Jaipal Reddy Shyamala V. Union of India

WP/15851/2020

AI Insights

The case involves Jaipal Reddy Shyamala, who challenged his disqualification from directorship and the deactivation of his DIN under Section 164(2) of the Companies Act, 2013, due to alleged defaults in filing financial statements and annual returns. The petitioner argued that the disqualification was applied retrospectively, contrary to the law and a circular issued by the Ministry of Corporate Affairs, which specified that the provisions of the new Act apply only to financial years commencing on or after 01.04.2014. The respondents, including the Union of India and the Registrar of Companies, did not dispute the applicability of the circular but maintained that the disqualification was automatic under the statute. The court found that the retrospective application of the law was impermissible and set aside the disqualification and DIN deactivation.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 677439 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-09-2020
• Assessment Year: misc
• Other Referred Cases: W.P.No.5422 of 2018, Yashodhara Shraff vs. Union of India, Gaurang Balvantlal Shah vs. Union of India, Bhagivan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: VANGA ANITA
• Keywords: Annual Returns; Director Identification Number (DIN); Disqualification from directorship; Financial Statements
• Section: 164(2); 248; 252

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERAAAD (Special Original J urisdiction) THURSDAY, THE SEVENTEENTH DAY OF SEPTEI ,,]BER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 15851 OF 2020 Betwee n : Jaipal Reddy Shyamala, S/o. Chinnappa Reddy Age- 55 Years, Occ- Business. Rlo,2-16152lA,Prashantinagar, Bank Colony BLAKU 16-89 Nundy 17-58 Uppa Rangareddy Hyderabad - 50003s ...pETrroNER ANID 1. Union of lndia, Rep by its Secretary. l!4inistry of Corporate Affairs, Shastry Bhavan, Dr. Rajendra Prasad fi,4arg, New Delhi. 2. The Registrar, Office of Registrar of Companies, ROC. 2nd Floor, Corporate Bhavan, Near Central Water Board. GST Post, Bandlaguda. Nagole, Hvderabad - 500068 ...RES'.NDENTS Petition under Arlicle 226 of the Constrtut on of lndia praying that in the circumstances stated in the affidavit filed therewith. the H gh Court may be pleased to issue any writ, order of direction more particularly one in the nature of lvrit of [\"4andamus to permit the Petitioner to continue as a Director of the Company and/or get appoint or reappointed as a Director of any Company without any interference. lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated rn tho affidavit filed in support of the petition, the High Court may be pleased to stay of the disqualif ication of drrectorship of the petitioner by activating the DIN No. 05215039 and digital signatures of the Petitioner, in so far as the Petitioner herein is concerned. pending disposal of the above writ petition. Cc,unsel for the Petitioner: SMT. VANGA ANITA Cc,unsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: ORDER THE HON'BLE SRI JUSTICI} CHALLA KODANDA RAM WRIT PETITION No. 15851 of 2O2O ORDER: The petitioner challenges his disqualification from Directorship under Section 164(2) of the Companies Act, 20 13, for the alleged default in filing financial statement/Annual Returns, and consequently seek restoration of his Director Identification Nr:mber (DIN) viz., 052 15039. Learned counsel lor the petitioner submits lhat the issne rarscd in thc prescnt. Writ Petltion is squareJv cov(jred bv lhe cornmolr clrclcr dzrtcd i8,07.2019 in W.P.No.5422 oi 2018 ancl ba tch . Learned Sranding Counsel lor the r,,.l respr-rnclent - Rcllistrar ol Companies does not dispute t1're aforesaid subn-rissior-r Operative portion of the aloresaid order reads as under \"For the foregoing reasons, the impugned ordets in the writ petitions to the extent of disqualifying the petitioners under Section 76a12)lal of the Act and deactivation of their DINS, are set aside, and the 2\"d respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies. It is made clear that this order will not preclude the 2\"d respondent from taking appropriate action in accordance with law for violations as envisaged unde! Section 16412) of the Act, giving the said provision prospective 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 that if the petitione!s are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they arc at liberty to avail alternative remedy under Section 252 of t]ne Act, All the writ petitions ale accordingly allowed to the extent indicated above.