Lakhbir Mutchall and Another V. Union of India and Another

WP/22931/2020

AI Insights

The case involves Lakhbir Mutchall and Sukhvinder Kaur, who were directors of companies that failed to file financial statements and annual returns for three consecutive years. Consequently, their DINs were deactivated, and they were disqualified from being appointed as directors under Section 164(2) of the Companies Act, 2013. The petitioners challenged this action, arguing that it was arbitrary and violated principles of natural justice, as well as their rights under the Constitution of India. The court examined whether the disqualification could be applied retrospectively and found that it could not, leading to the reactivation of their DINs.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721694 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 16-12-2020
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central).I, New Delhi v. Vatika Township Private Limited, Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India, Bhagavan Das Dhananjaya Das vs. Union of India
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: C S RANJANI
• Keywords: Director Identification Number; Disqualification; Natural Justice; Writ of Mandamus
• Section: 164(2); 226; 248; 252

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE SIXTEENTH DAY OF DECEMBER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM wRtT PETTTON NO. 22931 0F 2020 Between: 1. Lakhbir tVutchall, S/o. Late Balvinder Pal Singh, Aged about 51 yrs., Occupation: Business, Resident of 6-3-1 100141316, Thyagaraya Nagar, Near Ayyappa Temple, Somajiguda, Hyderabad, Telangana - 500082 2. Sukhvinder Kaur, W/o. Late Balvinder Pal Singh, Aged about 72 yts., Occupation: Business, Resident of Plot 67, Sri Sai Nagar Colony, Road No. '13, Banjara Hills, Hyderabad, Telangana - 500034. ,..PETITIONERS AND 1. 2. Union of lndia, Represented by its [Vinistry of Corporate Affairs, Shastri Bhawan, Dr. Rajender Prasad Road, New Delhi - 110001 The Registrar of Companies, Telangana, 2nd Floor, Corporate Bhawan, Thattiannaram, G.S.l. Post, Bandlaguda, Nagole, Hyderabad - 500068. ...RESPONDENTS Petition under Article 226 of lhe Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ Order or Direction more particularly one in the nature of Writ of Mandamus declaring the action of the Respondents in so far as deactivating the Director ldenlification Number of Petitioners, (Lakhbir Mutchall - DIN# 00224614 and Sukhvinder Kaur -DlN# 01974056) (deactivation with the effect from 01.11.2018 to 31 .10.2023) and listing the name as Disqualified Director and thereby restricting the Petitioner to continue as Director of the Companies and/or get appoint or reappointed as Director of any Company and file statutory returns i.e., annual returns and financial statements of the companies in which they are Director as arbitrary, illegal without jurisdiction contrary to the provision of the Companies Act, 2013 and Rule '1 1 of the Companies (Appointment and Qualification of Directors) Rules 2014 violation of the principles of natural justices besides violating the petitioner rights guaranteed under Article 14 and Afticle t 9 (t ) (g) of the Constitution of lndia. lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to direct the Respondent to stay the disabling and restore the Director ldentification Number of Petitioners, (Lakhbir lt4utchall - DIN# 00224614 and Sukhvinder Kaur - DIN# 01974056) (deactivation with the effect from 01-11-2018 to 31'10'2023) (so as to enable them to continue as Director of the Companies and/or get appoint or reappointed as Director of any Company and file statutory returns i.e., annual returns and financial statements of the active companies in which they are the directors without any interference and earn remuneration for their live hood by serving the company as Director. Counsel for the Petitioners: M/s. C.S. MANO RANJANI Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.22931 of 2020 ORDER: The petitioners challenge deactivation of their Director ldentiflcation Numbers (DIN) viz., 00224674, and 01974056, and their disq ualiflcation from Directorship under Section 164(2) of the Companies Act, 2013, for alleged default in filing flnancial statement/Annua I Returns, and consequently seek restoration of their Director Identification Numbers. When the matter is taken up/ it is submitted by the learned counsel for the petitioners that the issue raised in the present Writ Petition is squarely covered by the common order dated 18.07.2019 passed in W.P.N0.5422 of 2018 and batch. Learned Standing Counsel for the Registrar of Companies (For the State of Telangana) appearing for respondent No.2 does not dispute the aforesaid submission. Operative poftion of the aforesaid order reads as under: \"For the foregoing reasons, the impugned orders in the writ petitions to the extent of disqualifying the petitioners under Section 16a(2xa) of the Act and deactivation of their DlNs, are set aside, and the 2nd respondent is directed to activate the DlNs 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 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16a(2) of the Act, giving the said provision prospective effect from 01.04.2014 and for necessary action against 0lN in case of violations of Rule 11 of the Rules. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking oft their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. All the wril petitions are accordingly allowed lo the extent indicated above.