Morthala Krishna Reddy V. Union of India

WP/16944/2020

AI Insights

The case involves petitioners who were directors of private companies that failed to file financial statements or annual returns for three consecutive years, leading to their disqualification under Section 164(2)(a) of the Companies Act, 2013. The petitioners challenged their disqualification and the deactivation of their DINs, arguing that the provisions were applied retrospectively, which was not permissible. The court examined whether the disqualification and DIN deactivation were legally tenable, considering the retrospective application of the law and the principles of natural justice.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721723 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2020
• 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: DHARANI B
• Keywords: Annual Returns; Director Identification Number; Disqualification; Financial Statements; Natural Justice
• Section: 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE TWENTY NINTH DAY OF SEPTEI ,4BER TWO THOUSAND AND TWENTY PRESENT THE HONOURABLE SRI JUSTICE CHALLA KODANDA RAM Between: 1. Itrlorthala Krishna Reddy, S/o It/. Venki Reddy, Business, resident of # LIG-882, KPHB Colony, Kukatpally, Kukatpally, Hyderabad. 2. Modhala Koti Reddy, S/o. lVl. Venki Reddy, Business, resident of # LIG-882, KPHB Colony, Kukatpally, Kukatpally, Hyderabad. ...'ET'T'ONERS AND 1. Union of India, Rep by its Secretary, Ministry of Corporate Affairs, Shastry Bhavan, Dr, Rajendra Prasad N,4arg, New Delhi, 2, The Registrar, Office of Registrar di Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad- sooo68' ...RESP.NDENT' Petition under Arlicle 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue any writ, order of direction more particularly one in the nature of wril of l ,4andamus by calling for the records of Respondent No.2 relating to the impugned order dated 1410912O17 by listing the Petitioners name as disqualified Directors uploaded in the website of the Respondent No.1 as illegal, arbitrary, devoid of merit and to quash the list Dt. 1410912017 uploaded in the website of Respondenl No.1 with regard to the petitioners and consequently direct the Respondents herein to permit the P.etitioners to continue them as Directors of their Active Companies without any rnterference Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay the operation of the impugned order daled 1410512017 published by the respondents which was uploaded in the website of the Respondent No.1, and to Activate the DIN Nos. 01271393 and 03527360 respectively and digital signatures of the Petitioners, in so far as the Petitioners herein are concerned, pending disposal of the above writ petition Counsel for the Petitioner : SRI DHARANI KUMAR B Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER WRIT PETITION NO: 16944 OF 20?0 lA NO: 1 OF 2020 THT;; HON,BLE SRI JUSTICE CHALLA KO]),, I ,DA RAM WRIT PETITION No. 16944 of 2OilO ORDER: Tl-Le petitioners challenge their disclu alification from Directorship under Section 164(21 of the Companies Act, 2013, lor the ailesed default in filing financial slatemer.It/ Annual Returns, and consequently seek restoration of their Dire,:lr>r Identificatior-r Numbers (DIN) viz. , O 27 1393 and 03527360 resne:tivelv. Learned counsel for the petitioners subtntts; that the issue raised i:-r the present Writ Petition is squar':lv covered by the cornmcr'. order dated 1,8.07.2019 in W.P.No.5122 of 2018 and batch. Lgarned Standing Counsel for the 2\"d rer;grondent - Registrar of Corrrlanies does not dispute the aforesaid sr-Ltmission. 3perative portion of the aforesaid order reacs as under \"For the foregoing reasons, the imprgnr:d orders in the writ petitions to the extent of d,slualifying the l,etitioners under Section 16a(2){a) of the Act and deactivation of their DINs, are set aside, and the 2\"d t.espondent is directed to activate the DINS of ':ho petitioners, r:nabling them to function as Directols oth,:! than in strike ,rff companies, It is made clear that this order will not preclude the 2\"c respondent from taking appropriate actiotr in accordance with law for violations as envisaged under Si:ction 164(21 of lhe Act, giving the said provision prospe,:tivr: effect from Ol,O4.2OL4 and for necessary action against DIN in case of violations of Rule 11 of the Rules. It is also made clear thlat if tho p.rtitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the / c:, they are at liberty to avail alternative remedy under Ser:tion 252 of the Act. To All the writ petitions are accordingly allowed to the extent indicate d above.,, In vieu' oi the said Order dated 1g.07.20 l9 and for thc reasons recorded therern, this Writ petition is also allowed in terms thereof, No costs. Miscellaneous petitions, if any pending, shall stand closed. SD/.M.MANJULA ASSISTANT REGI AR i/TRUE COPY// SECTION OFFICER 1. The Secretary, Union of India, N/inistry of Corporate Affairs, Shastry Bhavan, Dr.Rajendra Prasad lrrla rg, New Delhi. 