\" in vierv ol the said Order dated 18.07.2019 and for the reasons recorded therein, this Writ Petition is also allowed in terms thereof. No costs. Miscellaneous Petitions, if any pending, shall stand closed. To. snl SD/- B. SATYAVATHI ASSISTANT REGISTRAR ,TRUECOPY/I , .I / -+ I ii.,- Ye.r'o'* oFFrcER 1 The Secretary, Un on of India, Nllnistry of Corporate Affairs. Shastry Bhavan, Dr. Ralendra Prasad Ntlarg, New Delhi. 2. The Registrar. Office of Registrar of Companies ROC. 2nd Floor, Corporate Bhavan, Near Central Water Board. GST Post, Bandlaguda. Nagole. Hyderabad - 500068 3. One CC to Smt. Vanga Anita, Advocate IOPUC] 4. One CC lo Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General. Advocate [OPUC] 5. Two CD Copies (Along with a copy of otdet dI1810712019 in W.P.No.5422 of 2A18 and Batch) $/ HIGH COURT DATED:1710912020 ORDER WP.No.15851 of 2020 ALLOWING THE WP It i t 2SSEPm \"{ HE sI^ S oa o o f, e WITHOUT COSTS ol @ -%ar \"t- THE HON'BL SRI JUSTICE A.RAJASH EKER REDDY ANp 409s3 0F 2018, 5547, 5582. 5669. 5687. 5785. 6047, 6087, 6140, 6484, 6753. 685a, 695A. 69aL, 700L. 700A. 701-4. 7046, 7069. 7073. 7LOs.7432. 7454. 7572. 7595. 7732. 7765. 7768, 7824. 797A. Rl11 nrr? RSR6 R(qn O??? O?4n q?Rl q46R qCA? qqRa 06r? 945 101. 1 4174. 74)O7. 14350. 74?61. I 43S o L4a9) t4397. 1 1 4 t4409,14582 AN 14s97 0F 20t9 COMMON ORDER Since, the issue involved in ail 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') Sorne 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 operatlon for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant per.iod 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 164(2) of the Act, disqualifyinq 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 flve years from the dateonWhichtherespectivecompaniesfailedtodoso.TheDlrector Identification Numbers (DINs) of the petitioners were also deactivated Aggrieved by the same, the present wrlt petitions have been iiled' W.P.NOs.5422. 12184. 13520. 13783. 13855, 14166. 24051, 30993. 9726.9737. 10058. 10099. 11208. 11223. 11239. 11263. 11889. 11991, 12018. 12036. 12040, 12069. 12108. 12144. 12186. 12194. 1^2200. 12209. L2215, L2350, 124t7.12432. L2472, 12494. 12506.72574. L2s9a. 1262L. 1-2702, L2735, t2740. t2845, t2850, t2865, t2866, 13013. 13618. L3730. 13749. t3779.137Aa, L3a39, L3855. L3A7a. 139L2, 13917, 4. 'fhis 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 prlnciples of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to djsqualify a person to be a director, p;'ovided he has not filed financial statements or annual relurns of the company to which he is director, for any continuou:; period of lhree financial years\" Learned counsel furlher s;ubmits that this provision came into force with effect from 7.4.2A74, and p:ior thereto i.e., under Section 2laO)(g) oF the Companies Act, 1956 (1 of 1956), which is thre analogous provision, there was no such requirement for the directors of the private companies. Tirey contend that this provision under Act 1B of 2013, lvill have prospective operation and hence, if the directors of company fail to comply with the requirernents 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 1.4.207.+, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary, 8. With regard to deactivation of DINs, learned counsei for the petirioners submit that the DINs, as contemplated under Itule 2(d) of the Companies (Appointment and Qualification of Directors), Ilules, 20L,I (for .,) short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellatlon 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 1st respondent - Government of India represented by the tvlinistry of Corporate Affairs, has floated a scheme daled 29.12.2077 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"' respondent, allows the DINs of the Directors to be activated. However, such scheme is not 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 th€: companies, which are carrying on the business, can approach the Trillunai 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 lo invoke the jurisdiction of this court under Article 226 of the Constitution of Incia. 