GOVIND KUMAR INANI V. Union of India and another

WP/23900/2020

AI Insights

The case revolves around the disqualification of Govind Kumar lnani, a director of private companies, under Section 164(2)(a) of the Companies Act, 2013, for failing to file financial statements or annual returns for three consecutive years. The Registrar of Companies disqualified him and deactivated his DIN, citing non-compliance with statutory requirements. lnani challenged this decision, arguing that the action was arbitrary, illegal, and violated principles of natural justice, as it was based on a retrospective application of the law and lacked proper notice or hearing. The court examined whether the disqualification could be applied retrospectively and whether the DIN could be deactivated under the existing rules.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 734029 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 24-12-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies Act, 1956, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: KANDURI RAJANI
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 151; 455; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) THURSDAY ,THE TWENTY FOURTH DAY OF DECEIVBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 23900 OF 2020 AND 1 2 Between: Govind Kumar lnani, S/o. Ratanlal lnani, Aged 48 years, R/o. HNo 16-2-70111, F 505, luJR Classic Apts, Palton lvlalakpet, HYDERABAD 500036 Telangana, lndia. ...PETITIONER Union of lndia, Rep by its Secretary, lr,4inistry of Corporate Affairs, ShastrvBhavan, Dr. Raiendra Prasad lt4arg.. New Delhi The R6gistrar, Office of Registrar of Companies, 2nd Floor, Corporate Bh?Yg!'- - Near Cdntral Water Board,-GST Post Bandlaguda, Nagole, Hyderabad - 500068 ...RESPONDENTS Petition under Article 226 of lhe constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High court may be pleased to issue a writ, order or direction more particutarly one in the nature of writ of Mandamus declaring the action of the Respondents in disqualifying the Petitioner invoking section 164(2) (a) as arbitrary, illegal, contrary to the principles of natural justice,ln violation of the provisions of the Companies Act,2013 and in contravention tf the rights guaranteed under Article 14 and Articte 19 (t ) (g) of the Constitution of lndia a rid consequently direct the Respondents to restore the DIN numbers of Petitioner i.e. Govind Kumar lnani (D1N.06574747). lA NO: 1 OF 2020 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 direct the respondents to reactive the DIN number of Petitioner Govind Kumar lnani (Dli{.06574747) so as to enable the Petitioner to comply with the statutory iequirements in the ENERSYS ASTRA LIIVITED bearing CIN No' u2'g309TG 1 993PLC016707 under law pending disposal of the writ petition. Counsel for the Petitioner : M/s. KANDURI RAJANI Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO' ASST.SOLICITOR GENERAL The Court made the following: ORDER HON'BLE SRI JUSTICE ABHINAND KI.]MAR SHAVILI W.P.No.23900 of 2020 ORDER When the matter is taken up for hearing, learned counsel on either side faidy concede that the issue involved in this rvrit petition is squarely covered by the common order dated 18.07.2019 in W.P.No.S422 ol2018 and batcl'r. Follorving the order dated 18.07.2019 in W.P.No.5422 ol 2018 and batch, this Writ Petition is allou'ed. No costs. Pending miscellaneous petitions, if any, shall stand closed, ,TRUE COPY// SD/.N.CHANDRA SEKHAR ASSISTANT G R SECTION OFFICER To, loPUCl 5. Two CD CoPies (Alonq with a copy of order dt:1810712019 in W.P No.5422 of 2018 and Batch) 1. The Secretary, Union of lndia lvlinistry of Corporate. Affairs' ShastryBhavan, Dr. Rajendra Prasad Marg., New Delhi. Z. ihe Registrar, Office of R-egistrar of Companies, 2nd Floor, Corporate Bh-av^an, ^ Near Cdntral Water Board,-GST Post Bandlaguda, Nagole, Hyderabad - 500068 3. One CC to lr//s. Kanduri Raiani, Advocate [OPUC] +. One CC to Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General, Advocate SM t HIGH COURT DATED:2411212020 ORDER WP.No.23900 of 2020 ALLOWING THE WP WITHOUT COSTS + / i 0slAN202t l4 E H 1 s R o k EO i * I !.rL (r z 4 - COMMON ORDER 2. The petitioners are the directors of the private companies' reglstered under the Companies Act, 2013 (18 of 2013) (for short'the Act') Some of the such companies are actlve, and some of them have been struck off from the not ca rrY ln q the said period,' the Act. register of companies under Section 248(1)( c ) of the Act' for on any business operation for the specified period mentioned in provision, and for not making any application within the specified for obtaining the status of a dormant company under Section 455 of 3. The Petitioners, who were and who are Presently directors of directors of the struck off companies, durlng annual the releva nt period in question, failed to file financial statements or returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 164(2) of the Act' disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so' The Director Identification Numbers (DINs) of the petitioners were also deactivated' Aggrieved by the same, the present writ petitions have been filed' active comPanies, W.P.NOs.5422, 12184, 13520. 13783' 13855. 14166' 24051' 30993' atiCEqea, 67s3. 6eia. ogse. sgat, zo9!' z99a' zotq' toqo' zoog' @. zstz, zsgs.273?' t--z1s. tzoe' zezq' tgTq' eiii:E tAsso; sseolsgg. gg+0. gspj., g4.64' gsog' gsaq' gozs' 1i991:lro1& 12036. 12040. 1206e. 121q9' 12144' 12186' 121e4' tzzo6. rzz-. rzzog. tzzts.iitt. tzzqs. t?zOQ-' Lzzoz' tzzae' t??q?' i5iii. tzqtt. tzii).l)qzz. tzqge. tzlQg' lzszq' rzsge' tzozt' iiioilrzzst 127ao 128qs. rzeso. r?q9!' 1ze0e' rsorg' rsor9' isrSo: 1374e-gzzg. lszCs. rsesg. r?g!s' lssza' rsgrz' rE?12' ijf,ii;. riloL. r4t7+ L4ro7,:-43so. :-439r-'-r43eo' 143s2' L43e7' 14409' 14582 AND 14597 0F 2019 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 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. 