2. The R'egistrar, Office of Registrar of Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad- 500068. 3. One CC to Sri Dharani Kumar B, Advocate [OPUC] 4. One CC to Sri Namavarapu Raleshwar Rao, Assistant Solicitor General [OPUC] 5. Two CD Copies (along with the copy of the order daled 181071201 I in WP No.5422 of 201 B) Kj (^. V HIGH COURT DATED:29109t2'J20 ORDE R WP.No.1694,1 of 2020 ALLOWING IHE WRIT PETITION WITHOUT COSTS. ( e 1f'E s\"{ D ii,AlCH gO ((. 0 6 0[:I2m0 i o -t, ,t I lr o- t) lC o r. I lr ll,al -/ - r )-' '.-z c. l ..r.,/ - 1 ' THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOs.5422. 12184, 13520. 13783, 138s5. 14166. 24os1.30993. AND 40953 0F 2018. 5547. 55a2. 5669. 5687. 5785, 6047. 60a7. 7 s R1 L6 RLal A ? 6RqR 60Ee 6(let Tnnr Tnna 7ol 4 liaR 1rrRO 8111. 8223. 8s86. 8s90. 9333. 9340. 9381, 9458, 9563. 9s84. 9623, 9726, 9737, 1005A. LOO99. tl20a. t1223. L1239, 1L263. 1L889, 11991. 12018. 12fJ36. 1204f). t2 69. 12108. 12144. 12186. L2194. L2200. L2209. L22L5. 122L7. t2243. 12260, 12262. t22AA. L2342, L2350. 124L7.12432. 12472. 1249A, 12506. L2574, 1259A. L262t. L2702. 12735. !2740. L2A45. L2a50, 12865. L2866, 130t3. L36LA. 13730. 13749. 13779. L3788. L3839. t3855. 13A78. L39L2. 139L7, 13945. 14LOL. 14L74. t4207. L4350. L436L. 14390. L4392. 14397. 14409. 14582 AND 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petltioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section t64(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. 7OJ3. 7LOs. 7432. 74s4. 7s72. 7595. 7732, 7765. 776A. 7a24, 797A. 4. This court granted interim orders in the writ petitio'rs directing the 2nd respondent to lctivate DINS of the petitioners, to enable tlem to function other than in strikc off companies. 5. Heard t\"re learned counsel appearing for the pet tiorrers in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor Cien€rral appearing for the respondent.:; - Union of India. 6. Learnec counsel for the petitioners, contend that before passing the impugned ordi:r, notices have not been issued, giving thenl opportunity, and this amounts to violation of principles of natural justi:e, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(.1)(a) of the Act empowers the authority to disqualify a person to be a dire:cto -, provided he provision came into forcr: with effect from 1.4.2014, and pr or thereto i.e., under Section 27C(t)(g) o'' the Companies Act, 1956 (1of 1956), which is the analogous provision, ther3 was no such requirement for the directors of the private companies. r-f e), contend that this provision under Act 18 of 2013, will have prospectiv3 operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said da':e, the authority under the Act, is within its jurisdiction to disqualify them. BJt in the present cases, the 2nd respondent, taking the period prior to 1.4.2O1,1, i.e., giving the provision retrospective effect, disqualified the petitioners Ers directors, which is illegal and a rbitra ry. has not filed finar r::ia statements or annual returns he is director, for any continuous counsel further submits that this period of three B. With regard to deactivation of DINs, learned petitioners submit that the DINs, as contemplated under Companies (Appr ntment and Qualification of Directors), of the r:cmpany to which financial y€ ars. Learned counsel for the ]L le 2(d) of the Lt,les, 2014 ( for .,) short'the Rules), are granted for life time to the applicants under Rule 1O(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 dissolutlon of the company under Section 248 of the Act. 9. Learned counsel further submits that 1st respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.12.20!7 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 business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under 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. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period -+ of three financial years/ automatically entall their dlsqua ification under Section 164(2)(a) cf the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to :orrply wlth the statutory requrrenrent under Section 164 of the Act, cannot complain of violation of principles of natural justice, as it is a deeming pror'is,ion. Learned counsel further s.Jbmits that the petitioners have alternal-ive remedy of appeal under Sect.ion 252 of the Act, and hence writ petitic,nsi may not be entertained. 