Mr.Nukala Sreenivasa Rao V. Union of India

WP/31946/2021

AI Insights

The case revolves around the petitioner, Mr. Nukala Sreenivasa Rao, who challenged the deactivation of his DIN and his disqualification as a director for failing to file annual returns and financial statements for three consecutive years. The action was taken by the Registrar of Companies under Section 164(2)(a) of the Companies Act, 2013, which was deemed to have retrospective effect. The petitioner argued that this application was arbitrary, illegal, and violated principles of natural justice, as well as his rights under Articles 14 and 19(1)(g) of the Constitution of India. The court examined the legislative intent and the applicable rules, ultimately deciding that the law should be applied prospectively and not retrospectively, leading to the restoration of the petitioner's DIN and setting aside his disqualification.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721627 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 03-12-2021
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax (Central)-1 New Delhi v. Vatika Township Private Limited, Yashodara 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: B JITHENDER
• Assessee Lawyers: G SUMATHI
• Keywords: DIN Deactivation; Disqualification of Directors; Natural Justice; Retrospective Legislation; Writ of Mandamus
• Section: 151; 226; 252; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original Jurisdiction) FRIDAY, THE THIRD DAY OF DECEIVIBER TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE B. VIJAYSEN REDDY WRIT PETITION NO: 31946 OF 202'l Between: Mr.Nukala Sreenivasa Rao, S/o. Sambasiva Rao, Aged About 54 Years, Occ. Business, R/o H No. 1-10-197, Suryakamalam Brahmanwadi, Begumpet, Hyderabad, Telangana, lndia-500016. ...PETITIONER AND 1. Union of lndia, The Ministry of Corporate Affairs Represented by its Secretary A Wing, Shastri Bhawan, Rajendra Prasad Road, New Delhi - 110 011, 2. The Registrar of Companies, Telangana State, 2nd Floor, Corporate Bhawan, GSI Post, Tattianaram, Nagole, Bandlaguda, Hyderabad - 500 068 ,..RESPONDENTS Petition under Article 226 of the Constitution 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 Mandamus declaring the action of respondents in deactivating the DIN Number 00710658 of the Petitioner for the disqualificalion period lrom 111112017 to 3011012022 and restricting the petitioners from filing statutory returns, i.e., the annual returns of the Petitioners company and the Petitioner also unable join the existing companies board as well as the petitioner is unable to incorporate New Company/LLP as arbitrary, illegal, without jurisdiction, contrary of the provisions of the Companies Act, 20 13 and Rule 1 1 of the Companies(Appointment of Directors) Rules, 2014, violative of the principle of natural justice besides violating the petitioners rights guaranteed under Article 14 and Article 19 (1) (g) of the Constitution of lndia. IAN 10F 202'l 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 pleased to direct the respondents to restore the DIN number of the petitioner 007106sg for the d isq ua lification period lrom 111112017 to soliot2o22. so as to enable the petitioner to continue as Director of the company andlor get appoint or reappointed as Director of any company, Wherein the petitioner can become Director during the pending disposal of the Writ petition and enable the petitioner DIN to incorporate New Company/LLp. Counsel for the Petitioner: SRl. G. SUMATHI Counsel for the Respondents: SRI B. JITHENDER FOR SRI NAMAVARAPU RAJESHWARA RAO, ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER ;:\" 7 I ORDER THE H( N,BLE SRI JUSTICE B. VIJAYSEN REDDY IIRIT PETITION No.31946 of 2O2l This wri petition is fi1ed seeking the following relief: \" to pa ts an order or direction or any other proceeding one in the nz ture of Wrlt of Mandamus declaring the action of responden s in deactivating the DIN Number 0o7 10658 of the pititione; for the disqualification period from 1 | 1 '2017 to iO. tO.2O: 2 and restricting the petitioners from filing statutory retr trns i.e., the annual returns of the Petitic'ner's \"o-pt.y .., the Petitioner is unable to join the existing \"o*pu.ri.\" b rard as well as the petitioner. - -is unable to incoiporate I ew Company/LLP as arbitrary, illegal, without jurisdiction, ( ontrary of the provisions of the Companies Act, \"20 13 and f ule I 1 of the Companies (Appointment of Directors) Ru les, 2014, violative of the principle of natural justice besid, s violating the petitioner's rights guaratlteed Lnder Article 14 and Article 19(1)(9) of the Constitution ol India and pa;s such other order or orders as this Hon'ble Court may de :m fit and proper in the interest of justice'\" 2. Heard 1ea; ned counsel for the petitioner and Sri B'Jithender, learned counse appearing on behalf of the learned Assistant solicitor Genera of India for respondents submits that in similar circumstances, this Court allowed WP'No' 1 1434 of 2O2l