Mr. Madhava Rao Muvvala V. Union of India

WP/23528/2020

AI Insights

The case involved Mr. I/adava Rao Muwala and Mrs. FiOmavathi Muwala, who were directors of private companies. They were disqualified from directorship and their DINs were deactivated due to alleged non-filing of financial statements and annual returns for three consecutive financial years. This action was taken under Section 164(2)(a) of the Companies Act, 2013, which came into effect on April 1, 2014. The petitioners challenged the disqualification and deactivation, arguing that the law was applied retrospectively, which was not permissible. The court agreed with the petitioners, referencing a common order in a similar case and various legal precedents that supported the prospective application of the law.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 677437 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 23-12-2020
• 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 of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAJESHWAR RAO
• Assessee Lawyers: MANDADAPU AJAY BABU
• Keywords: DIN Deactivation; Director disqualification; Natural justice violation; Retrospective Legislation
• Section: 226; 248; 252; 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY ,THE TWENTY THIRD DAY OF DECEMBER TWO THOUSAND AND TWENTY PRESENT THE HONOURABLE SRI JUSTICE K.LAKSHMAN WRIT PETITIO N NO: 23528 OF 2020 Between: AND 1 2 Mr. I /adhava Rao Muwala, S/o. Srimanarayana Murthy Aged About 60 Years, Occ. Business, R/o. B 510 Shantibagh Apt. Begumpet, Hyderabad Telangana State, lndia - 500016 tr,lri. FiOmavathi fVuwala, D/o. Venkata Krishnaiah Kota Aged About 56 Years, Occ. Business, Rl/o. B 510 Shantibagh Apt, Begumpet, Hyderabad Telangana State' lndia - 500016 ...pETlrtoNERS Union of lndia, The lvlinistry of corporate Affairs Represented by-its Secretary A Wing, ShasiriBhawan, R'ajendra Prasad Road, New Delhi - 110 011 ine R6gistrar of Companies, Telangana State, 2nd Floor, Q91O91qte Bhawan, GSI Poit, Tattianaram, Nagole, Bandlaguda' Hyderabad - 500 068 ...RESPONDENTS Petition under Article 226 o1 lhe constitutron of lndia praying that in the circumstances stated in the affidavit filed therewith, the High court may be pleased to pass an order or direction or any other proceeding one in the nature of writ of ivlandamus declaring the action of respondents in deactivating the DIN Numbers 02337964, oz4s171a for the disqualification Period from 111112016 to 3111012021 ol the Petitioners and restricting the petitioners from filing statutory returns, i.e., the annual returns of the Petitioner's company as arbitrary, illegal, without jurisdiction, contrary of the provisions of the companies Act, 2013 and Rule 1 1 of the companies (Appointment of Directors) Rules, 2014, violative of the principle of natural justice ur.io\". violating the petitioners rights guaranteed under Article '14 and Article 19 (1 ) (g) of the Constitution of lndia. 1 2 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 .1st respondent to restore the DIN numbers 02337964, 02451715 for the disqualification period from 1t1112016 to 3111012021 of the Petitioners. So as to enable them to submit the annual returns and Financial Statements of the Petitioner's company. Counsel for the Petitioner: SRI MANDADAPU AJAY BABU Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST,SOLICITOR GENERAL The Court made the following: ORDER THE HONOURABLE SRI JUSTICE K. LAKSHMAN WRIT PETITION No.23528 OF 2O2O ORDER: The pe titioncrs challenge their disquralification from Directorship under Section rca Q) @) of the Companies Act, 20 13, lor the alleged default in filing financial statements/Annual Returns, and consequently seek restoration of their Director Identification Numbers (DIN) viz., 02337964 and O24SIT ls respectively. 2. Learned counsel for the petitioners would submit that the issue raised in the present Writ petition is squarely covered by the common order passed by this Court in W.p.No.5422 of 201g and batch, dated 18.O7.2O19. 3. Learned Standing Counsel for the 2nd respondent - Registrar of Companies does not dispute the aforesaicl submission. 4. Operative porlion of the common order, daLed 1g.07.2019, in W.P.No.5422 of 20 1B reads as under: \"l.or thc forcgoir-re rcasons, the impuur-rcci orclcrs in the u'rit pctrtions to thc L.