Kollipara Laxmidhar Rao V. Union of India

WP/24632/2020

AI Insights

The case involves Koilipara Koteswara-Rao, the petitioner, who challenged his disqualification from directorship and the deactivation of his DIN by the respondents, which was based on alleged defaults in filing financial statements and annual returns for three consecutive years. The petitioner argued that the action taken was arbitrary, illegal, and violated principles of natural justice, as it was based on a retrospective application of the law. The respondents contended that the disqualification was automatic under Section 164(2)(a) of the Companies Act, 2013, due to non-compliance with statutory requirements. The court examined the applicability of the law and the principles of natural justice, ultimately finding in favor of the petitioner.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721680 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 04-01-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central)-1, New Delhi v. Vatika Township Private Limited, Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: M V KALYANI
• Keywords: Director Identification Number; Disqualification; Financial Statements; Natural Justice
• Section: 151; 164(2); 248; 252

Judgement Text

"HtcH COURT FOR THE SrAI!,Ol TELANGANA Ar HYDERABAD (Speciat orisinat J;;;;;;f;;i ^' IVONDAY, THE FOURTH DAY OF JANUARY TWO THOUSAND AND rWCrurV'Oii, PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITloN NO.24632 0F 2020 Between: [:l SS!: t\"?fli[T#B:;,plo^r, Koilipara Koteswara-Rao Aged: 50 years. R/o, Frat Shaikpet. Hr;;;a;;;':;6'dij3.T?3i,il?n24' Jubiree Hirrs, Great6i HGi,oui i'i.\".o,.pr AND 1 2 Union of lndia, rep. bv principal Secretary, Ministry of Corporate Affairs, BH:\"tl:hlylt Dr Rajendri p,;;d R..;ij:'i,i;il 6\"ji,i_ 11000 j i;,yiJ}fi #1i\"\"[,33:,3:.lij!133:ft ,#,[:%:i\".,\"T3$i:;.#s,tr\" ..,PETITIONER A Wing, Sl Post, Petitioner so as to enable Petitioner to submit the annual returns and financial statements for the companies in which he is appointed as director, and further. lA NO: 2 OF 2O2O 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 disqualifying the Petitioner as director in all the Companies in which he is appointed as such, and further. Counsel for the Petitioner: M/s. M.V. PADMAJA KALYANI The Court made the following: ORDER ...RESPONDENTS Petition under Articre 226 of the constitution of rndia praying that in the circumstances stated in the affidavit fired therewith, the High court may be preased to pass an order or direction or any other proceedings one in the nature of writ of lvandamus declaring the action of Respondents in deactivating the DIN number 01757638 of Petitioner and restricting the petitioner from filing statutory returns, i.e., the annual returns and financial statements for the companies in which he is director as arbitrary, illegal, without jurisdiction, contrary of the provisions of the companies Act, 20 13 and Rule '1 1 of the Companies (Appointment of Directors) Rules, 2014, violative of the principles of natural justice besides violating the petitioner's rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of India, lA NO: 1 OF 2020 Petition under Section '1 51 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the '1't Respondent to stay the disabling and restore the DIN number 01757638 of Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL THE HoN'BLB SRr 'rusrrcE cHALLA KoDANDA RAM WRIT PETITION No. 24632 of 2020 ORDER: The Petltlone r challenges his clisqualification lrom DlrectOrShip under Seclion 164(2) ol the Companies Act, 2013, for the arllcge d delault in liling linancial statement/ Annual Relurns' and consequenlly seck resloration ol his Director ldentification Number (DIN) viz., 01757638' Learned counsel for the petitioner submits that the lSSUC Writ Petition is squarely covered by the raised in the Present common order dated batch. 18.07.2O1g in W.P.No.5422 of 2078 and C)perertive portion ol' t hc albresaid order rc:rcls as uncle r; \"For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section f6a(2)(a) 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 ln accordance with law for violations as envisaged under Section L64l2l ot the Act, giving the said provision ptospective effect from OL.O4.2OL4 and for necessary action against DIN in case of violations of Rute l1 of the Rules, 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 the Act, they are at l-carncrl Assislanl Solicitor Clr:ncra1 'rppc'rring li'rr lhe 2r''i rt:spondent. Itegistri:r of Corlpanies does not dispr'rte the aibres:tid slrbrni.ssion I I I 2 liberty to avail alternative remedy under Section 2S2 of the Act. All thc writ petitions are extent indicated above.,, accordingly altowed to the In vierv of the said Order dated Ig.O7.2OIg and for the reasons recorded therein, this Writ petitron is also allou.ecl in tcrnts thereof. No costs. Miscellaneous petitio:-rs, ii any pendrng, shall stand closed //TRUE COPY// SD/.N.CHANDRA SEKHAR ASSISTANT REGI o R sEC N OFFICER To, 1. 2. 3. 