and Batchvidecomlronorderdated05.08.202landthiswritpetition may be disposed of in terms of said order' 3. In view ol the same, for the reasons alike in the common order,dated 0508.2021 passed in WP'No 11434 of 2O2l and Batch, this Wrir Petition is also allowed in terms of said order' As a sequel, the pending miscellaneous applications' if anv' shall stand closed. To. '\"'1. Th. Secretary, Mini try of Corporate Affairs' Union of lndia A Wing' Shastri ' Aii;;;;;-C;i6i or.i t rdsad Road, New Delhi - 1'10 011' z. Tii\" n,jijiii*i oi Co niiiL.,-felansana state', 2nd Floor' cglpgl+e Bhawan' GSI Post, Tattianari il ftrug;r\"' Binidlagudn Hyderabad - 500 068 3. One CC to Sri G. S rmathi, Advocate t-o-.!,.l]9.l, +. One CC to Sri B. Ji hender' Advocate toP-uul . 5. one cc to sri uan liai:a-pr'nai\"Jr,*aiu Rao, Assistant solicitor General loPUcl (Alongwithacopy rf orderinW'P'No 11434 of 2021'dated05'082021 ) 6. Two CD CoPies 7. One SPare CoPY 9IRnrtru //TRUE COPY// SD/.R.KARTHIKEYAN ASSISTANT BEGISTRAR SECTI:]I;OFFICER I U HIGH COURT DATED:03112'2021 ORDER W.P.No.31946 of 2021 ALLOWING T}IE WRIT PETITION WITHOUT COI iTS -i t{E SfA r6- / ,i' a c 2 0 t}EC202! - . Z o) %'* HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI W.P.Nos. ll434 t 194t. 12240. r 3780. t4963 14992. 15139. 15856 I 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 45S 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 flle financial statements or annual returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section L6aQ) of the Act, disqualifying them asdirectors, 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 I & 16161 of202l 2 t deactivatec Aggrieved by the same, the present writ petitions have been filed. 4. This court granted interim orders in the writ petitions directing th: 2nd respondent to activate DINS of the petitioners, to enable then to functionother than in strike off companies 5. Heard the learned counsel appearing for the petitioners in all the lrit petitions, Sri Namavarapu Rajeswara Rao, learned Assistant So icitor General 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 oppor unity, and this amounts to violation of principles of natural justi e, and on this ground alone, the impugned orders are liable to be s:t aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empower s the authority to disqualify a person to be a director, provided he I as not filed financial statements or annual returns of the company to vhich he is director, for any contlnuous period of three financial year s. Learned counsel further submits that this provision came into fc'ce with effect from 1.4.2014, and prior thereto i'e ' under Sectior 27aQ)G) of the Companies Act, 1956 (1 of 1956)' which is the, nalogous provision, there was no such requirement for the directors of the private companies' They contend that this provision und:r Act 18 of 2013, will have prospective operation and hence, if tl'-' directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said date, the autl crity under the Act, is within its jurisdiction to disqualify them. But in l le present cases, the 2nd respondent, taking the period 3 prior to 7.4.2oI4, i.e., giving the provision retrospective effect' disqualified the petitioners as directors, whichis illegal 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 Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for llfe time to the applicants under Rule 10(6) of the said Rules, and cancellationoftheDlNcanbemadeonlyforthegroundsmentioned 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 appealis 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' g. Learned counsel further submits that 1't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme dated 29.L2.2017 viz', Condonation of Delay Scheme - 2078, wherein the directors, whose DINs have been deactivated by the 2nd 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 2a8(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 onlythe companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot 1 \"} approach the Tribunal for restoration. They submit that since the penal provisio r is given retrospective operation, de hors the above scheme, they rre 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 ir rpugned orders and to allow the writ petitions. 