Sri Vydyanath Gujje V. Union Of India

WP/6927/2021

AI Insights

The case involves a writ petition filed by directors of private companies who were disqualified and had their DINs deactivated due to non-filing of financial statements and annual returns for three consecutive years, as per Section 164(2)(a) of the Companies Act, 2013. The petitioners challenged the disqualification and DIN deactivation, arguing that the action was arbitrary, illegal, and violated principles of natural justice and constitutional rights under Articles 14 and 19(1)(g). The court examined whether the disqualification under Section 164(2)(a) should be applied retrospectively or prospectively and found that it should be applied prospectively, aligning with the Ministry of Corporate Affairs' circular and the legal interpretation that such provisions do not have retrospective effect unless explicitly stated.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 677421 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 22-03-2021
• Assessment Year: misc
• Other Referred Cases: Yashodhara Shroff vs. Union of India, Gaurang Balvantlal Shah vs. Union of India, Bhagavan vs. Union of India
• Laws Referred To: Companies Act, 2013, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S SATYAVATHI
• Assessee Lawyers: T BABA
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 455; 248(1)(c); 164(2)(a)

Judgement Text

"HIGH COURT FOR THE S'AI:,9I TELANGANA AT HYDERABAO (Speciat originat .lun-\"iiJtioni ^, ' I iONDAY, THE TWENT'T SECOND DAY OF IVARCH TWo THOUSAI D AND rwEr,riv ;Hrr,^ PRESENT THE HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PET ITIO N NO. 6S2 7 0F 2021 Between: , 35,r\"JjiTg?r3,?j\", 8-3-so3/ F-11lc_s srinasar colony, Ameerpet, Hyderabad _ 2. Sri Gujte Krishna prasad, .C-5, Eureka Court, Nagarjuna Nagar Ameerpet, Hyderabad - 500 038, TG tndia ...PETITIONERS AND 1. union of lndia, The Ministry of corporate Affairs Represented bv its secretarv 'A, - Wing, Shastri Bhawan, Raj'endra Piasad Road, New Oetfri - 110\"011, 2. The Registrar of Companies, Andhra Pradesh and Telangana, 2nd Floor, Q91O,o1qte Bhawan, GSI Post, Tattianaram, Nagole, Bandtaglda, Hyderabad - 500 068 ...RESPONDENTS Petition under Article 226 of the Conslitution of lndia praying that in the circumstances stated in the affidav t filed therewith, the High Court may be pleased to issue any appropriate writ. order or direction more particularly in the nature of a Writ of lvlandamus. a.declaring the action of the Respondents in disqualifying the Petitioners invoking Section 164(2) (a) as arbitrary, illegal, contrary to the principles of natural justice, in violation of the provisions of the Companies Act, 2013 and in contravention of the rights guaranteed under Article '1 4 and Articlel9 (1) (g) of the Constitution of lndia and consequently direct the Respondents to restore the DIN of Petitioner being DIN'AIVTECH DATA SYSTEIVS PRIVATE LIMITED'. That the list of directions passed by the lvinistry of corporate Affairs (MCA) on the website .i.e www.mca.gov.in as arbitrary illegal without jurisdiction, contrary of the provisions of the companies Act 2013 as Rule 1 1 of the companies (Appointment. of Directors) Rules 2014 violate the principles of natural justice besides violating the rights guaranteed under the Article 14 and Article 19 (1) (g)of the constitutions of lndia and quaSh/SetasidetheSametotheextentitdeclaresitreatsthepetitioneras disqualified in terms of section 16a(2)(a) of the companies Act 2013 in the interest of justice.b,Thatthepetitionerisnotdisqualifiedintermsofsectionl64(4Xa)ofthe .. . ]. \" the reason of the \" ComPanies Act 201 3 for alleged default of non-filing of Annual Returns and financral statements with the by company' IA NO :1O F 2021 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support'of the petition, the High coun may be pleased direct the respondents to restore the DIN of the Petitioners No'03580620 and 03580627 as to enable the Petitioners to register new company and to become director in other companieswhichareactiveinwhichpetitionersareshareholders'pendingdisposal of the writ Petition Counsel for the Petitioners: SRI T' SRIHARI BABA counser ror the Respondents: SRr -^XSJATiIY SAit\"ii]SEAir\"i^r- The