\" Accordingly, in view of the Common Order dated 18.07.2019 passed in W.P.No.5422 of 2018 and batch, and for the reasons recorded therein, this Writ Petition is also allowed in terms thereof. No costs. lvliscellaneous Petitions, if any pending, shall stand closed. SD/.I.NAGALAK sh MI ). SISTANT REGISTRAR .j SECTION OFFICER //TRUE COPY// 2 The lVlinistry of Corporate Affairs, Union of lndia, Shastri Bhawan, Dr Prasad Road, New Delhi - '1 1000'1 The . Registrar of Companies, Telangana, 2nd Floor, Corporate Thattiannaram, G.S. l. Post, Bandlaguda,-Nagole, Hyderabad - 5b0o6g. Rajender Bhawan, To, 3. One CC to Sri C.S. Mano Ranjani, Advocate [OPUC] 4. One CC to Sri Namavarapu Rajeshwar Rao, Assistant Solicitor General (OPUC) 5. Two CD Copies. Along with a Copy of the Common Order dated 18.07.2019 in W.P.No.5422 of 2018 and batch IVP v HIGH COURT DATED:1611212020 ORDER WP.No.22931 of 2020 ALLOWING THE WRIT PETITION WITHOUT COSTS u3 )D c 19 DEC 2W 2 .1. 1HE 4' (r 6 () THE HON'B L E SRI JUSTICE A,RA]ASHEKER REDDY 6L4o.64R4.67 53 6a5 B 69s8. Sgal .7r)r)1 7()r)9 7 o 14. 7046.706q. 7 07 3, 7 105, 7 432, 7 454, 7 57 2, 7 s95, 7732, 77 65, 77 68, 7 A24, 7 e7 8, 4111.8223.458 . 8590. 9333. 9340. I381. 9468. I 563.9s84,9623, 97 26 q 7 7 10054. 10099. 117 a. 17223. 1123 q. 11 .,4 11 3 ang. 11991, 12018. L2036, 12040. 12069, 12108, 12L44, L2t86, t2194, o r22 9 1 2 122 a 1 42 72350. L24L7 . L 432, L2472, L249A. 12506. 125 7 4, 12594, L262 , L27 02. L27 35 . 127 40 . 72A45 . t2 50, 12865, 12866, 13013. 13 618, 13730. 13749. 13779. 13788. 13839. 13855, 13878r 13912. 1_3917. 1 945 L4Lo 1 1 4 1 74. 14)07.'t4 50. 143 61. 1 390. 143C2_ 14jq7 . 4 L4409, L45a2 AND 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The peiitioners are the directors of the private companies, reglstered under the Companies Act, 2013 (18 of 2013) (for short'the Act'), Some of the such companles are active, and some of them have been struck off frcm the reg ster of cornpanies under Section 248(1)( c ) of the Act, for not carrying on any busiress operation for the speclfied perod ment oned n the Said provision, anC for not making any applicatlon withln the specrfied period, for obtaining the status of a dormant company under Section 455 of lhe Act. 3. The petitioners, who were directors oF the struck off companies, and who are presently directors of active companies, during the relevant perlod in question, faiied 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, disqualifying them as directors, and further making them ineligible to be re-appointed as directors of that cornpany, or any other company, for a period of five years from lhe date on whlch the resoective corxpanies failed to do so, The Director Ident f catlon N.,mbers (DI S) o' :he pet,i:roners were also deactivated, Aggrieved by the san^e, the present rvrit Detitions have been fi ed. W,P.NOs,5422, 12184, 13520, 13783. 138ss. 14166, 240s1. 3oee3. ANp 40953 0F 2018. s547. 5582. 5669. 5687, 5785, 6047, 6087, ) 4, This court granted interim orders in the writ petitions directing the 2\"d 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 a tfie writ petltions, Sri K.Lakshman, learned Assistant Solicitor General appearing lor the respondents - Union of India. 6. Learned counsel 1'or the petitroners, contend that before passing the impugned order, notices have not been issued, giving them opporiunity, and this amounts to violation of principles of natural justlce, and on this ground alone, the impugned orders are iable to be se! aside, 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person to be a director, provicled he has not filed flnancial statenrents or annual returns of ihe company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from 1.4.2074, and prior thereto i,e,, under Section 27+(l)(g) of the Companies Act, 1956 (1 of 1956), which ls the ana ogous prov sion, there was no such requirement for the director:; of the private cornpanles, They conlend that this provisron under Acl 18 of 2013, wil havr: prospect ve operatjon and hence, it the dlrectors of company fa t{) cornply w,!th the reqLire.rents mentloned in the said provi:;ion subsequent to the said date, the authorty under the Act, is within its jurisdiction to disqua lfy them, But ln the present cases, the 2nc respondent, taking the period prior ta L.4.2a74, i,e,, giving the provision retrospective effect, disqualified the petitloners as directors, which is illeg a I and arbitrary. 8. With regard to deactivatron of DINs, learned counse fcr the petitioners submit that the DINs, as contemp ated under Rule 2(d) of the Cornpanies (Appointment and Qualificatlon of Directors), Rules, 2074 (for , short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentloned in ciauses (a) to (f) under Rule 11 of the Rules, and the said grounds Coes not prov de ior deactivatron for having become ineliglble for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submirs 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 1sr respondent - Government of India represented by the lvlinistry of Corporate Affairs, has floated a scheme daled 29.12.2a77 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"d respondent, allows the DINs of the Dlrectors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 248(5) of the Act, 1n case of active companies, they can make application to National Company Law Tribunal under Sectlon 252 of the Act, seeking for restoration, and the Tnbunal can order for reactivatlon of DIN of such directors, rvhose DIN are deactivated, However, under Section 252 only the companjes, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. V/th the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions, 11. On the other hand earned Assistanl Solicltor General submlts thaa fai ure to flle financia slatements or annual returns for any continuous period I t .1 of three financial years, automaticaliy entail their disqualification under Section 164(2)(a) ofthe Act and lhe statute does not provlde for issuan,:e of any notice, Hence, the petit oners, who have fai ed to comp y with the statutory requirement under section 164 of the Act, cannot compL.rin of vlolaton of principles of natural lustice, as it is a deerning provis on. Learned counsel further submits that the petitloners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may nct be entertained. 