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 .1 of three financial years, automatically entail their disqualification under Section rcaQ)G) of the Act and the statute does not provide for i:isuance of any notice. Hence, the petitioners, wfro have failed to conrply witlr the statutory requiroment under Section 164 of the Act, cannot complain of vioiation of princ:ples of natural justice, as it is a deeming provision, Learned counsel further submits that thr: petitioners have alternaltive remeCy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 ':f the I,ct, the said provision is required to be considered, and tho sarne is extracted as under for better appreciation: 252. Appeal to Tribu n al (1) Any person aggrieved by an order of the Registrar, notifying a c,lmpany as dissolved under Section 248, may file an appeal to the Tribuna wilhin a perlod of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the ccmpany from the register of cornpaniL's s not lustified rn vrew of the absence of any of the grounds on which the order ,,^r,rs passed by the FLegistrar, it may order restoration of the name of the .ompany in the reg lster of (om pa n ies; Provided that before passing an order under this secton, th,: Tribunal shall give a reasonable opportun ty of making representatrons and of being heard to the Reglstrar, 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 compan es either inadvertently or on basrs of incorrect information furnished by the company or ts clirectors, which requ res restoral[ion n the register cF 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 applicaton before tl're Tribunal seeking restoration of name of such com pany. (2) A copy oF the order passed by the Tribunal shal be f led try the c,:mpany with the Reglstrar within thirty days from the date of the order and on receipt of tlre 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 lhe company having its name struck off from the register of companies, the Tribunal or an application made by the comF,any, member, creditor or workman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248. if satisfied that the company was, at the time of its name being struck off, carrying on business or jn 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, ilnd the Tribunal nray, by the order, give such other directions and make such prov sions 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 companles. ) 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 provldes 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 agqrieved by thelr disqualification as directors and deactivation of DINs, but not abou! 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 1B of 2013, came into force with effect from 07.O4.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 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 164(2)(a) of the Act, has to be caiculated, to hold the director of the company liable? 1n 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 lYinistry 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 relatLng to malntenance of books of account, preparation, adoption and filing of financia 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 Lst April, 2014. Provisions of Schedule II (useful lives to compute depreciaton) ancl Schedule III (format of financial statements) have also been brouqht into force from that date. The relevant Rules pertaining to these provisiol.ls have also been notifed, placed on the website of the l\"linistry and have come into force from the same date. l-he Mlnistry has received requests for clarification with regard [o the relevant financial years with effect from which such provlsions of tlte new Act relating to marntenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report and Board'si report will l)e applicable. Although th€! position n this behalf is quite clear, to make things absoluto y cledr it rs hereby notified that the financial statements (and documents required to l)e attached thereto), audito.s report and Board's report in respect of financi,rl years that con]menced earlier than 1't April shall be governed by the relevant provisions/scheduies/rules of the Companies Act, 1956 and that in res,pect of Flnanc al years :ommenc ng on or aiier lst Al)ril, 2014, the provisions of lhe new Act shall a ppiy. \" A reading of the above circular rnakes it clear the financial state,,l1ents and the documents required l.o be attached thereto, auditors report ald B,rard's report in respect of financial years that commenced earlier than O1.04.20L4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01.04.2014, the provisions of the new Act shall apply. 