12. To ccnsider the contention of the learned Asiistant Solicitor General with regard to alternative remedy of appeal under S,ect on 252 of the Act, the said provision is required to be considered, e nd the same is extracted as unde - for better appreciation: 25 2. Apl,,3al to Tribunal: (1) Any person aggrieved by an order of the Registrar, notify n! a company as dissolved und,r' Section 248, may file an appeal to the Tribunal v/ithio a period of three years from the date of the order of the Registrar and if the l rlbunal is of the opinion that the rcmoval of the name of the company from the register cf companies is not justified in view of the absence of any of the grounds on wh (:h tl'e order was passed by the R(rqistrar, it may order restoration of the name of th(r con'rpany in the register of compa nies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being reard to the Registrar, the co1'pany and all the persons concerned: Provided turther that if the Registrar is satisfied, that tt( rame of the company has be3r.l struck off from the register of companaes either iradvertently or on basis of inco-rect information furnished by the company or lts directors, which requares restoraliJn in the register of companies, he may within a leriod of three years from the date of passing ofthe order dissolving the comparry urder Section 248, file an appl cation before the Tribunal seeking restoration of name of such company. (2) A ccpy of the order passed by the Tribunal shall be filec t,y :he company with the Registrar-wrthin thirty days from the date of the order and o1 receipt of the order, the Regisitrar shall cause the name of the company to be -estored in the register of companies and shall issue a fresh certificate of incorporalricn. (3) If e company, or any member or creditor or worl(er lrhereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, n-.rrber, creditor or workman befcre the expiry of twenty years from the publicaticn in the Official Gazette of the rotice under sub-section (5) of Section 248, if:;a:i6fied that the company was, et the time of its name being struck off, carrying r)t b..rsiness or in operation or otf erwlse it is just that the name of the company b: restored to the register of companies, order the name of the company to be restor3( to the register of companies, arrd the Tribunal may, by the order, give such other d rections and make such prov s;ions as deemed just for placing the company and a I cther persons in the same posltion as nearly as may be as if the name of the :cmpany has not been struck off trom the register of companies. 5 A reading of above provision goes to show that if the company is dissorved 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 d isq ua lification 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 alternatlve 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 07.04.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section t6aQ)@) of the Act, which provision came into force with effect from 01.04.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the default envisaged under Section 16a(2)(a) of the Act, has to be 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.0B/14 dated 4.4.2014 issued by the N4inistry 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 Aprrl, 2014. Provisions of Schedule II (useful lrve; l.o compute depreciation) ancl Schedule III (format of financial statements) 'r.ve also been brought into force irom that date. The relevant Rules pertaining to :hese provisions have also been nctified, placed on the website of the Ministry and h,rve come into force from the sarne date. The Ministry fas received requests for clarification with regard to the relevant financial years with effect from which such provisions of the new l ct relating to maintenance of books of account, preparation/ adoption and f ling of financial statements (and attachments thereto), auditors report and Board's relort will be applicable. Although the F)osition in this behalf is quite clear, to make things absolutely clear it is hereby notiJied that the financial statements (and document: required to be attached theretor/ auditors report and Board's report in respect o-inilncial years that commence(l earlier than 1st April shall be governed by the relevant provisions/schedules/rules oF the Companies Act, 1956 and that ln respect of financial years ccnmencing on or after 1't April, 2014, the provisions cf the new Act shall apply. \" A reading of the above circular makes it clear the financial statements and the documents reouired to be attached thereto, auditors ret,ort and Board's report in respect r:f flnancial years that commenced earlier tha'r 01.04.2074, shall be governec by the provisions under the Companies pct, 1956 and in respect of financierl years commencing on or after Ol.04.2OI,l, the provisions ofthe new Act shall apply. 