11. ()n the other hand learned Assistant Solicitor General submits thatfa lure to file financial statements or annual returns for any continuou: period of three financial years, automatically entail their disqualifi( ation under Section 164(2)(a) of the Act and the statute does r ot provide for issuance of any notice. Hence, the petitioners, whr have failed to comply with thestatutory requirement under Section 764 of the Act, cannot complain of violation of principles of n;:ural justice, as it is a deeming provision. Learned counsel further ;ubmits that the petitioners have alternative remedy ofappeal under lection 252 of the Act, and hence writ petitions may not be entertain )d. 12. -o consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of tl eAct, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tril unal: (1) Registrar, 248, may three years the Tribuna the compal view oF the was passea name of th( Any person aggrieved bY an order of the otifying a company as dissolved under Section le an appeal to the Tribunal within a period of from the date of the order of the Registrar and if is of the opinion that the removal of the name of / from the register of companiesis not justified in tbsence of any oF the grounds on which the arder by the Registrar, it may order restoration of the company in the register of companies; Pro ided that before passing an order under this section, tht Tribunal shall give a reasonable oppoftunity of making rep esentations and of being heard to the Registrar, 5 the company and all the persons concerned: provided further that if the Registrdr is satisfiedt that the name of the company has been struck off from the register of companies either inadverten y or on basis of incorrect inFormation furnished by the company or its directors, which requires restoration in the reqister 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 bv the Tribunal shall be filed by the companywith the Regstrar within thirty days from the date of the order and on receipt ot the order, t'he Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certi fi ca te of i n co r po ra ti o n. G) If a companL 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, creditoror workman before the expiry of twenty years from the publication in the Official Gaze e of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business ar in operation or otherwiie it is just ihat tie iame of the company be restored to the regi,ter of companies, order the 1ame of the company to be re,tored to tne i-egiste'r of companies, and the fribunal may, by the order, givj such other directions and make such provisions as deimed just for placing the company and a other persons in the sime position as nearly as may be as if the name of the company has not been struck off from the register of companies. 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 d isq ua lification of.the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their d isq ua lification as directors and deactivation of 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. 6 13. Under Section 164(2)(a) of the Act, if the Director of a company fi ils to file financial statements or annual returns for any continuous periodof three financial years, he shall not be eligible to be re-appo rted as a director of that company or appointed in other company fc' a period of five years from the date on which the said company fa ls to do so. The said provision under the Act 18 of 2013, came into f rrce with eFfect from 01.04.2014, and the petitioners are disqualified rs directors under the said provision. At this stage, the issue that i rises for consideration is - whether the d isq ua lification envisaged u rder Section 16a(2)(a) of the Act, which provision came into force w:h effect from 01.04.20L4, can be made applicable with prospective r ffect, or has to be given retrospective operation?ln other words, the ;sue would be, from which financial year, the default envisaged ur ler Section 164(2)(a) of the Act, has to be calculated, to hold the dire:tor of the company liable? In this regard, the learned counsel brou 7ht to the notice of this Court, the General Circular No.0B/14 da ed 4,4.2014 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant I ortion of the said circular is as under: \"A. number of provisions of the Companies AcL 2A13 inctud 19 those relating to maintenance of books of account, prepa alion, adoption and filinq of financial statements (and docun ents required to be attached thereto), Auditors reports and tt e Board of Directors report (Board's report) have been 'rought into force with effect 'rom 1st April, 2014. Provisions of schedule II (useful iives I > compute depreciation) and Schedute III (format of financ tl statements) have alsa been brought into force from that d,te. The relevant Rules pertaining to these provisions have . so been notified, placed on the website of the Ministry and ha le come into force from the same date' The Ministry has received requests for clarification with regaro to the relevant financial Years with effect from which- sich 1'ovisions of the new Act relating to matntenance of books tf account, preparation, adoption and filing of financial staten ,nts (and attachments thereto), auditors report and Board' report will be aPPlrcable Atth )ugh the position in this behalf is quite clear, to make. things tbaolutety clear it is hereby notified that the financial. stat6m :nts (and documents required to be attached- theretc l, auaibrs report and Board's report in respect of l C financial yearsthat commenced earlier than 1st April shatt be governed by the relevant provisions/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 0L04.2Ot4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01,O4.2014, the provisions of the new Act shall apply. L4. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 2ZC(t)(e) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(71 A person shall not be capable of being appointed director of acompany, if - (q) 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 thefirst day of April, 1999; or (B) Provided that such person shall not be elioible to be appotnted as a director of any other public c6mpany 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 under sub-clause (A) or has failed to repay its deposits or interest or redeem its debentures on due date or pay dividend referred to in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 3 and after tl 3 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 fr rm thedate on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory rec Jirement of filing annual accounts and annual returns, is placed on th I directors of a'public company'. There is no provision under the A:t 1 of 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 disqt alify them as directors under the provisions of Act 1of 1956. 15. Under Section t64(2) of the new legislation i.e., Act 18 of 2073, no such distinction between a 'private company' or a 'public comp rny' is made and as per the said provision goes to show that nc person who is orhas been a director of a 'company', fails to file fir rncial statements or annual returns for any continuous period of thre ) financial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into forc: with effect from 01,04.2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified th ) petitioners under Section 16a(2)(a) of the Act 18 of 2013, for not 'iling financial statements or annual returns, for period prior to 01.04,2014. The action of the 2nd respondent runs contrary to the circular iss led by the Ministry of the Corporate Affairs, and he has given the pro'isions of Act 18 of2013, retrospective effect, which is impermissible. 9 ( 77. The Apex Court in COMMISSIONER OF INCOME TAx (CENTRAL)-L NEw DELHI v. VATIKA TOWNSHI? 2RIVATE LIMITEDL has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. 28. However, conceptually it is a qreat deal more than an ordinary prose. There is a specral pecutiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statemenis, such as one finds tn a work of fiction/non fiction or even tn a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation, Former technique is known as legislative drafting and latter one is to be found in the various principles of 'lnterpretation of Statutes,. Vis-b_vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implicaiion as to its meaning that arises by presumptions as to the intent oF the maker thereof. 29. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, d legislation is presumednot to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot appti to the events of the past. If we do something today, we do it keeping in the law of today and ii force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is enti ed to arrange his affairs by relying on the existing taw and shoutd not find that his planZ have been retrospectively upset. This principte of iaw is known as lex prospicit non respicit: law looks fotward not backward. As was observed in philtips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is co.n.tr3ry to the general principle that legislation by which the conduct of mankind is to be regrlarcd when introduced. for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 30.The obvious basis of the principle against retrospectivity is the principte of,fairness,, which must be the baes of every legal rute as was observed ii the deasion repofted in L'Office Cherifien des Phosphates v. yamashita-shinnihon Steamship Co. itd. [{1994) 1 Ac 486]. Thus, tegistations wnich moaitiia accrued. rights or which impose obligations or impose new duties or attach a new disabitity have to Oe treaiii a-s prospecttve unless the legislatrye intent is ctearly to gtve .the eoactment a retrospective effect; unless the Iegtsla.tion is for purpose of supplying an obvious ?mi.s?ion tn a former legistation or to exptain a former legislation. We need not note that cornucopia of case t:y,-?::it:brc,on the subject O\"ruur\" iiiruuia lJiit posttton ctearty emerges from the various decisions ind tnts tegal position was conceded by the counset for the t 1zotslt scct l0 pa,:!e1. In any case, we shall refer to few judgments cot t:aining this dicta, a lit e later. '1. We would also tike to point out, for the sak I of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective con:truction is different. If a legislation confers a benefit on ome persons but without inflicting a corresponding ded ment on some other person or on the pubtlc gen'rally, and whereto confer such benefit appears to hav been the legislators object, then the presumption wou d be that such a legislation, giving it a purposive con: lructiont would warrant it to be given a retn spective effect. This exac y is the