14. At this stage it is requlred to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 27a(7)(g) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracteC as uncler for ready reference: Section 274(1) A person shall oot be capable of being appornted director of a company, rf - (9) sucl- person s alreedy a drrector of a l)ub c company,,^/hich, - (A) has not flled the annual accounts and annual returns for ar'ry cor.rtinuous three frnancial years commencing on and aFter tl're first day of Aoril, 1999; or (B) Provided lllat such person shall not be eligible to be appointed as a direcfor of any other pub ic company for a period oF five years from the date on which such public company, in li/hich he is a director, failed to file annual accollnts and annual returns under sub-clause (A) or lras failed to repay its deposits or interest or redeem its detlentures on due date or pay dividend referred to in clause (B). A reading of the above provision Ltnder Act 1 of 1956, makes; it clear that if a person capable of being appointed director of a company and such person is already a dlrector of a public company, which has not filed annuarl accounts and annual returns for atiy continuous three financial years comn.tenclng on 7 and after the first day of April 1999, shall not be eligible to be appointed as a drrector 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 anrual 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 conrpany, will not disqualify them as directors under the provisions of Act 1 of 19 56. 15. Under Section 164(2) of the new legislation i.e., Act 18 of 2013, no such distinctlon 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 01.a4.2074. 16. Coming to the facts on hand, the 2^d respondent has disqualified the petitioners under Section 164(2)(a) of the Act 1B of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the lvlinistry of the Corporate Affairs, and he has given the provisions of Acl 1B of 2013, retrospective effect, whlch is impermissible. t7. The Apex Court in COMMTSSTONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectlv 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, may physicaly consists of words printed on papers. However, ' (20 r5)l scc r S conceptually it is a great deal more than an ordinary prose. There is a special pecuTiarity in the mode of verbal con]munication by a legislation. A leqislation is not just a series of statements. such as one finds in a work of fiction/non fictiorl or even n a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legjslative drafting and latter one is to be found ln the various principles of'Interpretation of Statutes'. Vis-i-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also ir.r the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding hov! a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in the law of today and rn force and not tomoTrow's backward adjustment of it. Our belief in the nature of the lauJ is founded on the bed rock that every hun]an being is entilled fo arrange his afFalrs by rely ng on the existing law and should not find that h s p ar'ls have been retrospectively upset. Th s principle of law is known as l€'x prosptcil non resprct : law ooks forward not bacl(ward. As was observed in Phillips vs. Eyre l(1870) LR 6 QB 11, a reirospective legislation is contrary ro the g:neral princpe that leqislalron by $/hrch the conduct of mankrnd is to be regulated u'hen lnlroduced for lhe f -st tirne to deal v/ith future acts ought not lo change the character of past transaclrons carned on upon the faitlr of the tlren exrsting law. 29. The obvious basis of the prrnciple against retrospectivity is the prirclple oF 'fairness', which must be the basis of every legal rule as was observed in the dec sion repofted in t-'OFflce CheriFien des Phosphates v. Yanrashita-Shinnihon Steamshlp Co. Ltd. [{1994) 1Ac 486]. Thus, legislations which modified accrued rights or whlcl'r rmpose obligatlons or impose new duties or attach a new Cisabilrly have to be treated as prospective unless the legislative intent rs clearly to (Jive tire enactment a retrospective effect; urless the legislation is for purpose of supplying an obvioLrs om ssion rn a former legislation or to explain a former legislation. r'/e need not note that cornucopia of case law available on the subject because aForesaid legal posrtion clearly emerges from the various decisions and this legal positlon was conceded by the counsel for the parties. In any case, we shall refer to few judqments containing this dicta, a little later. 