- tcnL ol' disqr_ralilrrng the pcririoners t-tndcr Scction l6aQ) a) of the Act ancl cle actir,.atior-r of their DINs, are set aside, and the 2,,4 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 2n,j respondent from taking appropriate action in accordance with law for violations as envisaged under Section 164(2) of the Act, giving the said provision prospective effect from Ol.O4.2Ol4 and for necessary action against DIN in case of violations of Rule 1 1 of the Rules. It is also made clea.r that if the petitioners are aggrieved by the action of the respondents in striking off their companies I 5. In vicr.r, of the said order dated 18.07.2019 and lor tl-tc under Section 248 of the Act, they are at liberty to avail alternative rcmedl, under Section 252 of the Act, All thc u,rit petitions are accordingll' allou'ccl to the extent indicated above.\" reasons recorded therein, this Writ Petition is also allo'\"ved in tcrms thereof. No costs Miscellancous pe titions, pending if any, shall stand closed SDIB.SATYAVA ASSISTANT REG R ,TRUE COPY// SECTI OFFICER To, 1 . The Secretary, Union of lndia, The Ministry of Corporate Affairs, A Wing' Sf,isirief,arSn, Ralendra Prasad Road, New Delhi - '1 10 011 z ih6 negisliai ot Cdmpanies, Telangana State,.2nd Floor, Copggte Bhawan' - csl C\"ii, iittirnaram, Nagole, Bandlaguda, Hydgrabad - 500 068 e. One CC io Sri tVlandadapu-Ajay Babu Advocate [OPUC] ;. O|! CC to Sri Namavaripu Rd;eshwar Rao, Ass1. Solicitor General, Advocate toPUcl 5. Two CD Copies terongwithacopy'ofoldeldl:18lo712019inW.P'No.5422of2018andBatch) SM kv HIGH COURT DATED:231121202O ORDER WP.No.23528 ot 2020 ALLOWING THE WP WITHOUT COSTS : t 14 ,A E H 1 ( o () J 4 A 2 0 N 021 w.P.NOs.5422, 12184. 13520. 13783. 13855, 14166. 24O51. 30993. AND 40953 0F 2018. 5547, 5s82. s669, 5687. s78s. 6047. 6087. A,I AA AAAA A7R2 AAEA oEa 6oa1 70nI 'rfl.le -, .l't l -riLF, 'zrla(l 6 7 07 3. 7 t0s. 7 432. 7 454. 7 57 2. 7 595. 7732, 77 65. 77 6A. 7 824. 7 97A. 8111, 8223, 8586. 8s90. 9333. 9340, 9381. 9468. 9s63, 9584, 9623, 9726.9737. 10058, 10099. 11208. 11223. 11239. 11263. 11889. 11991. 12014. 12035. 12040. 12 69, 12108, 12t44, 12186. 12194. L2200. L2209, L22L5, t2217. L2243. t2260. 12262. t22aa. 12342. L2350. L24L7, L2432, 12472, L249A. 12506, L2574. 1259a. 12621-, t2702. L2735. t274(J. 12445. L2A50. 12865. 12866. 13013. 13618. 13730. 13749. 13779. 137Aa. 13a39, 13855, 13878. 13912. L39r7. 13945, 14101, L4174, 14207. 14350, 14351, 14390, 14392, L4397, 14409. 14582 AND 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The 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 2\"d respondent passed the impugned order under Section 764(2) ot the Act, disqualifying them as directors. and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have been filed. THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY ) t I 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enabre them to function other than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents _ Union of India. 6. Learned counsel for the petitioners, contend that before passing the impugned order, notices have not been issued, giving them opportunity, and this amounts to violation of principles of natural justice, and on this ground alone, the impugned orders are liable to be set aside. 7. Learned counsel submits that empowers the authority to disqualify a pers has not filed financial statements or annual Section 16a(2)(a) of the Act on to be a director, provided he returns of the company to which he is director' for any continuous period of three financiar years. Learned counser further submits that this provision came into Force with effect from 1.4.2OI4, and prior thereto i.e., under Section 27ae)@) of the Companies Act, 1956 (1 of 1956), which is the analogous provrsion, there was no such requirement for the drrectors of the private companies. They contend that this provision under Act 1g 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 disquarify them. But in the present cases, the 2nd respondent, taking the period prior to 1.4.2014,i.e., giving the provision retrospective effect, disquarified the petitioners as directors, which is illega I and arbitrary. 8. 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 eualification of Directors), Rules, 2Ot4 (for l 9. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.12.20!7 viz,, Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 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 Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoration. They submit that since the penal provision is given retrospecuve operation, de hors the above scheme, they are entitled to lnvoke the jurlsdiction of this court under Article 226 of the constitution of I nd ia. lO.Withtheabovecontentions,learnedcounselsoughttosetaside the impugned orders and to allow the writ petitions. 11'ontheotherhandlearnedAssistantSolicitorGeneralsubmitsthat failure to file financial statements or annual returns for any continuous period 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 mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. 