Court made the following: ORDER I r{oN'Br_E sRr Jr.ts.t.rcE ABHINAND KUN{,{.R SHAVILI P o.69 02 7o When the matre I is taketr up for hearing, learned counsel on either side lairlr concede that the issue involved in this writ petition is squarely covered by the common order dated 18.07.2019 passed by this Court in W.p.No.5422 of 201g and batch. Foliowing the common order dated 1g.07.2019 in W.P.No.5422 of 2018 and barch, this Writ petition is allowed. No costs. Pending misceUaneous pctitions, if any, shall stand closed. //TRUE COPY// SD/.K.SAILESHI ASSrsrANr RfSrrRAR SECTION OFFICER To, N/P 2 The Sec'etary, U^ o^ of lnd'a. The V ^-slry oI C.o^rporate Affa'rs 'A'W'ng Shastl Bnawar, Raleno\"a P'asad Road' NeN Ueln - - ru u' ii-,r6\"iuo,.ilu. of Co'npan'es A'rdnra Pradesn, and rela'roana' I ' rroor' corooraG Bhawan. GSI po;i r!'tti\"unn1rn1 -tri-gote. BanOtagida. Hyderabad - 500 068 3. 6;.eCto SriT Srihari Baba, Advocate [oPU.C], 4 one cc to Sri rlrmauu'i6;3fr;;;;;;i;\" At'sistant Solicitor General (oPUC) 5, Two CD CoPies. Alono with a CoPY W.P.\"No.5422 of 2018 an of the Common Order dated 18 07 2019 in d batch. ta ORDER: HIGH COURT DATED.22t0312021 ORDER WP.No\"6927 o12021 ALLOWING THE WRIT PETITION WITHOUT COSTS I I 1 ) ) p?/ u- I I I I \"c Tj i,f, >lr :ll i/ u- t{ }t c:/ .;7 ( 1 I THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY 1 1991 12018, 1203 6, t2040. t2 69, 12108. 1 144, t2ta6. t2L94, 1 4 t22 2 123sO. 24L7. L2432. 12472. L249A. t2s 6, 12574, L259A,1262t. 1r-rn, 1't-, 3 1 1 'r'' ii 1 )eat 1) co I ?e6E rrQAe 12 I ? I ?tr e L3730. 13749. L3779. L37aA, 13839. 13A55, L3a7A. 139L2. L39L7. 13945. 141ot. L4L74. 14207. 14 50. 14361. 14390. 14 92. t4397. 14409. 14582 AND 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitlons 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 th e Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, period in question, failed to file financial statements or during annual the re leva nt returns for a continuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section L64(2) of 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' 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINS of the petitioners, to enable them to function other than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in 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 Section 764(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the company to which he is director, for any continuous period of three financial years. Learned counsel further submits that this provision came into force with effect from t.4.201,4, and prior thereto i.e., under Section 27 g)@) of the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply 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 L.4.ZOi- 4, i.e., giving the provision retrospective effect, disgualified the petitioners as directors, which is illegal and arbitrary. 8. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINs, as contemprated under Rure 2(d) of the Companies (Appointment and eualification of Directors), Rules, 2Ol4 (for short'the Rules). are granted for life time to the applicants under Rule l0(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (fl 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. 9. Learned counsel further submits that 1'! respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.12.2017 viz., Condonation of Delay Scheme - 2018, 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 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 retrospective operation, de hors the above scheme, they are entitled to invoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period J l 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 natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions may not be entertained. 