Mukesh Arora V. Union of India and Another

WP/13161/2020

AI Insights

The case involved multiple writ petitions filed by directors of private companies who were disqualified and had their DINs deactivated under Section 164(2)(a) of the Companies Act, 2013, for failing to file financial statements or annual returns for three consecutive years. The petitioners challenged the disqualification and DIN deactivation, arguing that the provision was applied retrospectively and without notice, violating principles of natural justice. The respondents, including the Union of India and the Ministry of Corporate Affairs, defended the actions based on statutory provisions. The court examined the applicability of Section 164(2)(a), the retrospective application of the law, and the procedural aspects of DIN deactivation.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 743914 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 31-08-2020
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central) v. Vatika Township Private Limited, Yashodara Shroff v. Union of India, Gaurang Balvantlal Shah s/o Balvantlal Shah v. Union of India, Bhagavan Das Dhananjaya Das v. Union of India
• Laws Referred To: Companies Act, 2013, Companies Act, 1956, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: N RAO
• Assessee Lawyers: VANGA
• Keywords: DIN Deactivation; Director disqualification; Natural Justice; Retrospective Legislation; Writ petition
• Section: 151; 226; 248; 252; 164(2)(a)

Judgement Text

"HrGH couRT FOR THE SrtIE.Ol TELANGANA AT HyoERAEAD (Special Original Jurisaictionl' .'. \" IVONDAY ,THE THIRTY FIRST DAY OF AUGUST TWO THOUSAND AND TWENTY PRESENT THE HONOURABLE SRI JUSTICE A.RAJASHEKER REDDY WRIT PET TION NO:1 3161 oF2020 Betwee n: AND 1 M,i[l?ii:ili,::: si3[{18fls:T6.ffi 55 years, occ Business, R/o 1-3-81 St ,,.PETITIONER 2 Union o'lndia. Reo bv its Secrejary, l,4inistry of Co.porate Affairs, g13s1py Bhavan. Dr. Rajendra prasad MJrj,'rue*-O6r,,li The Regrstrar. Office of Regis]rar of Companies. ROC. 2r-d Floor. Corpo.ate Blgyql Near CentratWate'r Board. GSf poii BanOigro, Nrgo \" riycteiioao - 500068. ...RESPONDENTS Petition under Afr.icle 226 of the Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue any writ, order of direction more particularly one in the nature of writ of lVandamus to permit the Petitioner to continue as a Director of the Company and/or get appoint or reappointed as a Director of any Company without any interference. lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the cir,lumstances stated in the affidavit filed in supporl of the petition, the High Coun may be pleased to stay of the disqualification of directorship of the petitioner by activating the DIN No. 01677668 and digital Signature of the Petitioner, in so far as the Petiticner herein is concerned, pending disposal of the above writ petition. Counsel for the Petitioner: M/S. VANGA ANITA CounselfortheRespondents:SRI.N.RAJESHWARRAO,ASST'SOLICITOR GENERAL The Court made the following: ORDER: Leartlcd coutnsel for the pelitioner Itajeshs'ar Rao, lcarnecl Assistant Solicrtor 3eneral of India' appetLnl.'lg lor the responder-rts submits that lhe lis in this Writ Petilion is squarelv (-'ovcrecl by the Common Orders of this Court in WP No 5422 ol 2018 &' batch, dateci 18 07 2019. In view o[ rhe same and for the reasons alike in the Comrrron Ordcl' i|r wP No,5422 ot 2018 & batch, dated l8 OT 20lg, lhis Writ Petiuo:-r rs a iso allor,ved. There shail be no order as to costs As a sequel thereto' rr. iscellar-ieou s applications, if arry, pending in :his Writ Petition, shall stand disposed of. as rvell as Sri Namavarapll ,TRUE COPY// SDI,I.NAGALAKSHfulI ASSISTANT REGISTRAR SECTION OFFICER To, P [,i 1. The Secretary, l ,4inistry of Corporate Affairs, Union oF India, Shastry Bhavan. Dr. Rajendra Prasad li,4arg, New Delhi. 2. The Registrar, Office of Registrar of Companies, RO3, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad - s00068. 3. One CC to I ,4/s. Vanga Anita, Advocate (OPUC. 4. One CC to Sri. N. Raleshwar Rao, Asst. Solicitcr Geleral (OPUC) 5. Two CD Copies. (Along with a copyof orderdated 181712019 in WP,No. 5422 af 2018 & batch.) HON'BLE SRI JUSTICE A'RAJASHEKER REDDY Writ Petition No' 13161 OF 2O2O HIGH COURT IIATED:31/08/2020 C)RDER WP.No.13161 of 2020 Allowing the WP Without costs ') o o 04 S[p 20ri 1 HE. SI4 14- e ,Y B )P),o 't/ b s- THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY w.P.NOs.5422, 12184. 13520. 13783, 13855. 14166. 24051. 30993. AND 409s3 0F 2018-5s47,5sA2,5669. s687, s7As,6047, 60A7, 6L40. 6484. 6753. 6854. 6954. 694r,700t.7008.70L4. 7046.7069, 7 073. 7 LOs, 7 432. 7 454, 7 57 2. 7 595. 77 32, 7 7 65, 7 7 68, 7 824. 7 978, 8111, 8223. 8585. 8590, 9333. 9340, 9381. 9468. 9563. 9584. 9623. 9726, 9737. LOOSA. LOO99. 1L204. tt223. L1239. tL263. !!4A9. t,^99t, 20!A. tZO36. L2040, t2069, t2lo8. L2L44. 72t86, t2t94. t2200. 12209. t22L5. L22t7. t2 4?_ 7226rl. 12262. 12244. 1244). L2350. L24L7. t2432. L2472. 12494. L2506. t2574. L2594. L262L, 12702. L2735. t2740. L2845. L2450. L2465. L2466. !3013. L36LA. t3730. 13749. 13779. t37AA. 13839. t3455. L3a7a. r39L2. L39t7. 13945. 