justification to trea procedural provisions as retrospective. ln Gov rnment of India & Ors. v. Indian Tobacco Assc:iation, [(2005) 7 SCC 396], the doctrine of fairn ,ss was held to be relevant factor to construe a statL? conferring a benefit, in the context of it to be givet a retrospective operation. The same doctrine of fairn, ss, to hold that a saatute was retrospective in natut t, was applied in the case of Vijay v. State of Mah.'ashtra & Ors., [(2006) 6 SCC 289]. It was hetd that where a law is enacted for the benefit of comn unity as a whole, even in the absence of a provi. ion the statute may be held to be retrospective ln natur', However, we are (sic not) confronted with any such . ituation here, 32 In such cases, retrospectivity is attached to benef. the persons in contradistinction to the prowsion impos 19 some burden or liability where the presu tption attached towards prospectivity. In the instan case, the proviso added to Section 113 of the Act is tot beneficial to the assessee_ On the contrary, it is a )rovision which is onerous to the assessee. Therel tre, in a case like this, we have to proceed with the n(.mal rule of presumption against retrospective operat )n. Thus, the rule against retrospective operation is a fL ldamental rule of law that no statute sha be constn ed to have a retrospective operation unless such a cons.uction appears very clearly in the terms of the Act, o, arises by necessary and distinct implication. Dogma ically Framed, the rule is no more than a presufi )tion, and thus could be displaced by out weighir ? factors. 43. rhere is yet another very interesting piece of evidenc ? that clarifies that provision beyond any pale of doubt l'2., the understanding of CBDT itself regarding this prc /ision. It is contained in CBDT Circular No.8 of 2002 d ted 27.8.2002, with the subject \"Finance Act, 2002 - axplanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the 'inance Act, 2002, by which amendment to section 113 was made. In this circular, various amendn ents to the Income tax Act are discussed amply demons.ating as to which amendments are clarificat )ry/retrospective in operation and which amendn ,nts are prospective. ,o, uy11 tple, Explanation to section 158-BB is stated to be clarif,:atory in nature. Likewise, it is mentioned that amendrr ?nts in Section 145 whereby provisians of that sect on are made applicable to block assessments is made cL rificatory and would take effect retrospectively from 1' day of )uly, 1995. when it comes to amendm;nt to Section 113 of the Act, this very circular provides that the said amendment along with the amendm'nts in Section 158-BE, would be prospective i.e., will , zke effect from 1.6.2002.\" ll 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 topast 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, asalready noted above, the l.4inistry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.2OL4 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 0L.O4.20t4, shall be governed by Act 1 of 1956. At the cost of repetitionr since in the present cases, as the 2nd respondent / competent authority, has disqualified the petitioners as directors under Section L6aQ)Q) of the Act 18 of 2013, by considering the period prior to 01.04.2014, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. 19. If the said provision is given prospective effect, as per the circulardated 4.4.2014 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from OL-04-2014 to 31.03.2015 and the second and third years financial years would be for the years ending 31.03,2016 and 31.03.2017. The annual returns and financial statements are to be filed with Registrar of Companies only after the conclusion of the annual general meeting ( tt )2 of the comF any, and as per the first proviso to Section 96(1) of the Act, annual Teneral meeting for the year ending 31.03.2017, can be held within !ix 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 dat( on which annual general meeting ought to have been held with no mal fee, and within 27O days with additional fee as per theproviso t( Section 403 of the Act. Learned counsel submit that if the said dat:s are calculated, the last date for filing the annual returns wouk be 30.11.2017, and the balance sheet was to be filed on 30.)0.20L7 withnormal fee and with additional fee, the last date for filin, annual returns is 27.O7.2O1A. In other words, the disqualificatio I could get triggered only on or after 27.07,201g, But the period c( nsidered by the 2nd respondent in the present writ petitions for 'lothing the petitioners with disqualification, pertains prior to 01.0' .2014. Therefore, when the omisston, which is now pointed out, v as not envisaged as a ground for disqualification prior to 1.4.20L4, tl e petitioners cannot be disqualified on the said ground. This analogy ir traceable to Article 20(1) of the Constitution of India, which statesth rt \"/Vo person shall be convicted of any offence except for viotation ol a tawin force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which mi! ht have been inflicted under the law in force at the time of the co, tmission of the offence\". In view of the same, the ground on whi :h the petitioners were disqualified, cannot stand to legal scrutiny, i nd the same is liable to be set aside. 