12. To consider the contention of the learned Assistant So icitor General with regard to alternative remedy Act, the said provision is required to extracted as under for better appreciation: of appea under Section 252 of the be considered, and the same is 252. Appeal to Tribu nal: (1) Any person aggrieved by an order of the Reg strar, notify n9 a company as dissolved under Section 248, rnay file an appeal to the Tribunal wrthin a perlod of three years from the date of the order of the Reglstrar and f the Trlbunal is of the opinion that the removal of the name of the company from the register of companies is not.lustlfied n view of the absence of any of the grounds on which the order was passed by the Registrar, it may order restoration oF the name oi the company n th(: reg ster of compan es; Prov ded that beFore par;s n9 an order under this sectron, the Tr bunal sha I give a reasonable opportunity ol makrng representatons and of being heard to the RegrStrar, the company and al the persons ccncerfled: Provided further lhat il' lhe Registrar is sat sfLed, that the name of the company has been struck off from the register oF compan es erlher nadvertently o- on basis of incorrect information furnished by the company or rts directors, whicir requires restoration n the regrster of companies, he may wrthin a penod of thi-ee years from the date of passing of the order dissolvrng the company under Seclion 248, file an application before the Tribuna seeking restoration of name oF sucfr cornpany. (2) A copy of the order passed by the Trbunal sha I be l'r ed by the co.rpan)' with the Registrar within thirty ciays from the date of the order and on rece pt of the order, the Registrar shall cause the name of the company to be restored n th€) register of companies and shall issue a Fresh certiFicate of inccrporat on. (3) if a company, or any member or creditor cr !!orker thereof fee s aggrieved by the company having its name struck off From the reg ster ,lf companies, the Tribunal or an applicalion made by the company, member, creditor or workman before the expiry of twenty years from the pubL cation in the Off c aL Gazette of the notice under sub-section (5) of Sectron 248, if satisfied that the company !as, at the time of its name being struck off, carrying on business or n operaton or otherwise it is jus[ that the name of lhe cornpany be restored to the register of companies, order the name of the company to be restored to the req ste- of companies, and the Tribunal may, by the order, give such other directions arLd make such provisions as deen]ed just for placinq the cornpany and all other person:; ln the same position as nearly as may be as if lhe name of the company has noi been struck off from the register of compan es. ) 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 appeai, Thus the said provision provides the forum For redressal against the dlssoiution and slriking off the compar^y from the register of companies. It does not dea with the disqualification of the dlrectors, and deactivation of thelr DINs. ln the present case, the petilioners are only aggrieved by thelr disquallficatlon as directors and deactlvation of DINs, but not about striking off companies as such. Hence, Section 252 of lhe Act, cannot be an a ternative remedy for seeking Ihat re ief, and the contention of the learned Assistant Solicitor General, in this regard, merils for rejection. 13. Under Sectlon 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 01.04.2014, and the petitioners are disqualified as directors under the said prov slon. At this stage, the issue that arises for consideration is - whether the Cisqualification envlsaged under Section 16+(2)(a) of the Act, which provis on came into force 'riith effect frorn 01.04.2014, can be made aD, icaoie ,., ,lti irosrec: ;e e\"ect, ci has :o be g ven retrosDective operat o\") In cther v!or-ds, ihe lss!e r,ould be, from which f nancial year, the Ce|au jt envisaged under Section L6a(2)(a) of the Act, has to be calculated, to lroid the director oF the company liable? In this regard, the earned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.2A14 issued by the t'4inistry of Corporation affairs, which c ariFies the applicability of the relevant financiai years. The relevant portion of the sald circular is as under: \"A number of provrsrons of the Companies Act, 2013 inciuding those relatlng to malntenance of books of account, preparation, adoption and filing of financial statements (a.C Cocunients required to be attached thereto), Auditors reports and the Board of Drrectors report (Board's report) have been brought into force with 6 eFfect from 1st April, 2014. Prov sons of Schedule Ii (useiu lves tc compule depreclation) and Schedu e III (1'ormat of financial statements) have also b€ren brought into force from that date. The re evant Ru e5 perta n ng to these provrsrc)ns have also been notifred, placed on the website of the lvlrn stry anC have aome fto force from the same date. The