30. We would also like to point out, for tl're sake of completeness, that where a beneFit is conferred by a legislation, the rule against a retrospective construction is different. if a legislation confers a benefit on some persons but witlrout inflicting a corresponding cletriment on some other person oT on the public generally, and where to confer such benefit appears to have been the legisl:ttors object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant rt to be g ven a retrospective effect. This exactly is the justification to treat procedural provisons as retrospective. In Government of India & Ors. v. Indian Tobacco Assocration, [(2005) 7 SCC 396], tl]e doctrine of fairness was he d lo be re evant factor to construe a statute conferring a benefit, in the context of it to be grven a relrospectrve operation. The same doctrine of fairness, to hold that a statute !,as relrospeclve rn natuTe, was applied rn the cas€r of Vilay v, :;tate of Mal]arashtra & Ors., I(2006) 6 SCC 2891. Il was hed that,Nhere a law :; enacted For tlre benefri of ccr'rmunr[y as a whole, €: /en n tne absence of o provi:iion the stalrle niay be hed to be relrospective in nature. However, we are (slc nct) confronted vvith any sLtCh s ttuat on hr:rre. 31. In such cases, retrospeclivity is attached to beneFt the persons n conlradistinctioi'r to the l)rovision imposing some burden or liability where the presumption attached towards prospectivity. In the instant case, the proviso added to Sectror'r 113 of the Act is not beneficial to the assessee. On the r:ontrary, it is a provisron which is onerous to the assessee. Therefore, in a case lik,: this, lve have to proceed witn the nornral rule ol presumption against retrospe(tiye operation. Thus, the rule against retrospective operation is a fundamental rule of lalv that no statute shal be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and dist nct imp ication. Dogntatically framed, tite rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt /i2., the understanding of CBDT itself regarding this provrsion. It is contalned in CBDT Circular No,8 of 20O2 dated ::7.8.2002, with the subject \"F nance Act, 2002 - Explanatory Notes on provision relating til Direct Taxes\". This crrcular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made, In this circular, variolts amerdments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective, q For example, Explanation to section 158-BB is stated to be clarificatory jn nature. Likewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1st day of July, 1995, When it comes to amendment to Section 113 of the Act, this very circutar provides that the said amendment along with the amendments in Section 158-BE, ,voutd be prospectrve i.e., wi ltake effect frorn 1.6.20A2.\" 18. Thus, the Apex Court in the above judgment, has made it clear lhat 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 appllcability 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.0B/2014 dated 4.4.2074 clarifying that financial statements conrmencing after 01.04.2014, shall be governed by Act 1B of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2^d respondent / competent authority, has disqualified the petitioners as directors under Section 164(2)(a) of the Act 1B 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 refe rred judgment. 19. If the said provision is given prospective effect, as per the circular the law lald down by the Apex Court, as stated in the first financial year would be from 01-04-2014 to dated 4.4.2014 and writ affidavits, the 31.0 3.2 015 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 ofthe annual general meeting ofthe company, and as per the first l0 proviso to Section 96( 1) of the Act, ar'rnual general meeting for the year ending 31.0:1.2017, can be held within six months from the closir-rg of fjnancial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92(4) of the Act, ls 60 days from annual general meeting, or the last date on which annual general meetinq ought to have been held with normal fee, and within 270 days with additional fee as pr:r the proviso to Section 403 of the