12. To consider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: 252. Appeal to Tribunal: (1) Any person aggrieved by an order of the Registrar, 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 register of com pa n ies; 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 inadverten y or on basis of incorrect information furnished by the company or its directors, which require-s restoration in the register of companies, he may within a period of three years from the date of passing of the order dissolving the company under Section 248, file an application before the Tribunar seeking restoration of name of such com pa ny. (2) A copy of the order passed by the Trlbunal shall be filed by the company :]11-th:-1\"9i:!f\"I within thirty days from the date of the order and on receipt oi the oroer, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh certiflcate oi incorporation. (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 ap-plication made by the company, member, creditor or -workman,before the expiry of twenty years from tne publrcatron rn the offrcial bazerre or the notice under sub_secuon (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carry ng on business or in operation_or otherwise jt 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 Tribunar may, by the order, give sucir-otner directions and make such provisions as deemed luit tor ptacing tnl Zompany a\"O all other persons in the same position as nearlv as may be as ii the name of the company has not been struck off from the register of companies. 5 A reading of above provision goes to show that if the company is dissorved under section 248 of the Act, any person aggrieved by the same, can fire an appeal' Thus the said provision provides the forum for redressar against the dissolution and striking ofF the company from the register of companies. Jt does not dear with the disq ua rification of the directors, and deactivation of their DiNs' In the present case, the petitioners are onry aggrieved by their disquarification as directors and deactivation of DINs. but not about striking off companies as such. Hence, Sectio n 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. \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 13. Under Section 164(2)(a) of the Act, if the Director of a company fails to file financiar statements or annuar returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 18 of 2013, came into force with effect from 07.04.2014, and the petitioners are disquarified as directors under'the said provision' At this stage, the issue that arises for consideration is - whether the d isq ua lification envisaged under Section f6a(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 envisaged under Section 16a(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.2Ot4 issued by the N4inistry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circu la r is as under: 6 effect trom t\" 1p,1,, 'z9',l- .,l',?lJ;xi:: :i ;:::::':,L,:';:lt, !:j,::1,:jl{,{jj depreciation) and Schedule ,']l=t'in'.-r\"'\"runt Rules peftaining to these provisiols brought rnto force from,that -tT=;\" ,.;; *\"Ur,t\" \"f the Minisrry and have come into havtalso been notified, Placeo force from the same date' The Ministry has received requests for clar;frcat'on wlth 'regard to the relevant financial Years with effect t|.orn\"ii1'tn's\"ucn' f'ouisions of the new Act relating to maintenance of books 'r utto'ni'''p'\"pJraf,on' adoption, and filrng of financral statements (and attachments t*tJt\"'l''5'Olt\"* report and Board's report will be applicable. Althouqh the position in this behalf is quite clear'.to T1k: tlings absolutely clear ,, ,!'i!\"r!'w .iiii\"J'i-n\"i tn\" ri\"\".ii\"iii\"t\"*\"nts (and documents required to be attached thereto), auditors '\"pott unO Board's report in respect of financial years that commenced earlier tnari ti niril shall be go_verned by the relevant ijiSir't:-i,,rliliii\".rres/rutes or tne comianies Act' 1eE6 and that in respect of financial years commencrng on oiafter i* 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 0l'04'2014, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial years commencing on or after 01.04'2014, the provisions of the new Act shall apply. 