14101, 14174, L4207,14350. 14351. 14390, L4392. t4397. L4409.14s82 AND L4597 0F 20t9 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c )of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application w thin 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 actlve companles, 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 164(2) of the Act, disq.Jalifying them as dlrectors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a perlod c'f five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have beer filed' : 4. This court granted interim orders ln the writ petltions dlrecting the 2l\"c respondent to activate DINs of the petitioners, to erable them to function other than i1 strike off companies, 5. Heard the learned counsel appearing for the petitioners in all the writ petltions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India, 6, Learned counsel for the petitioners, conterd that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowe's 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 r:ounsel further submits that this provision came into force with effect from .1.4.2014, and prior thereto i.e., under Section 274(1)(g) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply '/vith the requirements mentioned in the said provision subsequent to the said date, the authority under the Act, is within its jurisdiction to disqualify them. But in the presenl cases, the 2\"d respondent, taking the period prior to 1.4.2014, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, which is illegal and a rbitra ry. B. Wlth regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (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 nade only for the grounds mentioned in clauses (a) to (f) under Rule 11 ,lf the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deact vation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 9. Learned counsel further submits that 1'r respc,ndent - Government of India represented by the Ministry of Corporate Affai's, has floated a scheme dated 29.12.2017 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2\"d respondent, allows the DINs of the Directors to be activ.ate,l. However, such scheme is not applicable to the companies which are struck off under Section 248(5) oF the Act, In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrylng 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 pelal 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 Gerreral submits that fai ure to file financial statements or annual returns for any continuous perlod -,1 of three financial years, automatically entail their disqualification under Section 164(2)(a) ofthe Act and the statute does not prov de for issuance of any notice. Hence, the petitioners, who have failed to comply with the statutory requirement under Section 164 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 in ed. L2. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be consldered, and the same is extracted as under for better appreciation: 25 2. Appeal to Tribunal: (L) Any person aggrieved by an order of the Registrar, notiiying a company as dissolved under Section 248, may file an appeal to the Tribunat ,vithin a period of three years from the date of the order of the Registrar and if the Tribunal is of the opinion that the removal of the name of the company from the register of companies rs not.lustlfred in view of the absence of any of the grounds on which the order was passed bv the Registrar, ii may order restoration of the name of the company in the register 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 Reqistrar, 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 lncorrect information furnished by the company or rts dlrectors, which requires restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such company, (2) A copy of the order passed by the Tribunal shall be filed by the company with 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 in the register of companies and shall issue a fresh certificate of incorporation, (3) If a company, or any member or creditor or worker thereof feels aggrieveC by the company having its name struck off from the register oF companies, the Tribunal or an application made by the company, member, creditor or wcrkman before the expjry of twenty years from the publication in the Official Gazette of the not ce under sub-section (5) of Section 248, if satisfied l:hat the compan) was, at the tinre of its name being struck off, carrying on business or rn operat on or otherwise it is JUSI that the name of the company be restored to the regrster of companies, order the name of the company to lle restored to the regrster of companres, and the Trrbunal may, by the order, give such other directrons and make such provisrons as deemed just for placing the company and all other persons in the same Dosition as .early as may be as rF the name of the company has not been struck ofF fronr the register of companres. 