Act. Learned counsel submit that if the said dates are calculaled, the last date for filing the annual returns would be 30.11.2A77, and the ba ance sheet was to be filed on .10.10.2017 with norrnal fee and ,/vith addilional fee, the last date for filing annual returns is 27.07.2OfB. In othe[ words, the disqualification could get triggered only on or after 27.A7.2078. But the period considered by the 2nd responcjent ;n the presenl writ petitions for clothing the petilioners with disqualification, pertains prior to 01.04.2014. Therefore, when the omission, whrch is; now pointed out, was not envisaged as a ground for disqualificaticn pror to 1.4.2014, the petitioners cannot be disqualified on the sald grorrnd. This analogy is traceable to Article 20(1) of the Constltution of India, wlrich states that \"ivo 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 of-fencel nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offe'nce\". In view of the same, the ground on which the petitioners were disqualified, cannot stand to legal scrutiny, and the s.-rme is liable to be set aside. 20. A learned Single Judge of the High Court ,rf Karnataka in Y,ASHODHARA SHRAFF vs, UNION OF INDIA2 considertng Sectlon 16zt(2)(a) of the Act and other provrsions of rhe Act, and various judgments, passr3d an elaborate order arrd held that the sajd provision has no retrospective operation. 'fhe observations of the learned Judge, pertaining to : rv.P.No.529ll ol20l7 and Lrarch dated 12.06.2019 Il private companies, which are relevant for the present purposeT are extracted as under: 208 (a) In view of the aforesaid discussion, I have arrived at the following conc usrons It ls hed that Sectron 164(2)(a) of the Act ls not u/tra v/rus Article 14 of ]e Constitutlon. The said provision is not manifestly arbitrary and also does not Fall within the scope of the doctrine of proportionality. Neither does the said provlsion v olate Artlcle 19(1)(q) of the Constitution as it is made in the interest of general publlc and a reasonable restriction on the exercise of the said right. The object and purpose of the sa d provision is to stipuiate the consequence of a d squalification on account of the circumstances stated therein and the same is n order to achieve probity, accountability, and transparency in corporate 9OVerna nce. (b) That Article (slc) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provisron does not envisaqe any hearing, nelther pre-disqualification nor post-disqualification and this s not in violatron of the principles of natural lustice, is not ultra vires Article 14 of the Const tution. (c) That Section 164(2) o't the Act does not have retrospective operation therefore, ne ther unTeasonable nor arb trary, in view of the interpretation on the same. and s placed (d ) (e) lnsofar as the private companies are conceTned, 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 reckonrng continuous period of three financial years under the said provisron. The sarcl conclusion ls based on the principal drawn by !/ay of analogy from Artce 20(1) of the Constitutron, as at no point of time prlor to the enforcement of the Act, a dlsqua ifcation based on the c rcumstances under Section 16412) of the Act was ever envisaged under the 1956 Act vis-e-vls directors of private companies. Such a cJisqualification could visit a director of only a public company under Section 274(1)(9) of 1956 Act and never a director oF a private company. Such disqualification of the petitioners who are directors of pflvate companies rs hence quashed. (r) (q) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA3 expressed simtlar view as that of the leaned single Judge of High CoLrrt of Karnataka (1 supra), and held that Section 164(2) of the Act of 2013, which had come into force with prospectivei and not retrospective effect effect from 1.4.2074 would have and that the defaults contem plated financlal state ments or under Sectlon 16+(2)(a) with regard to non-filing of I rlspecial Civil Application No.22435 ot2011 andbatchdated l8' l2'201f3 annLral returns for any continuous perioci of three financial years would be the defaul! to be counted from the flrrancial year i2014-15 onlrl and not 2013-74. 