l\"lrnistry has recerved requests for clarirrcation vj lh iegard to the relevant frnancial years with effect frcm which such provisrons of the neu/ Act relatng to mantenance of books of account, preparation, adoptcn and fil ng of financa statements (and attachments thereto), aLlditors report and Bo.rrd s report wil be a pplica ble. Although the position in thir; behalf is qurie clear, to make th n9s absclutely ciear it is hereby notified that the financial statements (and documents required to ,e attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 1't April sha I be gcverned by the relevant provlsions/schedules/rules of the Companies Act, 1956 a.d that rn respect of financial years commencing on or after lstApril, 2014, the provis ons of the new Act shall apply,\" A readlng of the above circular makes it c ear the financial stalements and the documents required to br: attached thereto, auditors report and Board's report rn respect of financial ,/ears that cornmenced earlier than A1.04.2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years cornmencinq on or after 01.04.2014, the oro ,'isions of !he new Act shall apply. 14. At lhis stage it s required to of the Act 18 that the analogous Section 274(1)(9) of rs extracted as under be i otice d prov s 0n Act 1of to Section 164(2)la') of 2 013, is 1 of 1956 for ready 1956, The said provision under Act refe re n ce: Section 274(1) A person shall not be capabLe of berog appointed dlrector oF a company, if - (9) s!ch person is already a director of a publrc company whrch, - (A) has not filed the annual accounts and annual returns For any continuous three financial years commenc ng on and after the flrst day of April, 19991 or (B) Provlded that such person shall nor be eliglb e to be appolnted as a director of any other publ c company for a period of five years from the date on wh ch such public company, in which he is a director, failed to file annual accounts and annual returns under sub-clause (A) or has failed to repay its deposits or lnterest or redeen'r 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 person capable of being appolnted director of a company and already a director of a public company, which has not filed and annual rerurns for any corrtinuous three f inancia years t clear tha t f a SUCh peTSon rs accoLlnts annual comnienctnq on 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 annua returns. So the statutory requirement of fillng annual accounts and annual relurns, is placed on the directors of a'public company'. There ls no provision under the Act 1 of 1956, which places sim ar obligat ons on the dlrectors of a 'private company'. Therefore, non- flllng of annua accounts and annual returns by the directors of the D.vate company, ! , I .o: o:sq:a ity :1-err aS di:ectors under the provisiors of Ac: 1 or 1956. t 15, Under Sectlon 164(2) of the new eg is ation company'or a to show thal file fin a n cla Act 'publ c no pe rso n statements 1B of 2013, company'is .e no such distinction between a 'private n-rade and as per the said provislon goes has been a director of a'company', far s to who is or or annua returns for any continuous period of three financial years, will nol be el gible for appointment as a director of a company, As already noted above, the said provision, came into force with effect from 0L,04,20L4. 16. Coming to the facts on hand, lhe 2nd respondent has disqualified the pel tioners under Section 164(2)(a) of the Act 18 of 2013, for not flling fnancial statements or annua returns, for period prior to 01.04.2014. The action of the 2': respondent runs contrary to the circular issued by the ['1 n stry of the CorDorate Affairs, and he has given the provisions of Act 1B of 2013, retrosoect ve eFFect, l^r h ch is impermissible, !7. Tie Apex Court in COMMISSIONER OF INCOME TAx (CENTRAL).I, NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDL has dea t wlth the general princlples concerning retrospectivlly. The relevant portion of the judgment is thus: 27. A leg slaton, be it a statutory Act or a statutory Notification, may physrcaly consists of words printed on ' (2015) r scc l Rule or- a papers. statutory H owev e r, : conceptua ly it is a greal deo more than an ordrna.y prose. 'l-ere rs a specral peculiarity in the mode of verbal communicaton by a egrslatron. A legrslaton is noi lLrst a series of statements, such as one finds tn a wo.K of f ction/non fiction or even n a judgment of a court of law. There is a technrque required ro drait a leg slatroll as vr'ell as to understand a legislatlon. Formef technique is known as legislative draftinq and latter one ls to be found ln the vareus pnnoples of lnterpretatlon of Statutes'. Vis-A-vis ordinary prose, a legislation differs rn rts provenance, lay-out and features as also in the implicaton as.to ts meanrng that arses by presumptiofr; as to tre ntent of t''re maker thereof. 