74. At this stage it is required to be noticed that the analogous provision to Section 164(2)(a) of the Act 18 of 2013, is Section 27aO)G) ot Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: Section 274(1) A person shall not be capable of being appointed director of a company, if - (g) such person is already a director of a public company which, - (A) has not filed the annual accounts and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or (B) Provided that such person shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns 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 ln clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 1 and after the First day of Aprir 1ggg, shail not be erigibre to be appointed as a director of any other public company for a period of five years trom the date on which such public company, in which he is a director, faired to fire annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a .public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a .private company,. Therefore, non_ filing of annual accounts and annual returns by the directors of the private company/ wirr not disquarify them as directors under the provisions of Act 1 of 1956. 15. Under Sectjon 76ae) ot the new legislation i.e., Act 1g of 2013, no such distinction between a ,private company, or a ,public company, is made and as per the said provision goes to show that no person who is or has been a director of a 'company,, fails to file financial statements or annuar returns for any continuous period of three financiar years, wi, not be erigibre for appointment as a director of a company. As already noted above, the said provision, came into force with effect from Ol.O4.2OL4. 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 firing financial statements or annual returns, for period prior to 01.04.2014. The actlon of the 2\"d respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 1B of 2013, retrospective effect, which is impermissible, 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, ' lzors;r sccr 77. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHTP PRIVATE LIMITEDI has dealt with the general principles concerning retrospectivity. The relevant portion of the judgment is thus: S concept.rar rv it is a sreat dea , T:;1tJ; :\"i:\"\";i :\",'J, :ff :\". TiJ;'f :,Ulj!i oeculiarity in the mode ol verDa -- --^ .t-Ac in : w^rk of ftction/non fiction or even jr.rst a series of statements, :-l:\" 1i:I i, ;i\".nniq,i\" i\"qui*O to draft a legislation 1n a iudgment of a court or tlw'. ,\"-.---\" '-;;;;, ro.hnioue is lnou/n as legislative as well as to understano .a l,eor rdLrurr' ; of'lnterpretation of ;;\"il;; \"il r\";i\",. \"\"\"t:-::..oi,:\",:l'\" H[:\"1:1\":;,3:Iifii; iiou\"nun.\", ruv-o,t llTllsi;.\"Y1;';ll: ':'i;:\"'Xtli;'''';n\"urio ifi *\"unine that arises bv presumptions Itio tn\" int\"nt of the maker thereof' 28. Of the various rules guiding how a legislation has to be interpreted' one established rule is that '\"'\"\" 3il'li?\"\" int\"ntiJn uno\"u11' a leqrslation is presumed not to be intended to nt'\" \" \"\"t\"\"o\"ltiue-op\"r.utii'it Tl^\"-ld\"u behind the rule is that a current law should gor\".i';;\"ni u.tivities. Law pass€d today cannot apply to the events of the pasr. n *.1 # l#i,t'ig ioduv, *\" oo it keeping in the law of todav and in force and not to'\"o\"I*i 'uiik*ZJ uai\"t'\"nt of it our belief in the nature of the law is ro,no\"o o'i\" t#'o-\"i r.olrt tnut every human being is entitled to arrange his affairs by r.\"rvinq;n ii'-\" \"\"-*l'i'ng ta*anO should not find that his plans have been retrospectively 'p=\"i 'iiit p'i\"tiple of law,is known as lex prospicit non respicit : law looks ror*u'o nii u\"lt*lto As was observed rr Phillips vs Eyre L(iB7O) LR 6 QB ll, u '\"t|-otp\"t''\"'llg Lut'on it contrary to lhe general prrnc'ple thal reqrsrat,on bv wh'ch the t'\";;;;i \"; \";;'k ..d rs to be 'ggulaleo $/hen introduced for the first time to deal *ltn i'i\"\" *tt ougnt not to chanqe the character of past tiuntu.ilort .urri\"d on upon the faith of the then existing law 29. The obvious basis of the principle against retrospectivity is the prnciple of 'ruiin\"rr;, *ni.n-rnrst oe 't\" 6Jt' oi \"u\"-r-y legal rue as was observed in the i\".i'ti* 'r\"p\",t\"O in L'Office Cherlfien des Phosphates v Yamashita-Shlnnihon ii\"\"rtn,p-L\" lto. [{lss+) 1ec aB6]' Thus, legislations !'