22, l learned single Judge of the High Court of lvladras in B|IAGIIVAN DAS DHANANJAYA DAS vs, IINION OF INDIA4 also expressed similar vlew. The relevant portion is as under: 29. In fine, (a) When the New Act 2013 came into effect from 1,4.2014, the second respondent herein has wrongly given r€:trospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the f irst financial year from 1.4.2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(a) of the 2013 Act using the expression'for any continuous period of three financial year\" and in the lighl. of section 2(41) defining \"financial year\" as well as their own General circular No,08/14 dated 4,4.2A14, the first financial year /ould be from 1,4.2014 to 31.3.2015, th,: second firancial /ear lvould be from 1.4.2C15 to 31.3.20i6 and the third firancial year vriould be from 1,4,2016 to 31.3.2017, rufrereas the second respondent clearly admitt(:d jn paras 15 and il2 of the counter affidavit that the default of filinq statutory returns for the final years commences from 2013-14, 2074-i5 and 2015-16 r.r:, one year before the Act 2013 came into force. This is; the basic incurabie legai infirmity that vitiates the entire impugned proceed in gs. 23. In view of the above facts arrd circumstances and the.judgrnents referred to supra, as the impugned orders in l)resent writ petitions disqualifying the petitioners as directors under Sectior'r 16a(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, tlre same cannot be sustained, and are jiable to be set aside to that extent. 24, ,As fa- as the contention regarding issuance oF prior notice before disqualifying the petltioners as directors is concerned, Section 164(2)(a) is required to be noticed, and the same is extracted as rJnder for ready reference: i164. Disq ua lification for appointtnent of director: 'tv P No.:5+55 ol 20l7 and barch darcd 27.07 20lE t1 (2) No person who is or has been a director of a company wh,ch- (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 dlrector of that company or appointed in other companies for a period of five years from the date on whlch 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 ludge of the High Court of Karnataka in Yashodara Shroff v. Union of India (l supra), as well as the learned single ludge 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-disqualification and this is not in vlolation of the prlnciples of natural justice and hence, is nol ultra vires Article 14 of the Constitution. I concur with the sa id reasoning. 25. Thus, from the above, is a deeming provision and the it is clear that Section 164(2)(a) of the Act disqualification 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 deactivaled DiNs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. la) (b) (c) (d) (e) t4 26. The next grievance of tne petitioners is witfl regard to d{lactivation of' their DINs, -l-r e contention o1'the lerarned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the llules, the DINs cannol. be canr:elled or deactivated, and the violation mentioned under Section 16a(2)(a) of the Act, is not one of the grounds mentioned runder clauses (a) to (f) of Rule 1:1\", and hence for the alleged violation under Section 164(2)(a) of the l ct, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DII 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 presenl purpose/ is extracted as under for ready reference: 11. Cancellation or surrendler or deactivation of DIN: Th0 Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Reg ofal DirectoI rnay, upon being satisfied on verifrcation of particulars or documentary proof attached w th the application recerved from any person, cancel or deactivate the DIN in case - the DIN is found to be duplicated in respect of th€r same person provided the data re ated to both the DIN shali be merged wlth the validly i-etain,:d number; lhe DIN was obta ned in a wrongfll manner or by fraudulel'rt mearrs; of the death oF lhe concerned individual; [he concerned individual l]as beerr declared as a person of unsound mir'rd by a com petent Court; lf the concerned individual has be.rn adjudlcated 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-s by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any docurn,3nt with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on tlre strength of documents which are not legally valid or incomplete documents are furnlshed or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by misrepresentation; (ii) the ternr \"fraudulent means\" means if the DIN s obtained with an intent to deceive any other person or any authority including the Central Gove rn n'rent. 28. Clauses (a) to (f) of Rule 1.l., extracted above, provicles for the circumstances under which the C)iN carr be cancelled or deactivated. The said grounds, are different from the ground envisagr:d under (r) (i) Section 164(2) (a ) Section 164 of the accordance with Rule 1l i5 of the Act. Therefore, for Act, DINs cannot be of the Rules. the a//eged violation under cance//ed or deactivated, except tn 29. Lea rn ed cited 2 supra, held as under: Single Judge of the Gujarat High Court jn lhe decision - \"29. Thrs takes the Court courd have o\"utoutt\"Jti.