28. Of the varlous rules guld ng how a leg slation has to be lnterpreted, one estabiished rule is that unless a contrary intention appears, a legistation s presumed not to be intended to have a retrospective operalion. The idea behind the rule rs that a current law should govern current activities, Law passed today cannot app y to the events of the past. lf we do something today, we do t keeping ln the aw of today and in force and not tomorrow's backward adjustment of t, OLrr beiief n the i'ratlre of the law is founded on the bed rock that every human being is entitled to arrange hls affairs by relying on the existing law and should not find that his plan:; have been retrospectively upset. This principle of law s known as lex prospicit no.l respicit : law looks forward not backward. As was observed in Phillips vs. Ey!'e [(1870) tR 6 QB 1], a retrospective legislatlon is contrary to the general principle that legislation by !,vhich the conduct of manklnd is to be regulated when introduced for the first time to deal with future acts ought not to change the character of pasl transactions carried on upon th€r fa th oF the then exist ng law. 29, The obvious basis of the principle against retrospectrvity ls the principle of 'fairness', which must be the basis of every legal rLrle as was observed rn the declsion reported in L'Otfice Chenfien des Phosphates v. Yamash ta-Shinnihon Sleamship Co. Lld. [{1994) 1 Ac 486]. ihus, legrslatrons whrch rnodified accrue(l flghts or which impose obligations or impose nelv dulies or attach a new disab lt/ have to be treated as prospective uness the legrslative intent ls clearly lo give the enactment a retrospective eFl'ect; unless the legiS a!on is for purpose of supp yiI]9 an obvious omisslon ln a formor legts at on or io exp ain a :o.rner leg slation. /r: need not note that cornucopra of case lavi ava lable on ihe sublect cecause afoi'esa d iegal posltion clearly emerqes from the varlo!s dec s ons and th s legal positron vra; conceded by the counsel for the partes. In any case, rle shal refer to f€!r ludgments containing this dicta, a rttle ater. 30. We would also like to po nt out, for the sake of co|npleteness/ that u/here a beneft s conferred by a legislation, the rule against a retrcspecive construction is different. 1f a legislation confers a benefit on son're persons bLrt v,itnout nflicting.l corresponding detrlment on sorfle other person or cn the p!biLc ae.era iy, and !!hei-,: to confer such benefit appears to have been the eglslators oblect, then tn: presurnption siould be that such a legslatlon, givinq rt a purposrve constructor, wouid warrant it to be given a retrospective effect. This exact y s the lustification to treat procedural provjsions as retrospective. ln Government of indra & Ors. v. Indian Tobacco Association, [(2005) 7 SCc 396], the doctflne of farrness was he d to be relevant factor to construe a statute conferring a benefit, n the context of it to be qiven a retrospective operation. The same doctrine of falrness, to hold that a statute ryas retrospective in nature, was applied n the case of Vi.jay v. State ci Maharashtra & Ors., [(2006) 6 SCC 289]. lt was hed that where a law is enacted for the benefit of community 0s a whole, even rn tfie absence of a provlslon the statute may be held to be retrospectve in nal!re However, we are (slc not) confronled with any s!ch srtualron here. 31. in such cases, retrospectivity is attached to benefrt the persons n contradistrnction to the provi:;lon imposing sori'le burden or liabi rty where the presumption attached towards prospectiv ty. in the rnstant case, the proviso addec to Section 113 of the Act is not beneficial to the assessee. On the contrary, t rs a provision which is onerous to the assessee. Therefore, in a case I ke this, we have to proceed with the normal rlre oF presumpton against retrospective operation. Thus, the rule against retrospectlve operation js a fundamenta ruie of law that no stat!te shall be construed to have a retrospect ve oDerat on unless such a constr!ction appears very clearly In the terms of the Act, or aflses tly necessary anC drstrnct imp ication Dogmat carliy framed, the rule s :c ii1o.e than a p re s .l rn p i Lc'rl . arC thus could be drsp aced by out wergh ng Factors. 43. There rs yet another very nterest ng pr(-:ce ol evidence that clarrlies Ifart provrsron beyond any pale of doubt v 2., tlre und€ri-stand ng cl CBDT rtself regardrng thrs provrsron. It is contarned n CBD-f C rcuiar No.B oi 2002 dated 27.8.2C02, w:h the subject \"Frnance Act, 2002 - Expianatory Notes cr picvLsrcn reLating to ) re{li iaxes\". Tllrs c rcular has been issued eftei the passrng of tie Finance Act, 2002, by which amendment to sect on 113 was made. ln th s crrcular, var or.rs amendmenls to the Income tax Act are dscrssed amp y demonstraing as to whch amendmenls are cla.ificatory/retrospective i-r operat on and wl'r ch amenCments are prospect ve For exarnple, Explanalion to sectron 158-BB is stated to be clarificatory in nature. Lrke!! se, t rs mentroned that amendments rn Sectron 145 whereby provisions of that sectron are made appl cable to block assessments is made clariFicatory and would take effeci retrospectlvely From 1st day of luly, 1995, When it comes to amendment to Sect on 113 of the Act, thrs very circu ar provides that the satd amendment a ong ,.,r th the amendments in Section 158-BE, would be prospective .e., wrl fake efFecr from 1.6.2AA2.\" 18, Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intentlon appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that tne iegis ation has any intention, to make the said provlsion applicable to past transactions. Further,.the Apex Court tn the above judgment al paragr-aph No,43, founo t.at the circular issued by the authority after passing of the egls ation, clar fy ng the positlon with regard to appiicability of the provlsions, has to be construed as an important piece of evidence, as it would clarify lhe prov sion beyond any pa e of doubt. In the present case, as alreaiy noted above, the N4inlstry of Corporation affairs has issued the crrcular No.0B/2014 daled 4.4,2014 c arifying that flnancial statements cornmenclng after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years cornmencing 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\"r 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 01,04.2474, the same is contrary to lhe ci:cular, and aso contrary lo the law laid down by Apex Court in the above referred judgment. 