74. At this stage it is required to be noticed tha. 1_he analogous provision to Sectirn r6a(2)(a) of the Act 18 of 2013, is Se:tion 27aQ)@) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready referen<:r:: Section 274LlJ A person shall not be capable of being apport(rd director of a company, if - (9) such persln 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 sLCh person shall not be eligible to be appointed as a di-ector of any other public con)lany for a period of five years from the date on v,ihich such public company, in wh ch he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interes or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the ,rbove provision under Act 1 of 1956, make:; i: clear that if a person capable of being appointed director of a company ard such person is already a director of a public company, which has not filed annual accounts and annual returrs for any continuous three financial yea-s 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 flling 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 l6a(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 07.O4.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section l6a(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 [4inistry of the Corporate Affairs, and he has given the provisions of Act 18 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 lt a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, '1:otsyt scct S conceptually it is a great deal more than an ordinary prose. Tl1,:r: ls a special peculiarity in the rode of verbal communication by a legislation. A le(lislation is not just a series of staten]ents, such as one flnds in a work of fiction/norl 'iction or even in a judgment of a court of law. There is a technique required to dra't a legislation as well as to un,j-.rstand a legaslation. Former technique is kno!^ n a:i legislative drafting and latt€r one is to be found in the various principles of Inlerlretation of Statutes'. Vis-e-v s ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises l)y presumptions as to the intent o' the maker thereof. 28. Of the vlrious rules guiding how a legislation has to be nlrerlreted, one established rule ir; that unless a contrary intention appears, a legislalicn is presumed not to be intendecl to have a retrospective operation. The idea b€rh nc the rule is that a current lalv should govern current activities. Law passed todav cannot apply to the events oflhe past. If we do something today, we do it keep nl i-r the law of today and in force and not tomorTow's backward adjustment of it. f,ur lelief in the nature of the la s founded on the bed rock that every human belno i:; entitled to arrange his affairs by relying on the existing law and should not frd that his plans have been retrospect vely upset. This principle of law is known as lex prospicit non respicit : law locl..s forward not backward. As was observed in Phil ip:j vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the,leneral principle that legislatlon b/ which the conduct of mankind is to be regulated ,,vhen introduced for the first time to deal with future acts ought not to change the (hrr.cter oF past transactions carri€,d on upon the faith of the then existing law. 29. The obvilr.rs basis of the principle against retrospectivity s the principle of 'fairness', which TUst be the basis of every legal rule as was 3f)served in the decision reporteJ n L'Office Cherifien des Phosphates v. Yanashita-Shinnihon Steamship Co. Ln]. J{1994) 1Ac 4861. Thus, legislations which rnodi'ied accrued rights or which i'r'pose obligations or impose new duties or attact a n,:w disability have to be treat-.d as prospective unless the legislative intent is cl:€rly to give the enactment a retrospective effect; unless the legislation is for purpo:ie cf supplying an obvious omission in a former legislation or to explain a former l,rgislation. We need not note that cornucopia of case law available on the subject because aforesaid legaT position clearly emerges from the various decisions and this l(:gal position was conceded by the counsel for the parties. ln any case, we shal refer to few judgments containinq this dicta, a little later. 