4. E MP The Principar Secretary, IMinistry of corporate Affairs, Union of rndia. A wino. shasjri Bhawan, Dr. Ralendra prtrjo no5j,il\";'ffiihl _ 1.10001 The Reqistrar of Como6nies retangana, 2id il6irrldoiporute Bhawan, GSt post, Tattiarnaram Nagote,'Bandtagrda,\"Hvder\"nJo', irirJr\",i\"\", _ s00 068 9n\" 99 to tr//s.M.V. eaomalikirya,ii ng\"\"cat't6EUbf one cc to Sri Namavaraori Raleshwa, nro, eis'istaitEoricitor Generar (opuc) Two CD Copies. Alo.ng with a copy of the common order dated 18.07.2019 in w.p.No.5422 of 2018 and Batch. ._---.--_ I ?$4--- HIGH COURT DATED:0410112021 ORDER WP.No.24632 o12020 ALLOWING THE WRIT PETITION WITHOUT COSTS r :5V' b@?, a^ u' 3, 0 g,tAltl202l z ,.9 * * c 14 E H s 1 k J I )Y oa a-{rr'/-l 7 7 4 8 11, 223 85 6.8 90. 933 93 40.93a1. 9468,9 63. 544,96 3, I 1 0 4 7 37 8 9 5 4 4 o 58 97 2 Since, the issue involved in all the writ petitions ls 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 sald provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section 764(2) ot the Act, disquallfying them as directors, and further making them ineliglble 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 petitlons have been filed' 1 1 1 2 2 4 1 2 1 4 2 2 5 D o 1 1 4 o THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY COMMON ORDER 4. This court granted interim orders in the writ petitions directing the 2no respondent to actlvate DINs of the petitioners' to enable them to function other than in strlke off companies 5.Heardthelearnedcounselappearingforthepetitionersinallthe 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 not been issued, giving them opportunlty' principles of natural justice, and on this the impugned ord er, and this a mou nts to notices have violation of ground alone, the impugned orders are Iiable to be set aside' 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director' provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years' Learned counsel further submits that this provision came into force with effect from 7.4.20L4, and prior thereto i.e', under Section 27qO)G) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies' They contend that thls provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in thb present cases, the 2nd respondent, taking the period prior to 7.4.2074, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and arbitrary. B. With regard to deactivation of DINs/ learned counsel for the petitioners submit that the DINS, as contemplated under Rule 2(d) of the Companies (Appointment and Qualjfication of Directors), Rules, 2014 (for z l I i l short'the Rules), are granted for rife time to the appricants under Rure 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 ror deactivation For having become inerigibre for appointment as Directors of the company under section 164 0f the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rures, and appear to the Tribunar under section 252 of the Act is provided only Section 248 of the Act. against the dissolution of the company under 9. Learned counsel further submits that l.t respondent _ Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29,12.2017 viz., Condonation of Delay Scheme - 201g, wherein the dlrectors, whose DINs have been deactivated by the 2^d 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 Tr.ibunal 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 restoratlon. 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 India, 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 entail their disqualification under Section 16a(2)(a) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners' who statutory requirement under Section 164 have failed to comPlY with the of the Act, cannot comPlain of violation of principles of natural justice' as it is a deeming provision' Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act' and hence writ petitions may not be ente rta ined. 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered' and the same is extracted as under for better appreciation: 252. APPeal to Tribunal: (1) Any person aggrieved by an order of the Registrar, notrfying a company as dlssoived under Section 248, may file an appeal to the Tribunal within a perjod of if,r\"\" v\"\"rt from the date of the order of the Registrar and if the Tribunal is of the opinan tnut the removal of the name of the company from the register of companies iJnoi,]u=tifi\"O in view of the absence of any of the grounds on which the order was pu.r\"i by the Registrar, it may order restoration of the name of the company in the req ister of comPanies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and of being heard to the Registrar, the company and all the persons concerned: Provided further that if the Registrar is satisfied, that the name of the company has been struck off from the register of companies either inadvertently or on basis of incorrect information furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section )48, fil\" \"n application before the Tribunat seeking restoration of name of such compa ny. (2) A copy of the order passed try the Tribunal shall be filed by the company wlth the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored ifl the register of companies and shall issue a fresh certificate of ncorporation. (3) If a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off