19. If the sald provision is qiven prospective effect, as per the circular dale1 4.4.2074 and the law lald down by the Apex Court, as stated in the u,,i t affidavits, the firs: flnanciai vear 'ould be from 01-04-2014 to 31,03.2015 and the second and th rd years financial years would be for the years ending 31,03.2016 and 31.03.2017, The annual returns and financial stalements are to be filed with Regrstrar of Companies only after the conclusion of the annual general meeting of the company, and as per the first q 10 proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2017, can be held within six months from the closrng of financial year i.e., by 30.09,2017. Further, the time limit for filing arnual returns under Section 92(4) of the Act, is 60 days 'rom annual general meetingi or the lasl date on !r'hich annL,a ge:lerai meeiing ouEht tc, have been held with normal fee, ard w thln 270 d;rys i,^;iln additlona fee as per tle proviso to Section 403 of the Act. Learned counsel subm t that lf the saio dates are calculated, the ast date for fil ng the annual returns wcuid be 30.1,7.2A77, and the balance sheet was to be filed on 30.10.2017 with normal fee and with additional fee, the last date for fil ng annual returns ls 27.07.2018. In other words, the disqualificatlon couLd get triggered only on or after 27.07.20t8. But the perlod considered by the 2\"0 respondent in the present writ. petitions for :lothing the petitioners with disquaLificatlon, pertains prior to 01.04.2014, Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification pricr to 7.4.2014, the petitioners cannot be disqualified on the said ground. This analogy is traceable to Article 20(1) of the Constitution of India, which states that \"ruo person shall be convicted of any offence except for violatron ol'a law in farce at the time of the commissian of the act charged as an cffence, nor be subjected to a penalty qreater than that vlhich rright have been tnflicted under the law in farce at th(l time af the comntissian of the offence\". In vlew of the same, the ground on which the petitioners were disquaiifled, cannot stand to legal scrutiny, arnd the same is liable to be set aslde. 20. A learned Singl€ ludge of the H gh Court of Karnataka in YASHODHARA SHROFF vs. UNION OF INDIA'? 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 sald provrsion has no retrospective operation. The observations of the earned ludge, pertarrrtng to : tt,P No.52911 ol20li and barch dated 12.06.2019 prospective, and not retrospective efFect and that the under Section 16a(2)(a) with regard to non-filing of I rrspecial Civil Application No.22435 of20l7 and batch dated 18.12.2018 private companies, which are relevant for the present purpose, are extracted as under: i1 In vrew of the aForesaid d scussion, I have arrived al the following conc usrons 208 (a) It is held that Section 164(2)(a) of the Act is nal ultra virus Ar|.rcte 14 of the Constitution. The said provision rs not manlfestly arbltrary and also does not fa I withrn the scope of the doctrine oF proportionality. Neither does the sald provrsion voate Artce 19(1)(q) of the Constituton as t s made in the interest of general publrc and a reasonab e restrction on the exerclse of the said right. The object and purpcse cr' the said provision is to stipulate the consequence of a disqualiFcation on account of the circumstances stated therein and the same is n order to ach eve probrly, accountabilrty, and transparency in corporate 9OVernance. (b) That Art cle fsic) Section 164(2) of the Act applies by operatron of law on the basis of the circumstances stated therein, the said provision does not envisage any hearng, neLther pre-disqual frcation nor post-disqualification and this is not in violation of the pflnciples of natural JUStice, is ral ultra vires Article 14 of the COnStitUt on (c) ihat Sectrcn l6a(2) of the Act Coes |.1ot have retrospectrve operatrcn therefore, nerther unreasonable nor arb trary, in vlew of the lnterpretatron on the sa.n e and s p aced (e) Insofa. as :l.e 3i vale coripa. es are cc:1cerned, d Sq!a :Fiaai on on acco,-.'. !f the c rcu.nstances stafed undcr Sect oi 164(2)(a) cf the Act has been Dr-cught rnlo fcrce ior the Frrst t rne L-rnder lhe Act 3nd the consequerces of drsqLral Frcatron could not l.ave been mposed on d rectors of private compan es by tak,ng nto ccnsrderatron any DerroC prlor to 01.04.2014 fo. the purpose of reckonrng contrnuous peflod of three fnancal years under the sard provlsion The said concusion rs based on the prncipal drawn by way ofanalogy fron, Aftce 20(1) cf the Constltut on, as at no point oF time prior Lo the enforcement of the Act, a dlsqualification based on the crrcumstances under Section 164(2) ot the Act was ever envLSaged under the 1956 Act vis-i-vis directors of private companies. Such a disqua ificatron could vrsrt a director oF only a public company under Section 27a( )G) of 1956 Act and never a director of a private company, Such d squal fcation of the pettroners who are directors of private companjes is hence quashed. (i) (g) Consequently, r.,here the disqualification under Section 16a(2) of the Act is based on a co|rtlnuous perod oF three financial years commencing from 01.04.201,1, wherein frnancral statements or annual returns have not been filed by a pub rc or prvate company, the drrectors of such a company stand disqualified and the consequences of the said d squaliF cation would app y 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 s mi ar v ew as that of the leaned single Judge of High Court oi Karnataka (1 s;pra), an0 helC that Section 164(2) of the Act of 2013, which had come nto force with erfect ltor.l L4.2074 would have defau ts conternplated financial statements or t2 annual returns lor any continuous period of three frnancial years woLr d be t5e Cefault to be counted l'rom the financla year 2014-15 only and not 2073-74. 