4 of three financial years, automatically entail their disqualification under Section 164(2)(a) of the Act and the statute does not provide 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 naturaljustice, 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 entertained. 72. 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 Tribu nal (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal within 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 is not justified in 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 of the company in the reg ister of com panies; 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 inadvertenfly or on basis of incorrect information furnished by the company or its directors, which requires restoration in the regaster 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 com pany. (?) 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 oi 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 ancorporation. (3) If a company, or any member or creditor or worker thereof feels aggrieved 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 woTkman before the expiry of twenty years from the publication in the Official Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrytng on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register of companies, and the Tribunal may, by the order, give such other dlrectroni and make such provisions as deemed just for placing the company and all other persons jn 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. 5 I 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 redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disq u a lification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved 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 contlnuous 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 sald company fails to do so' The said provision under the Act 18 of 2O13, came into force with effect from Ol.O4.2OT4,andthepetitionersaredisqualifiedasdirectorsunderthesaid provision.Atthisstage,theissuethatarisesforconsiderationis-Whether the d isq ua lification envisaged under Section 16a(2)(a) of the Act' which provision came into force with effect from 01'04'2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year' the default envisagedunderSectionl6a(2)(a)oftheAct,hastobecaIculated,tohold the director of the company liable? In this regard, the learned counsel broughttothenoticeofthisCourt,theGeneralCircularNo08/14dated 4,4,2o14issuedbytheMinistryofcorporationaffairs,whlchclarifiesthe applicability of the retevant 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 6ooks of account, preparation, adoption and filing of financial stitements (and documents required to be attached thereto)' Auditors reports and i;;';;;;-\"i Directors report (Board's report) have been brouqht into force with 6 effect from 1sr April, 2014. provisions of Schedule II (useful lives to compute depreciation) and schedure III (format of financiar .i.tir\"\"trl have arso been brought into force from that date. The relevant nrf\", p\".tii\"rg to these provisions have also been notified, praced on the website ortn\"'rvin\"iry \"\"d have come into force from the same date. The Ministry has received requests for clarification with regard to the relevant financial years with effect from which ,ucn proui.ion. oi tnJ=n\"* Act retatjng to maintenance of books of account, pr\"pa.ution, uOopttn a-nO filing of finariciil statements (and attachments thereto), auditors'repori anO -goarOt report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements'1\"n0 Jlcurnents required to be attached thereto), auditors reDort_ and- aoarO,s ,epJit in -.esp-ect of financial years that commenced earlier than lsr April shall \"U\" gou\"i,iJ by the relevant provisions/schedures/rures of the companies ect, r9\"so .nJ- tirut an respect of financiat years commencrng on or after i\" epiir, ztii+, iiJ p-roiir,on, of the new Act shall apply. \" A reading of the above circurar makes it crear the financiar statements and the documents required to be attached thereto, auditors report and Board,s report in respect of financiar years that commenced earrier than 07.04.2014, shall be governed by the provisions under the companies Act, 1956 and in respect of financial years commencing on or after O.,O4,2Ol4, the provisions of the new Act shall apply. 