!hich modified accrued ighit;i'*nl.i-r impose ootigatlon' o' i'pot\" new duties or attach a new disability have to be treated as prospective unless the legislative intent ls clearly to give the \"nu.t.unt a retrospeciive effect; unless the legislation 1s for purpose of supplylng in-oouio* omission in a former legislation or to explarn a former legislation. we need not note that cornucopia of cas-e law available on the subject because aforesaid ielal position clearly emerges from the various decisions and this legal position was .olri\"i\"J by the counsei for the parties. In any case, we shall refer to few judgments containing this dicta, a little later' 30. We would also Iike to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. lf a legislation confers a benefit on some persons but without inflicting a corresponding deiriment on some other person oT on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India & Ors. v. Indian Tobacco Association, [(2005) 7 SCC 396], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors., [(2006) 6 SCC 289]. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (slc not) confronted with any such situation here. 31. in such cases, retrospectivity is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attached towards prospectivlty. in the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operatron. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct impl cation. Dogmatically framed, the ruie s no more than a presumption, and thus could be displaced by out u/eighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understand ng of CBDT itself regarding this provision. It is contained in CBDT Circular No.B of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provision relating to Direct Taxes\". This circular has been issued after the passing of the Finance Act, 2002, by which amendment to section 113 was made. In this circular, various amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which amendments are prospective. .) For examp/e, Explanatron to .. *ij,;fi*E.\",,;,,iffiLii,.**li:+\":J,,*rl'*.:i\"' #i* :I:11,I,\"J:\"\"i:,:lil*[y::[.ylff i::X:Jfl I\"*,til\";#,#f ilni:.ffi # 18. Thus, the Apex that unless a contrary inten have prospective effect. A that the legislation has any i Court in the above judgment, has made it clear tion appears, a legislation has to be presumed to reading of Section 164 of the Act does not show ntention, to make the said provision applicable to past tra n sactio ns. Further. the Apex Court in the above judgment at paragraph No'43' found that the circurar issued by the authority after passing of the legislation, clarifying the position with regard to applicabitity 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 lvrinistry of corporation affairs has issued the circular No'08/2014 dated 4.4.2014 crarifying that financiar statements commencing after 01.04.2014, shall be governed by Act 1B 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 2nd 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 Ot.O4.2OI4, 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 circular dated 4.4.2014 and the law laid down by the Apex Court, as stated in the wrlt affidavits, the first financial year would be from O1-04-2014 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 of the company, and as per the first 10 proviso to Section 96(1) of the Act' annual general meeting for the year ending 31.03' 2O!7 ' 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 g2{4) ot the Act' is 60 days from annual general meeting, or the last date on which annual general meeting ought to have been herd with normar fee, and within 270 days with addltional 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.t1.2Ot7, and the balance sheet was to be filed on 30 10'2017 with normalfeeandwithadditionalfee,thelastdateforfilingannualreturnsis 27.07.2018. In other words, the disqualification could get triggered only on or after 27.07.2O1a. But the period considered by the 2nd respondent in the presentwritpetitionsforclothingthepetitionerswithdisqualification' pertains prior to 01.04.2014. Therefore, when the omission' which is now pointed out, was not envisaged as a ground for disqua lification prior to T.4.2OL4,thepetitionerscannotbedisqualifiedonthesaidground'This analogy is traceable to Article 20(1) of the constitution of India, which states that \"/vo person shatl 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 considering Sectlon 16+(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.5291 1 0f2017 and batch dated 12.06.2019 private companies, which are relevant for the present purpose, are extracted as under: 'r'special