22. A iearned single J.rdge of the High Court of Nladras in BHAG.A,VAN D,AS DHANANJAYA DAS 1/s. UNION OF INDIA4 also expressed sim ar view. The relevant portion is; as under: 29, In fine, (a) When the New Act 2013 came into effect from 1,4.201.4, the second respondent herein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2A16 itselF before the deadl ne commenced wrongly fixing the first financial year from 1.4.2013 to 31,3,2014. (b) By virtue of ihe new Section i64(2)(a) of the 2013 Act using tr're expression 'for any continuous period of three financ al year\" and in the light ol'section 2(41) definlng \"financial year\" as wel as the r own General circular No.08/14 dated 4.4.2014, the first rlnancial year would be from 1.4.2014 to 3i.3.2015, the second financ a1 year would be from 1.4.2015 to 31.3,2016 and the third financa year would be from 1,4.2016 to 31.3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the final years commences from 2013-14, 2074-15 and 2015-16 r.e, one year before the Act 2013 came into Fol'ce. Ths rs the baslc incurable legal lnf rm ty that vitiates the ent re irrpugneC p roceed in g s. 23. In view of the above facts and circJrnstances and the ju,Jgments referred to supra, as the impugned orders in preseni wr t petitions disqualifying the petitioner:; as directors under Sectlon 164(2)(a) of 1:he Act, have been passed considering the period prror 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 164(2)(a) is required to be rloticed, and the same is extracted as under fcr ready refe-ence: 164. Disq ualificai:ion for appointment of director: 'r, ) _i.tii :r'1,. -:: .t r:. , .l:.t tl- I I . tl (2) No person'v!ho rs cr has been a d rector of a company /hich- (a) has not FL ed Frnanoa statements or annual returns for any continuous per oC of three f nanc a Vears; or 1b) Sha I be el grble to be re-appornted as a dlrector of lhat company or aDpo nted in Other conrpan eS For a peflod of Fve years from the date on which the sa d cor.pany taris tc do so. A reading of the above provision makes it clear that it provrdes d SqUa fication on ,iappenrng of an event i,e., if a person who is or has been a dlrecior of a company nas not fi ed Fnancia statements or annual returns io. any continJous perioc oi tiree inancia years, shall be ineligible to be re- appointed as a cirector of that cornpany or appointed in any other company for a period of five years frorn the date on which the said company fails to do So, The provision does not provide for issuance of any prior notice or hear ng. A learneC sing e Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge ofthe High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Ba vantla Shah vs. Union of India (2 supra), after analyzing various provisions of lhe 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-disqualif cation nor post-disqualification anC this is not in vioiatlon of the principles of natural justice and hence, is no: ultra vlres Artlcle 14 of the Constltution. I concur Vilth the sald reasoning. 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the disqualification envlsaged 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. lJ 26, The next grievance of the petitroners of their DINs. The contenlion of the learned is with regard to deacl: vatron that except for the grounds mentioned under Rule 11 (a) to (f) petitloners s of the Rules, the DINs cannot be canceL ed or deactivated, an(l the violation mentioned under Section 164(2)(a) of the Act, rs not one of the grounds mentioned under clauses (a) to (f) of R,u e 11, and hence for the alleged vio atlon under Section 164(2)(a) of the Act, DIN cannot be cancelled 27. Rule 10 of the Rules provide for allotment it is allotted for ife time. coL nsei for the of DIN and unc er sub rule (6) of cancellation Ru le 10, or deactivation. Rule 11, which s relevant purpose, is extracted as under for ready reference 11, Cancellation or surrender or deactivation of DINr The Central Government or Regional Director (Northern Reg on), No cia o!- any off cei- authori;:eo by the Regional Director may, upon being saiisfred on verrfrcat on ci particuiars o: documeniary prooF attached !vrll'r the appi cai cn rece vec i'oir. a''ry pe.sc., cance ci deact vate the DIN in case - the DIN ls found to be duplicated rn respecl oF lhe same person orov ded the data related to both the DIN shaLi be merged v/rth the val dly re:a,ned number; the DIN lyas obtajned rn a wrongfu manner or l)y fraudulen! means; of the death of the concerned ndiv dual; the concerned lndivid!a has been declared as a person of unsound m nd by a competent Court j rf the concerneo rndrvidual nas been adjud.cateo a \"'r .nso vert; Provided that before cancel atron or deactrvatron of D1N pursuant to clause (b), an opportun ty of being heard shal be g ven to the concerned rnd v dua j on an application made in Form DIR-5 by the DIN holder to surrender h s or her DIN along with declaration that he has never been appointed as director n any company and the said DIN has never been used for fil ng of any document with any authority, the Central Government may deactlvate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall ver,fy