20. A learned Single Judge of the High Court of KATNAIAKA iN I'ASHODHARA SHROFF Vs. UNION OF I l3 INDIA2 considering Section 16a(2)(a) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that the said provislon has no retrospective operation. he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aForesaid discussion, I have arrived at the fol low i ng co n cl u s i o n s : (a) It is held that Section 16a(2)(a) of the Act is not ultra virus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of propottionality. Neither does the said provisionviolate Afticle 19(1)(g) of the Constitution as it is made in the interest of general public and a reasonable restriction on the exercise of the said right. 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 (sic) Section 164(2) ol the Act appties by operation of law on the basisof the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) ot the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the sdme. (d) (e) Insofar as the private companies are concerned, disqualification on account of the circumstances stated under Section 164(2)(a) of the Act has been brought into force for the first time under the Act and the consequences of disqualification could not have been imposed on directors of private companies by taking into consideration any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years under the said provision. 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 164(2) ot the Act was ever envisaged under the 1956 Act vis-A-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27 (1)(g) of 1956 Act and never a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed. o ( (g) Consequently, where the disqualiFication under Section 164(2) at 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 campanyt the directors of such a 2 w.P.No.52gtt of 20t7 and ba(ch daled It,06.20t9 11 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 n GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UIION OFINDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section 164(2) of the Act of 2073, which had come into force wlth effect from 1.4.2014 would have prospective, and not retrospective effect and that the defaults contemplated under Section 164(2)(a) wit 1 regard to non-filing of financial statements or annual returr s for any continuous period of three financial years would bethe default to be counted from the financial year 2014-15 only and not : 013-14. 22. A learned single Judge of the High Court of tVadras in BHAGAVAN I AS DHANANJAYA DAS vs, UN|ON OF INDIAa also expressed sirr lar view. The relevant portion is as under: 29. In ) ne, (a) When the New Act 2013 came into effect fror 1,4.2014, the second respondent herein has wro ryly given retrospective effect and erroneously dis; )alified the petitioner - directors from 1,1.2016 ttself bef( re the deadline commenced wrongly fixing the first fina cial year from 1.4.2013 to 31.3.2014 (b) By virtue of the new Section 164(2)(a) of the . 013 Act using the expression 'for any continuous t eriod of three financial Year\" and in the light of : ection 2(41) defining \"financial year\" as well as their t wn General circutar No,08/14 dated 4.4 2014, the i rst financial year would be from 1'4.2014 to .1.3.2015, the second financial year would be from .,4.2015 to 31.i.2016 and the third financial Year t,ould be from 1,4,2016 to 31.3,2017, whereas the : econd respondent clearly admitted in paras 15 and 22 t f the counter affidavit that the default of filing !:atutory returns for the finalYears commences from sspecial Civil Appli ation No.22435 of 20 I7 and batch dated 1 8. 12.20 I 8 o w.P.No,25455 of 01? and batch dated 2?.0?.2018 l5 ( 2013-14, 2014-15 and 20t5_16 i.e, one year before the Act 2013 came into force. inis is' ti\" -L;;;i incurable legat infirmity that vitiate, ini \"riri tmpugned proceedings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section t64(2)(a) of the Act, have been passed considering the period prior to 0t.o4.2014, the same cannot be sustained, and are riabre to be set aside to that extent. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference; 164. Disqualification for appointment of director: (2) No person who is or has been a director of a company which_ (a) has not filed financial statements or annual re,turns for any continuous period of three firinii\"t i&ri) or (b) Shall be eligible to be re_appointed as a director of th-at company or appointed n other companies for a i.riia of five years from the date on which tnr'rriiioipiii'r*E to do so, A reading of the above provision makes it clear that it provides disqua lification on happening of an event i.e., if a person who is or has beena director of a company has not fired financiar statements or annual returns for any continuous period of three financial years, shall be ineligible to be re_ appointed as a director of that company or appointed in any other company for a period of five years from the l6 date on wf jch the said company fails to doso. The provision does not provid( for issuance of any prior notice or hearing. A learned single Judg ) of the High Court of Karnataka in Yashodara Shroff v. Union of In 1ia (1 supra), as well as the learned single Judge of the High Court )f Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal S rah vs. Union of India (2 supra), after analyzing various provisions c'the Act and Rules framed thereunder, and by relying on various jud( ments of the Apex Court, held that Section 164(2)(a) of the Act appl es by operation of law on the basis of the circumstances stated ther€ n, the said provision does not envisage any hearing, neither pre.Cisqualification norpost-d isq ua lification and this is not in violation of :he principles of natural justice and hence, is not ultra vlres Article L4 of the Constitution. I concur with the said reasoning. 25, Thus, from the above, it is clear that Section 16a(2)(a) of the Act is a deeming provision and the disqualification envisaged under the sa d provision comes into force automatically by operation of law on de ault and Legislature did not provide for issuance of any prior notice, )ut the respondents notified disqualification even before it incurred, rnd deactivated DINs, which is illegal arbitrary and against proy sions contained in Section 16a(2)(a) of the Act. 26. The next grievance of the petitioners is with regard to deactlvationo'their DINS, The contention of the learned counsel for the petitioner; is that except for the grounds mentioned under Rule 11 (a) to (') of the Rules, the DINs cannot be cancelled or deactivated, i nd the violation mentioned under Section 16a(2)(a) of the Act, is no 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 t re Act, DIN cannot be cancelled. 17 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: C - 7r. Cancellation or surrendler or deactivation of DIN: The centrat .Government or Regionat oirector ( uiiniri'i'ioio, f iioia, o, '^:!,_:rn,'\"' auth-orized bv the Regionat oirectir iri,-,iio) ou,rs sattstted on venfrcatrcn of oanicutars o, aocrmentai, prJ[f-aitt\"cnea with the apprication received from any person, cancer ordeactivate the DIN in case - (a) the DIN is found to be duDticated in respect of the same person org.vped the data retated to iotn tne ori-{n\"i iL'iZigz;'.*in ,n\" va I idly retained number; (b) the DIN was obtained in a wrongful manner or by fraudulent means; I (c) (d) (e) ( ii) or deactivated. envisaged under . Provided that before cancellation or deactivation of DIN pursuant to ct a u s e ( b ), a n o p p o rt u n i ty o r b e i n g n \" \" i ii)i i' iJ'ii r'\"i' i't i { io n r\" r, \" a individual; O on an apptication made in Form DIR-S by the DIN holder to surrender his or her DIN along with aeaaraiiii initT'\"'ii, ,\"ru, been appointed as director ii\"ry ro^jiny uii'iiZ'rZii'ilu n\", never been used for filino of an.y document'*iii iri iriioiitv, tn\" Central Government ma,/ deactivate such DIN; provided that before deactivation of any DIN in such case, the Ce n tra I Gove rn me nt sh a t I veri Fy e - reco rd s. Explanation: for the purposes of clause (b) _ of the death of the concerned individual; the concerned individual has been deilarea as a person of unsoun.d- mind by a competent Court; if the concerned individual has been adjudicated an insolvent; (c) The terms \"wrongful manner,, means if the DIN is obtained on the strength of documents which are noitigriv-iiiii * incomptete documents are furnished o, on iip,i\"r'ioi or material information or on the basis of wrong ,\"iffiZrtiin'o, oy :?!::!- --y-i:!9'di's or ratse inroi.iiii--''ii\"' oy mtsrepresentation; the term \"fraudutent means,, means if the DIN is obtained with ?: iryeil b deceive any other person or any authority including the Central Government. 28. Clauses (a) to (f) of Rule 11, extracted above, provides for the circumstances under which the DIN can be cancelled The said grounds, are different from the ground I8 Section 16a( 2)(a) of the Act. Therefore, for the alleged violation under Secti( n 164 of the Act, DINs cannot be cancelled or deactivated, r xcept in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the cujarat High Court in the decision cited 2 supra, held as under: \"29 This takes the Court to the next question as to whether the re pondents could have deactivated the DINs of the petiticiner as a c nsequence of the impugnedlist7 ln this regard, it would be approt riate to refer to the relevant provisions contained in the Act anl the said Rules. Section 153(3) provides that na person shall le appointed as a Director of a company, unless he has been ,llotted the Director ldentification Number under Section 154. .:ection 15i requires every individual intending to be appoin ed as Director of a Company to make an application for allotmt nt of DIN to the central Government in such form and manne.as may be prescribed. Section 154 states that the Central Goverr Tent sha within one month from the receipt of the applica ion under Section 153 allot a DIN to an applrcant in sLtch manne as may be prescribed. Section 1SS prohibits any individt al, who has already been allotted a DIN under Section 154 fr(n applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rules of 2014 prescribe the procedLrre for mat ing application for allotment and for the allotment ofD;N, and fL'ther provide that the DIN a otted by the Central Govern lent under the said Rules would be vatid for the life ti,]r,e of the . )plicant and shall not be allotted toany other person. 