74. At this stage it is required to be noticed that the analogous provision to Section r6a(2)(a) of the Act 18 of 2013, is Section 274(t)(g) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section_27441) 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 faled the annual accounts and annual returns for any continuous three frnancial years commencing on and after the first day of Aprit, 1999; or (B) Provided that such person shall not -be elrgible to be appornted as a director of any other public cgmparly for a period of five iears fr\", i;;;;i;;, which such public company, in which he is a director, failed to file unnuul \"aiount, and annual returns under sub-clause (A) or has faired to repay it, auGit, oi int\"r\"rt o,. redeem its debentures on due date or pay dividend r\"\"r\"ir\"J t\" il J.\"r\" ftii. 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 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- filingofannualaccountsandannualreturnsbythedirectorsoftheprivate 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 hasbeenadirectorofa.company,,failstofilefinancialstatementsorannual returnsforanycontinuousperiodofthreefinancialyears,willnotbeeligible for appointment as a director of a company As already noted above' the said provision, came into force with effect from Ol'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)-|, NEW DELHI v' VATIKA TOWNSHIP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectiv ity ' The relevant portion of the judgment is thus: . A legislation, be it a statutory Act or a statutory Rule or a statutory .ution,-inuv pfiysically consists of words printed on papers However' 27 Notifi '(2015)tsccl E conceptually it is a great deal more than an ordrnary prose. There is a special peculiarity in the mode of verbar communicatron oy a regisLation. A regisration is not ]:s-t ? s_erles of s-tatements, such as one finds in a wort -oi fiition/non fiction or even rn a Juogment ot a court of law. There is a technique required to draft a fegistafion as well as to understand a legislatio.n. Former technique is known ., f\"giifiiiul drafting and latter one is to be found ln ttre varioui priniipfes of,Interpretation of Statutes'. Vis-a-vis ordinary prose, a legislation differs in'its provenance, lay-out and features as also in the implication as [o its meaninglnat arises by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one estabtished rute is that unless a contiary intenti6n appeais, i legislation ii p.eiumeJ not to be intended to have a retrospective operation. ,ie ioia oetrino t'rre iuie-is that a current law should govern current activities, Law passeO today cannot apply to the events of the past. If we do something toOuV, ;u i;it keeping in the taw of today and in force and not tomorrow,s backwird aajusiment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entiUed to :::::?\"^l=-:jl:,Is by rerying on the existing law and shoutd not find rhat his ptans nave ?ee1 retrospectively upset. This principle of law js known as tex prospiclt non respicit : Iaw looks forward not backward. ns *as oOierveO in philtips G. ur;; [(1870) LR 6 QB 1], a retrospective legistatron,..ontrury to the general principle that.legistation by which the conduct of hankino \"io o\" rlq;rut\"O when introduced for the first time to deal with future acts ought \"ot L Jr\"'g\" the character of past transactrons carried on upon the faith oF the tn\"n \"ri.t,nq L;. 29. The obvjous basis of the principle against retrospectivrty is the principle of 'fairness', which must be the basis oi \"uery r\"9ui-ru-rJlu-i'*u, observed in the decision reported in L,Office Cherifien ae. irnoipnut\"= 1i. yamashita-shinnihon Steamshrp Co. Ltd. [{1994) 1Ac 486], fnus, regisLtions;hich modified accrued nghts or which impose oblrqations o|- impose n\"r.iO-*,\"a o.'\"nach a new disabllity have. to be treated as prospective unless the f\"gisfut*\" in[\"ni ts ctearly to give the enactment a retrospective effect;.unless the le;islatio; ir-fo. prrpor\" of supplying an obvjous omission in a forme-r legislation or- io \"ipf\"in \"-ftrmer tegislation. We need not note that cornucooia of case law avaifaOfe oi tne irUlect Oecur.\" aforesaid legal positron clearty emerges from the various J\"iiiion, unJtni, legal position was conceded by the counsel for the parties. r\" inv -.\"1\", *\" sharr refer to few judgments contarning this drcta, a little later. 30. We would also like to oornt out, for the sake of completeness, that where a benefit is conferred bv a leoistation, the rule agarnsi u .\"tro'rp\"atiu\" construction is difrerent. If a resisrafion .onr.r. i i\"n\"rii\";\";;#'p\"r#;1ut without infrictins a corresponding detriment on some other person or on [n\" prOfi. generally, and where !o !onfe.r. such benefit appears to.hjve been tl\" i\"ilrrLrs object, then the presumption would be that such a legislatio_n, givrng ii;;urposive construction, wourd warrant it to be given a retrospeitive enectl ftr'is \"ri.