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. 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 1.4.2014, and prior thereto i.e., under Section 27+(l)(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 t.4.ZO14, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whlch 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, 2074 (for 3 . short'the Rules), are grante a d for Iife 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 Ministry of corporate Affairs, has floated a scheme dated 29.t2.2077 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' Seekingforrestoration,andtheTribunalcanorderforreactivationofDiNof such directors, whose DIN are deactivated. However, under section 252 only the companies, which are carrying on the business, can approach the Tribunalandthecompanies,whichhavenobusiness,cannotapproachthe 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 lhe constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions' ll.ontheotherhandlearnedAssistantSolicitorGeneralsubmitsthat failUretofilefinancialstatementsorannualreturnsforanycontinuousperiod 1 of three financial years, automatically entail thelr disqualification 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 the statutory requirement under Section 164 of the Act, cannot complaln of violation of principles of natural justice, as it is a deeming provision. 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. L2. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal (1) Any person aggrieved by an orderofthe Registrar, notifying a company as dissolved under Section 248, fiay 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 of the name of the company from the register of companies is not lustified in view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration of the name of the company in the register of com panres; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadverten y 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 compa ny, (2) A copy of the order passed by the Tribunat shall be fited by the company with the Reglstrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and 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 companies, the Tribunal or an application made by the company, member, creditor or workman before the expiry of twenty years from the publication in the Offacial Gazette of the notice under sub-sectaon (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 register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company has not been struck off from the register of companies. ) 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 disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from OL.O4.2Ol4, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the dlsqualiflcation envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from O1.O4.2074, 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 4.4.2O!4 lssued 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 A reading of the above circurar makes it crear the financiar statements and the documents required to be attached thereto, auditors report and Board,s report in respect of financial years that commenced earlier than 0t.04.20L4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after Ol.O4.2Ol4, 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 Dae)@) ot Act 1 of 1956. The said provision under Act 1 of 19S6 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 Aprit, 1999; or (B) Provided that such person shalt 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 pubric 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 oi int\"r\"rt or redeem its debentures on due date or pay dividend refeired to in ctause (B). A reading of the above provision under Act 1 of 1956, makes it crear that rf 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 frnanciar years commencing on effect from 15t Aprit, 2014. provisions of Schedule II (useful lives to compute depreciation) and Schedule III (format of financial statements) have also been brought into force from that date. The rerevant 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 received requests for clarification with regard to the relevant financial years with effect from which such provrstons of the new Act relating to maintenance of books of account, preparation, adoption and filing of finaicial statements (and attachments thereto), auditors report and Board,s ieport 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 :jl1.h-\"^11:r\"tgl, auditors.report and Board,s ,epo.t in respect of financrat years that commenced earlier than 1st April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1966 and that in respect of financial years commencing on or after i.t April, 20i4, the provisions of the new Act shall apply.\" 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 164(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 forappointmentasadirectorofacompany.Asalreadynotedabove,the said provision, came into force with effect from O]-.O4'2014' 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 lvlinistry of the corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, whlch is impermissible. lf . The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectiv ity. The relevant portion of the judgment is thus: 27, A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, hay physically consists of words printed on papers' However' ' (2015)l sccl 7 S conceptually it rs a great deat more than an ordtnary prose. There is a special pecuriarity in the mode of verbar communicatron uy a tegriLJon. A regisration is not just a s€ries of statements, such as one finds in a *o.t -oi riitionznon fiction or even in a judgment of a court of law. There rs a technrque ,\"q, i\"O to draft a legislation as welt as to understand a legislatro.n. rormer tecirnilie is known u, f\"iiif.iiu\" drafting and latter one is to be found in tne uanori pri.,ptes of ,lnterpretation of Statutes'. Vis-e-vis ordinary prose, a legislation differs in its provenance, lay_out and features as also in the imptication a, io itr.