30. We woulJ also like to point out, for the sake of completen€s:;, that where a benefit ls confer-ed by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but w thoLt inflicting a corresponding detriment on some other person or on the public genilrallv, and where to confer such lenefit appears to have been the legislators obje(:t/ then the presumption would be that such a legislation, giving it a purposive ,ronstruction, wou d warrant it tc be given a retrospedive effect. This exactly is t'r€ jrstification to treat procedural provisions as retrospective. In Government of ln(jia & Ors. v, Indian Tobacco / :;sociation, [(2005) 7 SCC 396], the doctrine of fairn3s:; was held to be relevant factc,r to construe a statute conferring a benefit, in the (:ort€xt of it to be given a retrosp3ctive operation. The same doctrine of fairness, to hold that a statute was retrcspective in nature, was applied in the case of V jey v. State of Maharashtra & t)rs., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit ll community as a whole, even in the absence of 3 l)rovision the statute may be 1ed to be retrospective in nature. However, ^/,r are (slc not) confronted with airy such situation here. 31. In su(h cases, retrospectivity is attached to benefit the persons in contradistinctior to the provision imposing some burden or l.blity !\"vhere the presumption attiched towards prospectivity. In the instant case, th{) proviso added to Section 113 ()'the Act is not beneficial to the assessee. On th,l :ontrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed witf the normal rule of presumption against retroste(:tive operation. Thus, the rule against retrospective operation is a fundamental rLl€ o'law that no statute shall b€ construed to have a retrospective operatlcr unless such a construction apl)ears very clearly in the terms of the Act, or arises b\" necessary and dist nct implicat on. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There i; yet another very interesting piece of evidence :hat clarifies that provision beyonC any pale of doubt viz., the understanding of CBC,T itsrelf regarding this provision. [t s contained in CBDT Circular No.8 of 2002 dated 27 8.2002, with the subject \"Firance Act, 2002 - Explanatory Notes on provision relal:ing to Direct Taxes\". This circirlar has been issued after the passing ofthe Final(e / ct,2002, by which amendmert to section 113 was made. In this carcular, var o ts amendments to the Income tax Act are discussed amply demonstrating as to ryhi:h amendments are clarificatory/-etrospective in operation and which amendmen::; dre prospective. () For example, Explanation to section 158-BB is stated to be clarjficatory 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 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.\" 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 14inistry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2014 claritying 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 16a(2)(a) of the Act 18 of 2013, by considering the period prior to 01.04.2074, 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 first 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 Section 96(1) of the Act, annual general meetirg for the year ending 31.03.2OL7, can be held within six months fronr tlre closing of financial year i,e., cy 30,09.2017. Further, the time Iimit for filing annual returns under Secliol 92(4) of the Act, is 60 days fron arrnual general meeting, or the l:r:;t date on which annual general meeting ought to have been held with nornal fee, and within 270 days with additiorral l'ee as per the proviso to Sectior 403 of the Act. Learned counsel submi: that if the said dates are calculated, the last date for filing the annual re[u-ns would be 30.LL.20L7, and the balance sheet was to be filed on 30.10.2017 with normal fee and w t.h additional fee, the last date for filing a rnual returns is 27.O7.2018. In o:re. words, the disqualification could get trig Jered only on or after 27.07.2018. But the period considered by the 2nc 'espondent in the present writ pet t.ions for clothing the petitioners witl disqualification, pertains prior to 01.04.2074. Therefore, when the omissi,)r), which is now pointed out, was not envisaged as a ground for disqualif ic,rtion prior to 1.4.2014, the petiiioners cannot be disqualified on the sail ground. This analogy is traceable to Article 20(1) of the Constitution of Irrrlia, which states that \"/Vo person s,tall be convicted of any offence except for ,\"'iolation 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 ha'rc been inflicted under the law in force at the time of the commission of :t,e offence\". In view of the sam,:.. the ground on which the petitioners were disqualified, cannot stand to l€ gal scrutiny, and the same is liable to be !;et aside. 