[ry i. the justification to treat procedurar provisions as retrospective. l\" c\"\"\"rrr*l of India & ors. v. Indian Tobacco Association, t(2005) 7 SCC :S01, ti,u Oi.irin-\"'or fui.r\"., was hetd to be relevant factor to construe a statute conferring \" O\"r\"iii, ,.in\" context of it to be given a retrospective operation. The same ao.irr\" oi'r.irn\"ss, to hold that a statute was retrospective in nature, was applieJ in ine iuri of Vijay v. State of Maharashtra & ors., [(2006) 6 scc 289]. 'r[ *ur h\"lJinJ\"*h\"ru , tu* is enacted for the benefit of commun,i, as a whole, even in the absence of a provision the statute may be hetd to be retrospective in nature. - i;;;;\",, we are (sic not) confronted with any such situation here. 31.. In such cases, retrospectivlty is attached to benefit the persons in con trad istinction to the provision imposing ,or\" OrrO\"n--ol. liability where the presumption attached towards prospectivity. in tne instant case, tne proviso added to Section 113 of the Act is not beneficial io tt\" uir\"r.\"\". '6n tne contrary, it is a provision which is onerous to the assessee. Therefore, in a iase Iike this, we have to proceed with the normal rule of presumption uguinrt l\";rospectrve operatron. Thus, the.rure against retrospective operation is a r,inoameritar rure of raw that no statute shall be construed to have a l-\"trosp\"at,u\"- oi\"ra'tion unless such a constructron appears very crearly in the terms or in\" n.t, oiirl\", ny necessary and distrnct rmplication. Dogmatrcally framed, the r\"l\"-i, \"Z i,o\"r\"'tnun a presump|on, and thus courd be disDlaced by oJt , etgnrng facto,s. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pate of doubt viz., tne JnieJanOi\"g \"i tgof itself regarding this provision lt is contained in C_BDT bircurar ru\"ti lizotz a\"ted 27.8.2002, with the subject \"Finance Act, 2OO2 - Explanatory f,roi\"i on-p.*iltn retating to Direct Taxes\". This circular has been is-sued arter. the-passini oiir,.'i,r\"n.\" Act,2oO2, by which amendment to section 113 was made. I; this ii;cuLa;, various amendments to the Income tax Act are discussed umpfy Oemonsllt,\"S \"; i\" which amendments are clarificatory/retrospective in operation and wnicn aminOments are prospective. For example, Explanation to section 158-BB is stated to be clarificatory in nature. Lrkewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1't day of luly, 1995. When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i.e., will take effect from 1.6.2002.\" 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 01-04-2014 to 31.03.2015 and the second and thlrd 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 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further. the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.0B/2014 dated 4.4.2014 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2\"d respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 18 of 2013, by considering the period prior to 0t.04.2074, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. t l0 II proviso to Section 96(1) of the Act, annual general meeting for the year ending 31.03.2Ot7, can be held within six months from the closing of financial year i.e., by 30.09.2017, Further, the time limit for filing annual returns under Section 92(4) of the Act, is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been held 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 filing the annual returns would be 30.t1-2017, 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.O7.2O78. In other words, the disqualification could get triggered only on or after 27.07.2018. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to 07.04.2074. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for d isq ua lification prior 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 \"/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 aside. 20. A learned Single Judge of the High Court of Karnataka in YASHODHARA SHROFF vs, UNION OF INDIA2 constdering 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 retrospective operation. The observations of the learned Judge, pertaining to 2 w.P.No.529l1 0f 2017 and batch dated 12.06.2019 private companies, which are relevant for the present purpose, are extracted as u nder: 208. In view of the aforesaid discussion, I have arrived at the followinq conclusions: (a) It is held that section 16a(2)(a) of the Act ts not ultra vrrus Article 14 of the constitution. The said provision is not manifestly arbitrary and also does not fa within the scope ofthe doctrine of proportionarity. Neither does the said Drovision violate Article 19(1)(g) of the constitution as it is made in the interest oi generar public and a reasonable restriction on the exercise of the said riqht, The-object and purpose of the said provision is to stipulate the