frorn the reqister of companies, the Tribunal or an appl cation made by the company, member, creditor or workman before the expiry of twefty years from the publication in the Officia 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 in operation or otherwise it is lust that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other directions and make such provisions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of the company has not been struck off from the register of companies. I ) 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 fire an appeal Thus the said provrsion provides the forum for redressar against the dissolution and striking oFf the company from the register of companres. It does not dear with the d isq ua rification 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 DIN', but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assjstant Solicitor General, in this regard, merits for rejection. \"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 I 13. Under Section 16a(2)(a) of the Act, if the Director of a company fails to file financiar statements or annuar returns for any continuous period of three financiar years, he shal not be erigibre 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 2o13, came into force with effect from 07.04.2014, 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 r6+(2)(a) of the Act, which provision came into force with effect from Oi-.O4.2Ol4, can be made applicable with prospective effect, or has to be given retrospective operation? In ' other words, the issue wourd be, from which financial year, the defaurt 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.0g/14 dated 4.4.2014 issued by the Ministry of Corporation affairs, which clarifies the appllcability of the relevant financial years. The relevant portion of the said circu la r is as under: I 6 effect from l't April, 2014. Provisions of Schedule Il (useful lives to compute i\"pi*i\"ii\"\"i uni's.h\"drl\" ur iioi'ui of financial statements) have also been r, r,i, o ni into' to..\" from that date. The relevant Rules pertaining to these provrsions ;:\"#:;;';\"\";;;ilri\"o,- priced \"\" the website or the Minlstrv and have come into force from the same date: The Ministry has received requests for clarification with.,regard to the relevant finun.iui vuiit with effect from which such provisions of the new Act relating to maintenance of books of account, preparaiion, adoption and filing of financial ri.i\"i\"\"\"ii1.ro aitachments thereto), auditors report and Board's report will be applicable. Althouqh the position in this behalf is quite clear, to make things absolutely clear It is -fre-re'Uv noti?i\"O tnut the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years inii- -rr\"na\"i earlier than 1't Aprll shalt be governed by the relevant piorirlonyt.f,\"Oules/rules of the Companies Act, 1956 and that in respect of inancial years commencinq on or after 15t April, 2014, the provisions of the new Act shall aPPly. \" AreadingoftheaboveCircularmakesitCleartheflnancialstatementsand the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than 01 04 2014' shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after O!'O4'2014, the provisions of the new Act shall aPPIY. 14.Atthisstageitisrequiredtobenoticedthattheanalogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 27 a(l)(g) of Act1of1956'ThesaidprovisionunderActloflg56isextractedaSunder for ready reference: Section 274(1) A person shall not be capable of being appointed director of a com pany, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of APril, 1999; or (B) Provided that such person shall not be eligible to be appointed as a dlrector of any other public company for a period of five years from the date on whlch such pubiic company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 7 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public. company, in which he is a director, failed to file annual accounts and annual returns. So the statutory reguirement of filing annual accounts and annual returns, is placed on the directors of a .public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a .private company,. Therefore, non_ filing of annual accounts and annuar returns by the directors of the private company, will not disquarify them as directors under the provisions of Act 1 of 1956. 15. Under Section L64(2) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company, or a .public company, is made and ds 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 lnto force with effect from 01..04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. L7. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L, NEW DELHI v. VATIKA TOWNSHIP PRMTE LIMITEDL haSdea|tWiththegeneralprinciplesconcerningretrospectiVity.Therelevant portion of the judgment is thus: 21 , A legislation, be it a statutory Act or a statutory Rule or a statutory t',totiilcation, -may physically consists of words prlnted on papers However' '(:ors)tscctt 8 conceptuary :i , -\"-flT,.,l:li,Tffi\",'j;,:\"i,:\"\"ii T,?r lt1i3;. l:iJii:Giiillj ',,?:}ll\"i ii:,H1\"\":lJT;:; :\". ; ; ; ;il; ;; a w o rk ir ricti o n/ no n ii ctio n o r eve n in a iudsment or a court \" 'u* 1.n1.