20. A lea.ned Single Judge of the High Court rrf Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA2 considering Section 16a(2)(a) of the Act and other provisions of the , tt, and various judgments, passec an elaborate order and held that the said provision has no retrospective operation. The observations of the learned lUdg€r, pertaining to 2 w.P.No.529 t I of 201'' .rnr' batch dated 12.06.2019 ll private companies, which are relevant for the present purpose, are extracted as under: 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section 16a(2)(a) of the Act is not ultra y/rus Articte 14 of the Constitution. The said provision is not manifesuy 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 governance. (b) That Article fslc) 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 ^ol ultra ylres Article 14 of the Constitution. (c) That Section 164(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, 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 disqualification 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 disqualification could visit a director of only a public company under Section 27 Q)@) of 1956 Act and never a director of a private company. Such dlsqualification of the petitioners who are directors of private companies is hence quashed. (0 (9) Consequently, where the disqualification under Section f6aQ) of the Act is based on a continuous period of three financaal years commencing from 01.04.2074, 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 764(2) of the Act of 2013, which had come into force with effect ftom t.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) with regard to non-filing of financial statements or r r/Special Civil Applicatior No.22435 of201'7 and batch dated 18.12.2018 12 annual returns for any continuous period of three financia years would be the default to be counted from the financial yeat 2014- L:; rnly and not 2013-L4. 22. A learn:C single ludge of the High Court of Madrrrs ir BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA4 also,:>:pressed slmilar view. The relevant portion is as under: 29. In fine, (a) When the New Act 2013 came into effect fuom 1.4.2014, the second respondent herein has wrongly given retrc,spective effect aTic erToneously disqualified the petitioner - directors from 7.1 .2076 itself before the deadline commenced r\",irongly fixing the first frnancial year from L.4.2013 to 31.3.2014. (b) 23. In vie',ry of the above facts and circumstances anl :he judgments referred to supra, as the impugned orders in present writ petitions disqualifying the p,etitioners as directors under Section 164(2)(a) of the Act, have been passerrl considering the period prior to 01.021.2014, the same cannot be sustained, and are liable to be set aside to that ex1.ent. 24. As far as the contention regarding issuance of lrio' notice before disqualifying the petitioners as directors is concerned, Secrrion 16a(2)(a) is required to be .otlced, and the same is extracted as Jnder for ready reference: 164. Disq ualification for appointment of director: o w.P.No.25455 0f 201',7 ancl batch dated21.O7.2ot8 B)/ virtue of the new Section 164(2)(a) of the 201.3 Act using the e):pression 'for any continuous period of three financial year\" and in :he light of section 2(41) defining \"financial y(:Er\" as well as their o vn General circular No.08/14 dated 4.4.2074, the first financial yr:irr would be from 7,4.2014 to 31.3.2015, tr(r second financial yr:;rr would be from 1.4.2015 to 31.3.2016 and thr: third financial yr:ar would be from 1.4.2016 to 31.3.2017, '/,,her3as the second res;pondent clearly admitted in paras LS and 22 of the counter affidavit that the default of filing statutory Tetrlrns for the final yo,rrs commences from 2013-74, 2OL4-75 an,l 2015-16 i.e, one year before the Act 2013 came into force. This is the basic ircurable legal infirmity that vitiates the entire impugned prrceed ing s. l3 (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. 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 Iification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. A reading of the above provision makes it clear that it provides disqualiflcation 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 ofthe 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 basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-d isq ua lification and this is not ln violation of the principles of natural justice and hence, is not ultra vires Article 14 of the Constitution. I concur with the said reasoning. (a) t.+ 26. The next (lrievance of the petitioners is with regard 1.o deactivation of their DINs. The ,:ontention of the learned counsel for th€ retitioners is that except for the g'cunds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be ::ancelled or deactivated, and the violat on mentioned under Section 16a(2)(a) of the Act, is not one of the grouncs mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged '/illation under Section 164(2)(a) of the Act, DIN cannot be cancelled, 27. Rule 10 c l lhe Rules provide for allotment of DIN a rd under sub rule (6) of Rule 10, it is allotted for life time. Rule 1:, pr-ovides for cancellation or deact vation. Rule 11, whlch is relevant for t1e present purpose, is extracted ,as under for ready reference: 11, Cancellation or surrender or deactivation of DIN: The Central Government or Regilnal Director (Northern Region), Noida or any off cer aLrthorized by the Regional Dire,::tor may, upon being satisfied on verification of r.di:ulars or documentary proof ertiached with the application received from any pe-,.ior, :ancel or deactivate the DIN ir'r case - the DIN i; found to be duplicated in respect of the same persr)n provided the data -(-.lated to both the DIN shall be merged with the ve li(lly r€tained number; the DIN v/as obtained in a wrongful manner or by fraudulent neans; of the dea:h of the concerned individual; the conc€,rned individual has been declared as a person of r n;ound mind by a com lete nt Court; if the concerned individual has been adjudicated an insolvent; Provided that b,-\"ore cancellation or deactivation of DIN pursuant :o clruse (b), an opportunity of beilg heard shall be given to the concerned individua ; on an apllication made in Form DIR-5 by the DIN holder to srrrr3nder his or her DIN along with declaration that he has never been appointed a! director in any company and tht-. said DIN has never been used for filing of any do(:ur'lent with any authority, the Celtral Government may deactivate such DIN; Provided that before deactivation of any DIN in such case. the Central Government shali verify e-records, Explanation 'or the purposes of clause (b) - The ternr; \"wrongful manner\" means if the DIN is obtrire(j on the strength of docum{:its which are not legally valad or incomplete d)cunrents are furnished or on suppression of material information or on the btrs s of wrong certification or by rraking misleading or false information or by misrep13:entation; (ii) the term \"fraululent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central G lvern ment. 28. Clauses (a) to (f) of Rule 11, extracted above, pr,rvides for the circumstances unde' which the DIN can be cancelled or deac:ivated. The said grounds, are different from the ground envi:;aged under (b) (c) (d) (e) (f) (i) l5 Section t6ae)G) 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. )o Learned singre Judge of the Gujarat High court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next questjon as to whether the respondents could have deactivated the DrNsd tne petirioneiis ;.;;r;;;\"r* of the impusned list? In this regard, it would be approprate to refer to itre retevant provisions contained in the Act and the said Ruies. section f S:t:iproirio\", that no person shatt be appointed as a Director or u .o.piny, r;i*; il ;;, been arotted the Director Identification Number under section'isq. -s\".it\"'r53 requires every individuat intendrng to be appointed as Direcior oii-iornpuny to make an application for alotment of DIN to the centrar Government in'irai, form and manner as may be prescribed. Section 154 states that the Central CoJ\".n,n\"nt sha 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 t55 prohibits any individual, who has already been allotted a DIN under Section 154 from apptying fo; or obtainlng or possessing another DIN. Rules 9 and 10 of the said Rutes 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 Section 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 Tun counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be cancelled 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 alonq 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 sard 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 chanqe to the Central Government 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 deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules.\" 30.Inviewoftheabovefactsandcircumstancesandthejudgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained' 16 31. For the fcregoing reasons, the impugned orderr; in the writ petitions to the extent of disqualifying the petiti,)ne -s under Section rcaQ)@) of the Act and deactivation of their DINs, a'e set aside, and the 2nd respond,:nt is directed to activate the DINs of the petitioners, enabling them to funr:tion as Directors other than in strike off ccrnpranies. 32. It is rrade clear that this order will not prec ude the 2nd respondent from taking appropriate action in accordance .with law for violations as envisaged under Section L64(2) of the Act, qivirg the said provision prospective effect from O1.04.2074 and for nec(:ssary action against DIN in case ,:f violations of Rule 11 of the Rules. 33. It is alsc made clear that if the petitioners are a1lc rir:ved by the action of the respondents in striking off their companies under :;ection 248 of the Act, they are at riberty to avail alternative remedy under s;e:tion 252 of the Act. 34. All the writ petitions are accordingly allowed :o the extent indicated a bove 35. Interlocut.ory applications pending, if any, shall sta ld closed. No order as to costs. A.RAJASHEKER REt)I)Y,] DATE: 18-07-20191 AVS "