consequence of a disqualification on account of the circumstances stated therein and the same is in order to achieve probity, accountability, and transparency in corporate governance. (b) That Article fslc,) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-d isq ua lification 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) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the same. (d) . . . (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Sec|on 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disquarification could not have been imposed on dlrectors of private compan es by taking into conslderation any period prior to 01.04.2014 for the purpose of reclioning continuous period of three financial years under the said provlsion. The said conclusion is based on the principal drawn by way of analogy from Article 20(1) of the Constitution, as at no point of time prior to the enforcement of the Act, a disqualification based on the circumstances under Section L64(2) of the Act was ever envisaged under the 1956 Act vis-e-vis directors of private companies. Such a disquallfication could visit a director of only a public company under Section 274(L)(9) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies ls hence q u as hed. (0 (9) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from 01,04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNIoN oF INDIA3 expressed similar view as that of the leaned single ludge of High Court of Karnataka (1 supra), and held that Section 164(2) 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 I lspecial Ciril Applicarion No.22,135 ol lillT and trarch daled lR.t2.l0l8 ll tII annual returns for any continuous period of three financial years would be counted from the financial year 2Ol4_lS only and not the defa ult to be 2073-74. 22, A learned single Judge of the High Court oF Madras in BHAGAVAN DAS DHANANJAyA DAS vs. UNION OF INDfA4 also expressed similar view. The relevant portion is as under: 29. In fine, (a) When the New Act, 2013 came into effect from 1.4.2014, the second respond\"n,_111\"1 ?. -.hu., *r\"\"i-rY\"grv\"\" retrospective effect and erroneousty . disqualified tf,\" -pJtitionlr. - directors from 1.1.2016 itsetf befo_re if.,r\" a\"iotrJ .JrrJ\"i=\"o wrongty fixing the firsr financiat year from 7.4.2073,; ;;.:,.i;i;. (b) By virtue of the n:w_.S?gtion 16a(2)(a) of the zO13 Act using the expression 'for any continuous p\"*jj-6iinr\"\" rrnanctal year,, and in the tjsht of section z1+r1 asl;fiie:,;i;n:;;;\"\".- as wel as their own Generar circurar lo.0'8l1+ o\"i\"o +lj.iiirv+, tne rirst fjnanciar year woutd be from .1.1.^2!1_4 to Sr.:.iOrl,-the second financiat year woutd be from 1.a-.10-1.s b :il.ZoiAi\"o the third financial year would be from 7.4.2016 t\" ii.:lzirz,,*hereas the second respondent ctea rtv,ad-m jtted i. p*. ii-rl i ,z or the counter affidavjt that the defautt ^of_fiting *,rioi i\",u.ns for the rinal years commences from 2073_14 tnr\"_r.,_^l yea r be ro re tn \" n.i i oii' :; ;\"J ;i:- ;: :.\"1 \"o rrnll r,i u, n ;\" ;ii,l [:::XoJ;r]*'' inrirmitv ,r,u, -,i,,ui\".\" iie entire impusned z), referred to In view of the above facts and cjrcumstances and the judgments supra/ as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) have been passed considering the period prior to 01.04.2014, of the Act, 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 noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: W.P.No.25455 of20l7 a,rd barch dated 27.07.2018 12 .l (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so, 25. Thus, from the above, it is clear that Section 164(2)(a) of the Act is a deeming provision and the d isqua lification envisaged under the said provision comes into force automatically by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disqualification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 164(2)(a) of the Act. IJ A reading of the above provision makes it clear that it provides disqualification on happening of an event i.e., if a person who is or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of thlt company or appointed in any other company for a period of five years from the date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge ofthe High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 16a(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualificatlon nor post-d isq u a lification and this is not in violation of the principles of natural justice and hence, is not ultra vlres Article 14 of the Constitution. I concur with the said reasoning. l.