\" ;.{j:*:*n::l':il:Jit'\": Efli:i:ifl ::.H:,ll1'\"ii\"!#'\":1':T 'X'0\"3'i\"1'# ;\" ii\"'\"\"1'J'i-pfi;ipre-s oilInterpretaton or si.i,i\"i,i ui= a vis ord narY-Pro\"#;\"f::i:lf.*1\"\";=,;1,::,lJ:\"'\";;i\"?J\"\"',;3X: and features as also in the lmPll I. to t-n\" int\"nt of the maker thereof' 28. Of the various rules gurding how a legislation has I: be interpreted' one established rule is that 'nr\"\" u tlniiuiv 'ntLnt'6n appears' a leqislation is presumed not to be intended to nu'\" u r\"'\"titp\"ltiu\"-op\"'ut b\" tl:-l*\" behind the rule is that a current law should gou\"r;-.r;\"nt activities. Law passed today cannot apply to the events of the past. rr *\" # r#\"in,\"g ioJuv, *\" oo. rt ,keeping in the law of today and in force and not tomor\"rowt Outl*i|,O uOjutt*ent of it Our belref rn the i.\"\"irL-\"i,n. E* i; founded \"t trt\" o\"o rock that every human beinq is entitled to arrange his affairs by ,ery'ng on ine e*isting law €nd should not find that his plans have been retrospectively upt\"i -inii princlple of law is knovrn as lex prospicit non r-i+i.t , r-* r\"\"ks forward not oackw'ara' As was observed rn Phrllrps vs Eyre t(1870) LR 6 QB 11, u r\",ro,p\".tluL legislation is contrary to the qeneral princrple that leqislation by which the .onO\"i oi rnuntind is to be regulated when introduced ;;;;'\":;,t;i;r;'to i\"1r *,tn irrrte acts ousht not to chanse the character or past tiunru.tlont carried on upon the faith of the then existing law' 29. The obvious basis of the principle against retrospectivity is the principle of 'fuiin\"ar;, *n\"n must be the basis oi every legal rule as was observed in the i\"liiLn'ruport\"O in L'Office Cherifien des Phosphates v Yamashita-Shinnihon sieamsnip bo. r-to. t{tgs+) 1 Ac 4861. Thus, legislations which modified accrued r-ight.;r'*ni.h impose obligations or impose new duties or attach a new disability hJve to be treated as prospective unless the legislative intent is clearly to give the \"\"\".tr\"\"i a retrospeciive effecti unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation We need not note that cornucopia of casl law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was co-nceded by the counsei for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective constructlon is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would !ryarrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of I'4aharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of comrnunity as a whole, even in the absence of a provision the statute may be held to be retrospective ln nature, However, we are (sic not) confronted with any such situation here. 31, In such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors, 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are cla rificato ryl retrospective in operation and which amendments are prospective. l 9 For example, Explanation to section 158-BB is stated to be crarificatory in nature. Likewise, it is mentioned that amendments in Sectjon 145 whereby piovisions of that. section are made applicabie to block assessments is made claiificatory 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., wrLl take effect from 1.6.2AO2.\" 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 legislatlon has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2O74 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and ln 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 petltioners as directors under Section l6a(2)(a) of the Act 18 of 2013, by considering the period prior to 01,.04.201,4, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judg ment, 19. If the said provision is given prospective effect, as per the circular dated 4.4.2074 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from O1'-O4-2O74 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 l0 proviso end in g to Section 96(1) of the Act' annual general meeting for the year 31.O3.2077, can be held within six months from the closing of financial year i.e., by 30 09 2017 Further' the time limit for fillng annual returns under section g2$) ot the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been herd with normal fee, and within 270 days with additional fee as per the proviso to Section 403 of the Act Learned counsel submit that if the said dates are calculated, the last date for flling the annual returns would be 30.tl.2OI7, and the balance sheet was to be filed on 30'10'2017 with normal fee and with additional fee' the last date for filing annual returns is 27.07.2oL8' In other words, the disq ualification could get triggered only on or after 27,o7.20t8, But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with d isq ualificatlon ' pertains prior to O1'04'2014' Therefore' when the omission' which is now pointed out, was not envisaged as a ground for d isq u a lification prior to L.4.2OI4, the petitioners cannot be disqualified on the sald ground' This analogy is traceable to Article 2O(1) of the Constitution of India' which states that \"/Vo person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence' nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence\"' In view of the same, the ground on which the petitioners were disqualified' cannot stand to legal scrutiny, and the same is liable to be set aslde' 20. A learned Single Judge of the High YASHODHARA SHROFF VS. UNION OF Cou rt of Karnataka in INDIA2 considering Section 164(2)(a) of the Act and other provisions of the Act' and various judgments, passed an elaborate order and held that the said provision has no retrospectiVeoperation.TheobservationsofthelearnedJudge,pertainingto I tv.p.No.529l I of 2017 and batchdated 12 06.2019 private companies, which are relevant for the present purpose, are extracted as under: l1 (0 I rtspecial Cir'l1 Application No.22'135 of 20 I 7 and batch dated I 8.1 2.201 I 208. 