0t3-14, 2O14-L5 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 proceed ings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifyinq 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 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of directort o w.P.No.25455 of2017 and batch dared 27.07.2013 t2 l3 (2) No person who is or has beenj a director of a company whjch- (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 is 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 High 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 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disq ua lification nor post-d isq ua lification and this is not in violation of the principles of natural justice and hence, is not ultra ylres Article 14 of the Constitution. I concur with the said reasoning. 25, Thus, from the above, it is clear that Section 16a(2)(a) oF the Act is a deeming provision and the d isq ua lification 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 d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and agalnst provisions contained in Section 16a(2)(a) of the Act. l1 26. The next grievance of the 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 deactivated, and the violation mentioned under Section 164(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. 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentary 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 DIN shall be merged with the validly retained number; 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 Cou rt; if the concerned individual has been adjudicated an insolvent; (b) (c) (d) (a) (e) (f) (i) 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-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed 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 documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certificatlon or by making misleading or false information or by misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central 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 27. Rule 10 of the Rules prgvide 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: 15 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.ThistakestheCoUrttothenextqUestionastowhethertherespondents could have deactivated fire oir,li or tne petitioner as a-consequence of the impugned list? ln this regard, it *\"-\"'ri\"U\" upplopriute to refer.^to the relevant provisions contained in the Act anO G s\"A Ruies Section 153(3) nrovides that no person shall be appointeu \"t \" J'i'\"tl\"' \"i'u to*p*v' unre* n! has been allotted the Director Identificution trt \"'O--\"-|\" -' nJe r Section tS+ -Section 153 requires every individual intending to o\"\"\"ppo \"*O -* oil.\"ttol- of -a Company to make an aoolication for allotment \"r-orii [\" tl.\" central Government in such form and manner as mav be prescribed s\"t;;; i5; ttut\"t tnut the central Government shall within ;\"\";;tfii;;; ir'u '\"t\"ipi'\"oi in\" uppr'tution under section 1s3 allot a DIN to an applicant in such manne\"' ;; ';-\";-;\"- irescribed ^ section 155 prohibits anv individual, who has atreaov O*\" tf'lttti a'DIN under Se-ction 154 from applying for or obtaining or. po,'\"\"ins'ffi#; ;iN: nuLs s ano 10 of the said Rules of 2014 orescribe the procedure \"'' \"'\"]Lii \"'pprit\"i|o\"loi illot'\"nt and for the allotment of btt',l. and rurther provrde till'il; \"';li;i;-ti\"l ov tt'9 central Government under the said Rules would be 'urio # tiu rii\" ilt\" ti tt'\" applicant and shall not be allotted to any other Person. 30, Rule 11 provides for cancellatlon or surrender or deactivation of DIN' Accordingly, the Central cou\"|-nn''\"nioi-negional Director-or'any authorized officer of Regional Director may, \"\" o1i\"s tuiifieO on verification of particulars ot documentary proof attacheo *iin'\" u1 -uppri.ation from^any person, cancel or deactivate the DIN on unv ot tn\" gl-o'nJi mentionea. in.-C-l-au^?e (a) to (f) thereot' The said Rule 1t does not contenipiate any suo motu powers -either with the Central covernment or wrth the \"\"tn\"LJ ;;ii;-;' iegionat . Director to cancel or deactivate the DIN allotted to 'i; ;i;;;;';o' -unv oith\" -tluuses mentioned in the said Rules contemplates tuntuirJtiln oi\"lluti''utiln of DIN of the Director of the \"struck off company\" or of the rii'l*i\"t' f''\"\"i\"g u\"'me ineligible under Section 164 of the said Act. The r.\"'=on uoi\"u-r-!'io ;;'ih;t;;t\" an individual' who is intending to be the Director or \" o\"[]Jrilr\".\", oJny ii arrotteO DIN bv the central Government, such DIN *\"'ld ;;;;i; i* i'n\" rir\" iimeof the^ applicant and on the basis of such DIN he could Oeclo-me-Oirector in other comp-anies also' Hence' if one of the companies in *nicn ne'*a's 6i'\"\"tio'' it iti*tr off\"' his DIN could not be cancelled or deactlvated u\"nut \"'l\"o-\"ri'tun'io'' nt\"ito the provisions contained in the Rule 11, which specificallv ,'\"\":J\"; t; t;; -t;\"-\"'tunt\"' und\"r which the DIN could be cancelled or deactivated 31. In tha[ view of the matter' the qoYt.t it 91.!1\"--lpinion that the action of the respondents in deactivatrng 'tft\"-Oiftft of the petitioners -'Directors along with the oublication of the rmpugnei i'i''\"i o t\"ti-t of \"struck off\" companies under section 248, also was not ralquriy tenable. of course, as oer Rule 12 Of the said Rules. the individual *r''\" r,r#3\"1\"' trioiita tn\" orrtr' in the event of anv change in il:\" ? ii i,, \",.,',i;q I \" ;1,:J, i\" f:, ::i*f :: ;ffi:\":J: lF i' ::,:l:.i!ijli I fr:.,\"Ji]flil:,I'#oti\".5;::i,';;\";,.:;\"u.i,uui\"J. rtre cancetiation or deactivation of the DIN coutd ou l-\"ror,\"J'',\"o \"uV ,;rl -*\".\"*\"4 respondents only as per the p.iuitont.ontuined in the said Rules \" 30. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINS of the petitioners for alleged violations under Section 164 of the Act' cannot be sustained' l6 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 OL.04.2074 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. All the writ petitions are accordingly allowed to the extent indicated above. 35. Interlocutory applications pending, if any, shall stand closed. No order as to costs. A.R,AJASHEKER REDDY,J DATE: 18-07-2019 AVS "