e-reco'ds. Explanatlon: for the purposes of c ause (b) - The terms \"wrongful manner\" means iF the DlN s obtained on the strength of documents which are not legally valrd or i-rcomplete documents are furnished or on suppression of material information or on the basis of rvrcng certification or by making misleading or false i|,1formation or by m srepresentatrcn; (ii) the term \"fraudulent means\" means if the DiN is obtarned w th an intent to deceive any other person or any authority includrng the Central Govern ment. Rule 11 proviCes for for the present (b) (c) (d) (e) (f) (i) 28, Clauses (a) to (1') of RLr e 11, extracted aboVe, provldes For the can be canceilec o: deact vated. Tie said grounds, are d Fferent from the grouno envlsaged rnder II 15 of the Act, Therefore, for the alleged violation under Section 164(2)(a) Section 164 of the Aci, DINs cannot be cancelled or deaclrvated, except in accordance wilh Rule 11 of the Rules 29. Learned Single Judge of the Gujarat High Court in the decision clted 2 supra, held as under \"29. Thrs takes the Court to the next question as to whether the respondenls could have Ceactlvated lhe DlNs of the petitioner as a consequence oF the impugned lst) In fhis regard, f would be approprate to refer to the relevant provisions contained in the Act and the sard Rules. Section 153(3) provrdes that no person sha I be apDornfed as a Drrector of a conrpany, unless he has been al otted the Drector Identfrcaton Ni-rmber unCer Section 1.54. Sectron 153 requlres every ndrvldual lnterd nc to be eppornted as Drrector oF a Company to make an appl catron for a otment of DIN to the Central Gcvernment in such form and manner as may be prescr:bec. Secton i54 states that rhe Central Government sl.all !v,thrn one month lron the receiDl o. the appl cation unCer Sectlor 153 a ct a DIN to ao appl cant n such n anner aS may be prescrbed. Sect on 155 proh brts any nd.vrdua , !1'.o :as already bee. el ciied a DiN under SeCtrOn 15,:1 from appiy ng ic. or obtarnrng or possess ng another DIN. Rules 9 and 10 of the saLd Rules of 2014 prescnbe the procedure For making appl cation For a otmenl and for the allotmenl of DiN, and further p'cviCe that the DIN allotted by the Central Government under the sald Ru es would be valrd for the ife t me of the appLicant and sha I not be allotted to any other person. 30, Rue l! prcvdes for cancelation or surrender or deactivation of DIN, Accordrngly, the Central Government or Regional Drrector or any authorized offrcer oF Regiona D rec:or rnay, on being satisfied on verification of particulars oF documentary prooF attached w th an application from any person, cancel or deactivate the DIN on any of lhe grounds mentioned in Clause (a) to (f) thereof. The said Rule 11 does not contemplate a^y suo matu powers either with the Central Government or w lh the authorlzed officer or Regjonal Director to cance or deactvate the DIN allo:ted to the Director, nor any of the ciauses mentioned in the said Rules conlemplates cancellatron or deactivaton of DIN of the Director of the ''struck off company\" or of the Drrector having become ineligible under Section 164 oi the sard Ac:. The reason appears to be thal once an individua , who rs intending to be the Drrector of a parl cular company is a lotted DIN by lhe Central Government, such D:N !./o.Jid be va id for the irfe ti..e of the applrcant and on the basis of such DIN he cou C become Drrector n olher companres a so. Hence, if one of the compan es in w,h ch he ,!as Drreclor, rs \"struck off\", his DIN cou d not be cancelled o!- deactivated as that !,vould run counter to the provis ons contarned in the Rl-r e 11, wh ch specrfica ly provides for lhe c rcumstances under which the DIN could be cancelled or deactivated. 31. In that vew of the matter, the Court ls oF the opnon that the actlon of the respondenls rn deactrvatrng the DINs of the petrtroners - Directors along with the publ cation of the .npu9.ed list of Drrectors of \"struck off\" companles under Sect on 248, a so was nol Iegaly tenab e. Of colrse, as per Ru e 12 of lhe sard RLr es, ihe ncv,C.ra ,,,,ho has been allotted the DIN, rn the event of any change rn hrs partcuiars stated n Form DIR -3 has lo ntrn'rate such chanqe to the Central Governmeni , 'thLn the prescrlbed trire . Form DIR-6, however, rF that s nol done, tne )ii i cc,rlc .3i De ca.ce ied cr ceactvaled The cance lation or deactrvatron oF the DIN ccLr C r)e .eso.ted to bV the concerned respondents only as per the prcvLs cns conta'neC n ihe said e.ules.\" 30. In vlevi of the above facts and clrcumstances and the of the petitioners be su sta in e d. judgment for alleged referred to supra, the deactivation of the DINs violations under Section 164 of the Act, cannot l(. 31, For the foregotng reasons, the impug'red orders ln ine ! /rit pe[itions to the extent of disqualifying tl.re petitioners under Sectjon 164(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. 32. 1t is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with la / for vio ations as envisaged under Section t6 (2) of the Act, giving the said provision prospective effect from 01.04.2014 and for necessary acton agalnst D1N in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved actron of the respondents in striklng off treir compa. es uirder Section the Act, they are at liberty to avail alter,,)ative i-er:eoy under Section the Act. by the 248 of ,252 oi 34. All lhe wri! petilions are accordingly a owed to the extent indicated a bove. 35. Interlocutory applications pending, if any, shall stand closeci, No ord er as to costs. A,RAJASHEKER REDDY,J DATE: 18-07-2019 AVS "