+ (a) 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 164(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 16a(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 by the Regional Director may, upon being satisfied on verification of particulars or documentary 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 merged with the validly retained number; the DIN was obtained in a wrongful manner or by fraudulent means; of the death of the concerned lndividual; the concerned individual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard shall be given to the concerned individual; on an application made in Form DIR-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 GoveTnment may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanation: for the purposes of clause (b) - The terms \"wrongful manner\" means if the DIN is obtained on 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 m isrep rese ntation ; (ii) the term \"fraudulent means\" means if the DIN is obtained with an intent to deceive any other person or any authority including the Central Govern ment. (e) (f) (i) (b) (c) (d) 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled or deactivated. The said grounds, are different from the ground envisaged under 15 Section 16a(2)(a) of the Act. Therefore, for the alleged violation under Section 164 of the Act, DINs cannot be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujarat High Court in the decision cited 2 supra, held as under: \"29. This takes the Court to the next question as to whether the respondents could have deactivated the DINs of the petitioner as a consequence of the impugned llst? In this regard, it would be appropriate to refer to the relevant provisions contained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director Identification Number under Section 154. Section 153 requires every individual intending to be appointed as Director of a Company to make an application for allotment of DIN to the Central Government in such form and manner as may be prescribed, Section 154 states that the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an applicant in such manner as may be prescribed. Sectaon 155 prohibits any individual, who has already been allotted a DIN under Section 154 from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedure for making application for allotment and for the allotment of DIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted to any other person. 30, Rule 11 provides for cancellation or surrender or deactivation of DIN Accordingly, the Central Government or Regional Director or any authorized officer of Reqional Director may, on being satisfied on verification of particulars of documentary proof attached with an application from any person, cancel or deactivate the DIN on any of the grounds mentioned in CIause (a) to (f) thereof. The said Rule 11 does not contemplate any suo motu powers either with the Central Government or with the authorized officer or Regional Director to cancel or deactivate the DIN allotted to the Director, nor any of the clauses mentioned in the said Rules contemplates cancellation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Section 164 of the said Act. The reason appears to be that once an individual, who is intending to be the Director of a particular company is allotted DIN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he could become Director in other companies also. Hence, if one of the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifically provides for the circumstances under which the DIN could be cancelled or deactivated. 31. In that view of the matter, the Court is of the opinion that the action of the respondents in deactivating the DINs of the petitioners - Directors along with the publication of the impugned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of coursef as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change in his particulars stated in Form DIR -3 has to intimate such change to the Central Government within the prescribed time in Form DIR-6, however, if that is not done, the DIN could not be cancelled or deactivated. The cancellation or deactivation of the DIN could be resorted to by the concerned respondents only as per the provisions contained in the said Rules.\" 30. 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. l6 31. For the foregoing Teasons, the impugned orders in the writ petitions to the extent of disqualifying the petitloners under Section 16a(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 164(2) of the Act, giving the said provision prospective effect from 01.04.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules. 33. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 252 of the Act. 34. All the wrlt petitions are accordingly allowed to the extent indlcated 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 "