1n view of the aforesaid discussion, I have arrived at the following conclLsions: (a) It is he d that sectron 164(2)(a) of the Act is not urtra y/rus Articre 14 of the constrtuton The said provsion is not manifestiy arbitrary and arso does not far within the scope of the doctrine of proportionality. Neither does the sa d provision violate Article 19(1)(q) of the constitution as it rs made in the interest oi general public and a reasonable restriction on the exercise of the said riqht. The object and purpose of the said provision is to st pulate the coniequence oi a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate qovernance. (b) That Article (slc) Section 164(2) of the Act applies by operation oF law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra ylres Article 14 of the Constitution. (c) That Section 164(2) at the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the sa me. (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 provislon. 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 disquallfication 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 274(1)(g) of 1956 Act and never a director of a private company, Such disqualiflcation of the petitioners who are directors of private companies is hence quashed. 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 76aQ) of the Act of 2013, which had come into force with effect from 1.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under section 16a(2)(a) with regard to non-filing of financial statements or // trilai{.i---:- -\".,\",.\" -.-- (g) Consequently, where the disqualification under Section 164(2) af the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial staterrents 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. 12 annual returns for any continuous period of three financial years would be the default to be counted from the financial year 2014-15 only and not 22. A learned single Judge of the High Court of Madras in BHAGAVAN DAS DHANANJAyA DAS vs, alNIoN oF INDIA4 also expressed similar view. The relevant portion is as under: 29. 1n fine, (d., (b) 23. in view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act, have been passed considering the period prior to 01.04.2014, the same cannot be sustained, and are liable to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready refere n ce: 164. Disqualification for appointment of director: When the New Act 2013 came into effect from 1'4 2014, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from 1.4.2073 to 31.3.2014. By virtue of the new Section 164(2)(a) of the 2013 Act usinq the expression 'for any continuous period of three financial year\" and in the lignt of section 2(41) defining \"financial year\" as well as their own General circular No.O8/14 dated 4.4.201,4, the first financial year would be from 1.4.2074 to 31.3.2015, the second financial year would be from 1.4.2015 to 31 3.2016 and the third financial year would be from f .4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 75 and 22 of the counter affidavit that the default of filing statutory Teturns for the final years commences fTom 2OI3-74, 2074-15 and 2015-16 ie, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned p roceed ing s, o W.P.No.25455 of201? and batch dated 27.07.20t8 2013-14. 13 (2) No person who is or has been a director of a company which_ o\"r,\"o \"[?n[Trir\"\"t\":,':ir::ilt:\"J statements or annuar returns ror any continuous (b) Shall be eljgjbie to be ;l:\"::Hill;ij,l:,:l;;:;;,i:.T;il;;,:;i;\":\".?.,?:.;.fj j:ij;\"Tf, il,,fJ 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 fired financiar statements or annuar returns for any continuous period of three financiar years, shaI be inerigibre 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 whrch the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not ln violation of the principles of natural justice and hence, is not ultra vlres Article 14 of the Constitution l concur with the said reasoning. 25. Thus, from the above, it is clear that Section rcaQ)@) of the Act is a deeming provision and the 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 deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. l+ 26. The next grievance of the petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules' the DINs cannot be cancelled or deactivated' and the violation mentioned under Section f64(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 164(2)(a) of the Act, DIN cannot be cancelled' 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time' Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 11. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized bytheRegionalDirectormay,UponbeingsatisfiedonVerificationofparticularSor documentiry proof attached with the application received from any person, cancel or deactivate the DIN in case - the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall be mergrid with the valldly retained number; the DIN was obtained in a wrongful manneT oT by fraudulent means; of the death of the concerned individual; . the concerned individual has been declared as a person of unsound mind by a competent Cou rt; if the concerned individual has been adjudicated an insolvent; Provided that before canceltation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director in any company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - (a) (e) (0 (i) The terms \"wrongful manner\" means if the DIN is obtained on the strength of documents which are not legally valid or incomplete documents are furnished or on suppression of material information or on the basis of wrong certification or by making misleading or false information or by misrepresentation; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other peTSon or any authority including the Central Government. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The sald grounds, are different from the ground envisaged under (b) (c) (d) t5 Section Section acc0rdan 29. 16aQ)@) of the Act. Therefore, for the alleged violation under 164 of the Act, DINS canr ce with Rure 11 of the *r,\"r: o\" cancelled or dea*ivated, except in Learned Singre Judge of the Gujarat High court in thb decision cited 2 supra, held as under: \"29. This takes the Court l corr'd have deactrvated ,n\" o,*t^o-tn: next questron as to whether the resDondents : j l. :i. l;,ii;i :l \" [ lH {,3 i}\", :\"T i';1:1 \"\"'.:.:: i'\"\" 1 : :' :: \"\"J\"'ff #J:;:: sra,r be appo nre.-;; ; ;;.:.i:,0\"?i\":\";\"\".\",;:\",111,j,.S.::,ri'\":i\": [:,f1f: Drrector IdentrFrcatron Number under Section iSq. - S-\".iL, 153 requires every indrvidual intendinq to be aDpointed, as Director oil'^'io.punv to make an apptication for aIotment of DIN to_the Cuntrui Oou\"rnriunl ,n\"]uan form and manner as may be prescribed. Section 154 states tnaf ttre Ceniruf'Cor\"rnn,,\"n, shall within one,.month from the receipt of the apprication ,noui s\".iioi-is3 alot a DIN to an applicant in such manner as may be prescribed. -il.tion rsS prohibits any individual, who has already been allotted a OtN under S\".i.n tS+ from applying for or obtainlng or possessing another DIN. nufes g ana 10 ;i ih-e saio nules of ZOra prescribe the procedure for making application ror attotment ani for the allotment of DIN, and further provide that the DIN allotted by tte C\"ni.ut-Couernment under the said Rures wourd be varid for the rife time of the appricant ana inatt not be alrotted to any other pe rson. . 30, Rule 11 prov,des for canceflation or surrender or deactivation of DIN. Accordingly, the central Government or Regional Director or any authorized officer of Regional Director may, on being satGfied on verification .of padiculars 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 ihe centrar 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 Governrnent, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Djrector in other companies also. Hence, if one of the companies in which he was Director, is \"struck off',, his DIN could not be cancelled or deactivated as that would run counteT to the provisions contained in the Rule 11, which speclfically 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 along with the publication of the impugned list of Directors of \"struck off\" companres under Section 248, also was not legally tenable. Of course, as per Rule 12 of the said Rules, the individual who has been allotted the DIN, ln the event of any change in his particulars stated in Form DIR -3 has to intimate such change to the Central Government within the prescribed time in Forrn DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated, The canceilation or deactivation oF the DIN could be resorted to by the concerned respondents only as per the provis ons 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. 16 31, For the foregoing reasons' the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs' are set aside' and the 2nd respondent is directed to activate the DINS of the petitioners' enabling them to function as Directors other than in strike off companies. 32. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 76aQ) of the Act, giving the said provision prospective effect from 01,O4,2074 and for necessary action against DIN in case of violations of Rule 11 of the Rules, 33. It is also made clear that if the petitioners are aggrieved action of the respondents in striking off their companies under Section the Act, they are at liberty to avail alternative remedy under Section the Act. by the 248 of 252 of 34. All the writ petitions are accordingly allowed to the extent ind icated a bove. 35. interlocutory applications pending, if any, shall stand closed. No order as to costs. A.RAJASHEKER REDDY,J DATE: 18-07-2019 AVS t\" "