\"*in!inut'u.i.\", 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 i contiary lntentrJn appears, -a tegislation is presumed not to be intended to have a retrospectiue operati5l. -iie- ioea behina the rure is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something i.O\"V, *\" i\" it keeping in the law of today and in force and not tomorrow's oactwirJ aorisimJrit or it. our berief in the nature ofthe law is founded on the bed rock tt\"i j\"\"iv nr.\"\" being is enti ed to arrange his affairs by relying on the existing ta* ano siouia not find that his plans have been retrospectively upset.. This principle of fu*i, tno*n as lex prospicit non respicit : law looks forward not backward. e. *u, oOi\"iulo in phi ips vs. Eyre [(1870) LR 6 QB 1], a retrospective tegistation ,, ;\";i;; i; the generat principte that regisration by /hich the conduct of hankrnd \" to o\" ..6g;rut\"o when introduced for the first time to deal with future acts ougnt-not-io.fr\"r'g\" tn\" character of past transactrons carned on upon the faith of the tn\"n \"r,rt,nq L;. 29. The obvious basis of the pnncrple against retrospectrvity is the principle of 'fairness', which must be the_basrs oi \"uu-ry t\"9ui-rufJ ui *u, observed in the decision reported in L'office cherifien o\"r 'pno#\"i\", ;. yamashita-shinn ihon steamship co, Lrd. [{r994) 1 Ac 486]. rnr., Lllliro\", which modified accrued rights or whrch rmpose oblrqation, or. impose \"\"*'ortLi or'\"ttach a new disability have. to be treated as prospective unless the f\"girfatiu\" ini\"ni rs ctearly to grve the enactment a retrospective effect;.unless the le6islation is'fol purpose of supplying an obvious omrssion in a forme_r legislation o. i- u*pf u in'u lormer legislation. We need not note that cornucopra of casi law availaOfe ori tfre JuOlect Oecause aforesaid legat pos,rtion ctearty emerges from the various J\"iiiio\", u\"Jini. tegat position was conceded by the counsel for the parties. fn uny cuae, *\" shall refer to few JUdgments containing this dicta, a litue later. 30. We would also like to oornt out, for the sake of completeness, that where a benefrt is conferred by a regisiation, the rure againsi u ,-\"tio'rp\".t,u\" constructron rs different. If a legistaiion .olrr\"r, . t\"rurii;\"-;;;'p;r;;tut wrtnout inftictrng a corresponding detriment on some other person or on it \" prOfia generally, and where to confer such benefit appears to.have been tt\" ieiiriuto., object, then the presumption would be that such a legislation, giving ii\"a purpostve construction, would warrant it to be given a retrospeitive \"rr\".tl 'ir,lr \"rl.[r; is the justification to treat procedurar provisions as retrospective. rn cou\"rn,-n\"ni'of India & ors. v. Indian Tobacco Association, t(2005) 7 SCC 3961, tf.,\" a\"liri\"\" \"r r\"irness was held to be relevant factor to construe a staiute conferring iL\"r\"iii, ,in\" context of it to be given a retrospective operation. The same O5.trr\" oi''fuirn\"ss, to hold that a statute was retrospective in nature, was applieJ ln tnu ius-e- ot Vijay v. State of l1:l\",I!=.ht- & ors., [(2006) 6 SCc 289]. 'ri *r, r.,\"lJ1n\"i\"*here a ta* is enacted tor the benefit of communitv as a whole, eren in ii,e -uUi\"nce of a provision the statute may be hetd to be retrospective in natrre. - ;;;;;;r, we are (slc not) confronted with any such situation here. 31. .. In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provlsion imposing =orn\" -Orra-\"n--ol. tiability where the presumption attached towards prospectivity. In the instant case, the proviso added to Sectron 113 of the Act is not beneficial io tt\" uirlrr\"a. -dn tne contrary, it is a provision which is onerous to the assessee. Therefore, in a iase like this, we have to proceed with the normal rule of presumptiorl ig;inlt l\";rospective operation. lllt,-,n\" t-ylu .against retrospective operation i, , ir-nOurn\"n'tur rute of taw that no statute shall be construed to have a retrospeciive operltron unjess such a construction appears very crearry in the terms or[nu a.i, oiuii.\", ov necessary and distjnct rmptrcatron. Dogmatically framed, the.l\"-i, \"J -.o1\"-,nun a presumptron, and thus coutd be displaced by out werghtng factors. 43. There is yet another very rnteresting piece of evrdence that crarifres that provrsron beyond any pale of doubt viz., tne JnierstanOirs \"i iuor rtself regarding thrs provrsron. It is contained in cBDT aircular f.r\". f:- \"f zOii a\",ed 27.8.2002, with the subJect \"Finance Act, 2OO2 _ Exptanatorv ruoiu, on-J.-riitn reta,ng to Direct Taxes\". This circular has been is^sued after the passint oiit\"i,nun.\" Act,2oo2, by which amendment to section tr3 was made. - l-r,-,i,, '.,i., i\"-r, various amendments to the Income tax Act are discussed amply demonstratirg-\", i\" which amendments are clarificatory/retrospective in operation and which ar-unO.\"nt, are prospective, 9 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 flnancial 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(2Xa) of the Act 18 of 2013, by considering the period prior to 01.04.20L4, 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 etfect, as per the circular dated 4.4.2014 and the law lald down by the Apex Court, as stated in the writ affidavits, the first financlal 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 i For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, it ls 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 1't day of luly, 1995, When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" l0 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92@) 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.2Ol7, 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.O7.20L8. In other words, the disqualification could get triggered only on or after 27.07.2018. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 0t.O4.2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 1.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Afticle 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 penatty 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 164(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provision has no retrospective operation. The observations of the learned Judge, pertaining to 2 w.p.No.5291 1 0t2017 and batch dated I 2.06.20 t9 ll 'rlspecial Ci ,il Applicalion No.ll.l3-5 of20l7 and barch datcd 18.12.2018 private companies, which are relevant for the present purpose, are extracted as under: 208. In view of the aforesaid discussion, I have arrived at the following conclusionsi (a) It is held that Section 16a(2)(a) of the Act is not u/tra ylrus Articte 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proportionality. Neither does the said provision violate Article 19(1)(g) of the Constitution as it is made in the interest ofgeneral 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 governance. (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-d isqua lificatio n and this is not in violation of the principles of natural justice, is not ultra yfes Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospectave operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into 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 dlsqualification based on the circumstances under Section 164(2) of the Act was ever envisaged under the 1956 Act vis-a-vis directors of private companies. Such a disqualiflcation could visit a darector of only a public company under Section 27a(1)(9) 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. (g) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from O1.O4.20t4, 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 164(2) of the Act of 2013, which had come into force with effect from 1.4.201-4 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 (d) . . . (0 t2 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 20t3-74. 22. A learned single Judge of the High Court of N4adras in BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA4 also expressed similar view. The relevant portion is as under: (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 \"financjal year\" as well as their own General circular No.08/14 dated 4.4.2074, 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 financial year would be from L,4,2OL6 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and ZZ of the counter affidavit that the default of filing statutory returns for the final years commences from 2Ol3-1,4, 2014-75 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 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 aslde to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164, Disqualification for appointment of director: o w.P.No.25455 0f2017 and batch dated 27.07.2018 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 7.4.2073 to 31.3.2014. t3 (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) . . . Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides disqualification 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 16a(2)(a) of the Act applies by operation of law on the basls of the circumstances stated therein, the said provlsion does not envisage any hearing, neither pre-disqualification nor post-d isq ua lification and this is not in violation of the principles of natural justice and hence, is not ultra vlres Article 14 of the constitution. I concur with the said reasoning. 25. Thus. from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqua 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 disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and aqainst provisions contained in Section 16a(2)(a) of the Act. T (a) (e) (b) (c) (d ) )4 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 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 16+(2)(a) of the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 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 manner oT by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Cou rt; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director 1n 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 Centrai Government shall verify e-recoTds. 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 certification or by maklng 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. (f) (i) 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 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 ludge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioner as a consequence of the impugned I st? In thls regard, it would be appropriate to refer to the relevant provisrons contained in the Act and the said Rules, Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed. Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted 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 procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN. Accordingly, the Central Government or Regional Director or any authorized officer of Regional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Sectron 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be ca ncelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactivating the DINS of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR -3 has to intimate such change to the Central covernment within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactavation of the DIN could be resorted to by the concerned respondents only as per the provisions contained 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 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 O]-.O4.2OL4 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 34. All the writ petitions are accordingly allowed to the extent indicated a bove. 35. Interlocutory applications pending, if any, shall stand closed. No order as to costs. A.RA]ASHEKER REDDY,J DATEr 18-07-2019 AVS c 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. "