30, Rule 11 provides for cancellation or surrender or deactiv, tion of DIN, Accordingly, the Central Government or Region. Director or any authorized officerof Regional Directar maL t n being satisfied on verification of particulars of docume ttary proof attached with an application from any persan, cancel ('deactivate the DIN on any of the grounds mentioned in ClaL;e (a) to (f) thereof. The said Rute 11 does not contemt late any suo motu powers either with the Central Govern|ent or with the authorized officer or Regional Director to cancel c' deactivate the DIN allotted to the Director, nor any of the clau es mentioned in the said Rules contemplates cancellaticn or deact vation of DIN oF the Director of the \"struck off company,, or of th' Director having become ineligible under Section 164of the said Act. The reason appears to be that once an individual, who is t ttending to be the Director of a particular company ,s allotted )lN by the Central Government, such DIN would be valid for the life time of the applicant and on the basis of such DIN he ( )uld become Director in other companies also. Hence, if oneof th 'companies in which he was Director, is \"struck off\", hts DIN cou 1 not be cancelled or deactivated as that would run counter to the provisions contained in the Rule 11, which specifica y provides for the circumstances under which the DIN couldbe , zncelled or deactivated. 31. In the actic petitione. list of Di also was said Rule event of to intima prescribe DIN coul( deactivat, that view of the matter, the Court is of the opinon that 1 of the respondents in deactivating the DINi af the i - Directors along with the publication of the impugned ectors of \"struck off\" companies under Section 248. not legally tenable. Of course, as per Rule 12 of thc, , the individual who has been allotted the DIN, in the ,ny change inhis particulars stated in Form DIR --l ha:; e such change to the Central Government within the 'time in Form DIR-6, however, if that is not done, the not be cancelled or deactivated, The cancellation or )n of the DIN could be resorted to by the concerned o l9 respondents only as per the provisions contained in the said Rules.\" 30. Learned Assistant Solicitor General appearing for respondents had contended that Section 403 (2) of the Act provides that \"where a company fails or commits any default to submit, file, register, or record any document, fact or information under sub- section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall without prejudice to the Iiability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default,, and he has further contended that as amendment has come into Section 403 with effect from 07-05-2018, the amended section has removed the prescribed 27O days' limitation within which the annual filings can be done excluding the time limit already provided under Sections 92,96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law. 31. This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.100/- per each day of default and which permits the regularizing the delay of the petitioners. Therefore, this Court is not inclined to accept the said contention of the learned Assistant Solicitor General for the respondents. 32. 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. t! tL 20 33, For the foregoing reasons, the impugned orders in the writpetitions to the extent of disqualifying the petitioners 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 petition :rs, enabling them to function as Directors other than in strike off coml anies. 34. It is made clear that this order will not preclude the 2nd responden from taking appropriate action in accordance with law for violations i s envisaged under Section 1.64(2) ot the Act, giving the said provision prospective effect from O1.O4.2014 and for necessary action against DIN in case of violations of Rule 11 of the Rules, 35. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off their companies un ler Section 248 ofthe Act, they are at liberty to avail alternative rer redy under Section 252 of the Act. 36. All the writ petitions are accordingly allowed to the extent indicat( d above. 5/. Miscellaneous petitions pending if any shall stand closed. JUSTICE ABHINAND KUMAR SHAVILI Dt.05-08-202 kvr "