\"Bi,''lo^in: n\"\" o'ustio'r as to whe -ir. ,n rhrs regard, ,r *or,o\"i-t t\"-?-\"1 ,r\"\"\"r' \"r ;'.;;.X;;tnt' the resoondenrs :: ll\",l^\"0_ ti,n \" \"o.i, u io.,il i# ;:*:r:*i. :i lT:Lf ,HH:\"\"y,,f ;T\"y: ;:: ; .1:,:: #:fJ;,:'\"1 i; i,? ;:';\" 1 -\"-'' -'o' pu n,,, ni\"-,',' ; 5 ; ::'\"\"'\"i :\" : ;:,3;':;: ;1 r :11 *'e':: rl## ;#;\"^r,:[il :\"iil\" ::; \",' :*' E : -t:1 i\" o'' \"1 -\". i.i ds rnav oe presc.bed. s\".r,on :o.ih:.9untra' coue.nieni,\"';J::il\"t:\"I*\"\"t\"1 one monrh rror. tr.,u .\".\",oi'\"oi .1,Y ,,\"tat tnat tie centrar Govern.nent shajl w,th,n aDo,rcanr . ,r.n \"un..r';, t;,,:r::*j:\"^:-:.lq:r se:L,ol rs: a,,or a-o]r,l io'an ,no.v.dua.. w o r-as ar-eady 0\"\"\" ur\"\"\"\" \"r;;ilr::r\", ,i:;,\".;ri?rt\"iTi;?\"l.rr1:: ::\":::3:;f\"T5.\"\"T:::;n,il\"\"I\".\"I DI Ru'|es 'g ;;;\"d:;;; sa,d Ru'es or 2014 orru, a\"o rrtie. pi;;;;;\"\"i;l \"9 aDolrcat'on for alrotnenr ann ro'the u,,o,n,,u* oi i: y * ::,::*l ;:'J:i: i:: il : : '?, I ; I \";T\",fl \"' : # :.:\"7 l'i :;Ji TJ \"# if lini ?: 30, Rule 11 provides for cancellation or surrender or deac vation of DIN, Accordingiy, the Centrat Government or Regional Oir..ioi * ai.ry authorized officer !! -ngsroJtat Drrector may, on being rutiiri\"J * ]\".inl\",il\" or particurars of documentary prooF artached *,n # uppri.ul \"; .;.\";;;; persol, ca..rcer or deactivate the DIN on anv of rhe gl.ornoi;;\"niion\"o ]n c,urrr\" (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either wjth the Centrat Government or with the autho;ized orn.\"i ol - irui.nli- o',i\".,or. to cancet or deactivate the DIN alrotted to the Director, no,. iny o?ii\"'arises mentioned in the said Rure-s- contemprates canceration or oiactivar'on oi ori,r-oi'tn\" Director of the \"struck off company\" or of the Director having o\"ilr\" i*riqibi\" under section 164 of the said Act. The reason appears to be tnjt once an inJiiiouar, who is intending to be the Director of a particular company is ailott;d Dlt,l Oy tne Centrat Government, such DIN would be valid for the flf\" tir\" oi tn\" .ppticant and on the basis of such DIN he could become Director in other companies atso. Hence, tf one of the companies in which he was Director, is \"struck off,,, his DIN could not be canceiled or deactivated as that would Tun counter to the provisions contained in the Rule 11, !yhich specifically provrdes for the circumstances under which the DIN could be canceiled 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, aiso was not iegally 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 rn his particulars stated in Form DIR -3 has to intimate such change to the Centrat Government within the prescribed time in Form DIR-6, however, if that is not dcne, the DIN couid not be canceiled or deactivated. The cancellatlon or deactivation 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 I() 31. For the foregoing reasons' the impugned orCers in the writ petitlons to the extent of disqualifying the petitioners under Sectlon 164(2)(a) of the Act and deactivation of their DINs' are set aside' and the 2^o respondent is directe to actlvate the DINs of the petitioners' enabling then't to funcllon as Directors other than in strike off companies' 32, trt is macie clear that this order will not preclude the 2^d respondent front taking appropriate action ln accordance wilir law for violations as envisaged under Section 1.64(2) ot the Act, givin!l the said provision prospective effect from 01.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 24g of tl-re Act, they are at liberty to avail alternative remedy under section 252 of tlr e Act. 34. All :he writ petition:i are accordingly allowed to the extent indicated a bove. 35. lnterlocutory applications perrding, if any, shall stand closecl. Nlo order as to cosls. I . RAJASHEKER REI)DY,J DATE: 18-07-2019 AVS "