5 A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for recressal against the dissolution and striking off the company from the register of companies. It does not deal with the d isq ua lification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrleved by their disqualification as directors and deactivation of DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to te re-appointed as a director of that company or appointed in other company fDr a period of five years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from 01.O4.2014, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 164(2)(a) of the Act, which provision came into force with effect from 01.04.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which finan,:ial year, the default envisaged under Section 164(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.0B/14 dated 4.4,2014 issued by the lvlinistry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and flling of financial statements (and documents required to be attached thereto), AuCltors reports and the Board of Directors report (Board's report) have been brougft into force with (r effect from 1s( April, 2014. Provisions of Schedule II (useful iives to compute depreciation) and Schedule iil (format of financial statements) have alsc been brought into force from that date, The relevant Rules peftalning to these provrsions have also been notifed, placed on the website of the l 4inistry and have come into force from the same c,ate. The M nistry has received requests for clarification with regard to the relevant frnancial '/ears with effect from which such provisions of the new Act relating to marntenance of books of account, preparation, adoption and filing of Financial statements (and attachments thereto), auditors report and Board's report will be applicable. Although the position in thls behalf is quite clear, to make things absolutely clear it is hereby notifred that the financial statements (and documents required to be attached thereto), auditors report and Board's report in respect of financial years that commenced earlier than 15t April shall be governed by the relevant provlsions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1st April, 2014, the provisions of the new Act shall apply. \" A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than 01.O4.2014, shall be governed by the provisions under the Companies Act, 1956 and ln respect of financial years commencing on or after 01.04.2014, the provisions of the new Act shall apply. 14. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 27a(7)(9) of Act 1 of 1956. The said provlsion under Act 1 of 1956 is extracted as under for ready, reference: Section 274(1) A person shall not be capable of being appointed director of a company, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or (B) Provi,led that such person 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 unde. 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 1 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a ,public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company,. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section 164(2) of the new legislation i.e,, Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from 01.04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 16a(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2nd respondent runs contrary to the circular issued by the lYinistry of the Corporate Affairs, and he has given the provlsions of Act 18 of 2013, retrospective effect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL).L NEW DELHI v, VATIKA TOWNSHIP PRIVATE LIMITEDL has dealt with the general principles concerning retrospectivity. The relevant portion of the judgrnent is thus: 27. A iegislation, be it a statutory Act or a statutory Rul: or a statutory Notification, may physically consists of words printed on papers. However, '(20r5)l scc I 8 conceptually it is a great deal more than an ordinary prose, There is a specia peculiant,/ in tl're mcde of verbal communication by a legislation. A legrslation rs not .Just a series of statements, such as one finds in a work of Fiction/non fiction or even in a judgment of a court of law. There is a technrque required to draft a legislation as we I as to understand a legislation. Former technique rs knovr'n as leglslative drafting and latter one is to be found in the various principles of'lnterpretat on of Statutes'. Vis-a-vis ordrnary prose, a legislatron differs in rts provenance, lay-out and features as a so rn the rmplrcation as to its meaning that aflses oy presurnptions as to the rntent oF the maker thereof. 28. Of the vaious rLrles guiding how a legislation has to be tnterpreted, one estab rshed rule s that unless a contrary intentlon appears, a leg slairon s presumed not to be rntended to have a retrospective operaton. The idea behind the rule is that a current law should govern current activities. Law passed tocay cannot apply to the events of the past. If we do something today, we do il keeping ln the law of today and in force and not tomorrow's backward adjustment of it. Our bellef in the nature of the law is founded on the bed rock that every human be ng is entitled to arrange his affairs by relying on the existing law and sl]ould not find that his plans have been retrospectrvely upset. This principle of law is known as lex prospicit non respicit : law looks forw