Cilii Application No l II lll5 ol-2(l I I and batch dated l3' l l l0l 208. In view of the aforesatd discussion, I have ar.Ved at the following conclusions: (a) It is held that Section 16a(2)(a) of the Act is not uttra ytrus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrjne of proportionality. Neither does the said provision violate Article 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) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violati;n of the principles of natural justice, is nol ultra vlres Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasoniUie nor\"-arUitrarv, in view of the interpretation placed on the same. (d)... (e) lnsofar as the prlvate companies are concerned' disqualification on account of the circumstances .,u,uo ,no\"r\"s\"-Jrion ioaizltul of the Act has been brought into force for the first tlme under the Act and the consequences of disqualification could not have been,rnporJa on drrectors of private.,companles by taking into consrderatron anv perrod tt|ot i\" Oi'Oo tOli for the DUrpose of recko'inq contrnuoLs pe'rod of tnt\"\"\"i'1\"\"i'-u''y\"u\"-\"'tOur. the said orovrso' The said conclusion 's based on tn\" pi'nt]puii'i*n ov *ay of analoqv from Artrcle 20(1) of the constitution, u' ut no t'o'ii\"or -i'*\" pr.'or. to the enforcement of the Act' a disoualrfication based on thS t';t;;t;;* under Section 164(2) of the Act was evei envrsased under rhe iSsi ^.i ,,r:l:rL aireitots.or private companies such a drsqualificatron to'ro u'l'i'u\" in\"ti\"t-\"i \"\"rv a publrc company under sectron 274(1)(9) of 1956 Act j'io\" #\"'\"t'1 Jir-\"ttor- oi 9 private companv Such drsqualif,catron of tne petriioieri*io l'\" o',.\"ttors of p;ivate companies is hence quashed. (f).. (s) consequenuy,*h\"-1\"-,^1\";;'ir\",\"JJ,:il:\"1,:it:::\":t:\"JJ:\"-J,il\"f..:Ht'JJi.?\".\"\".1 on a continuo'rs period ol t\"t::^']li\"^l :':; ]\"\"\"\" *\". \".t Oeen- fited bv a public or iln\"-r\"in finunt'u' statements or annual returns have not- orivate company, th\" d,;\";;;r\";; r;.n u .ornpunv stand disqualifred and the consequences of the said alll\"r\"',tr\".ol\" *\"uto apply to them under the Act 2l.AlearnedSingleoftheHighCourtofGujaratatAhmedabadin GAURANG BALVANTLAL SHAH 5/O BALVANTLAL SHAH VS. UNION OF rNDrA3 expressed simirar view as that of the reaned single Judge 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 s T2 annual returns for anY continuous period of three financial years would be the defa u lt to be counted from the financial Year 2014-15 onlY and not 2013-L4. 22 A learned single Judge of the High Court of Madras in BHAGAVAN UNION OF INDIA4 also expressed similar VICW. The relevant Portion ls as under: (b) 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section t6a(2)(a) of the Act, have been passed considering the period prior to 01'04.2014, the same cannot be sustained, and are liable to be set aside to that extent' When the New Act 2013 came into effect from 1'4'2014' the rL.\"\"a' i\"tp\"\"o e nL herein has wrongly given retrospective effect ;;;';t;;;;;tlv disqualified the petitioner - directors from i.i.z,iio itrlii tiefore ihe deadline commenced wronglv fixins the Rrit financiat year from 1'.4.2013 to 31 3 2014' By virtue of the new Section 164(2)(a) of the ?013 I'cI using the \"ioression'for any continuous period of three financial year\" and i\"'if',r\"-fisht of section 2(41) defining \"financial year\" as-.well as their o*n c\"-n\"ruf circular No.o8/14 dated 4,4'2074, the first financial v\"\", *\"rlO be from 1,4.2oL4 to 31 3 2015, the second financial yeir *orta be from 1.4.2015 to 31.3.2016 and the third financial yeir wouta be from t.4.ZOl6 to 3L.3.2017, whereas the second iespondent clearly admitted in paras 15 and 22 of -the counter affidavit that the default of filing statutory returns for the final years commences from 2Ol3-14, 20L4-15 and 2015-16 i e, one year before the Act 2013 came into force. This is the basic incurable tegal infirmity that vitiates the entire impugned proceed ings. 29. 1n fine, (a) o w.P.No.25455 0f2017 and batch dated 27.07.2018 DAS DHANANJAYA DAS VS, 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: (Z) No person who is or o\",,.o,l?nll,#ffi ,,::a11x,:\"HJJ\",,:::,\".::;:;.-j;:\",,,,,,,, (b).., ;ili:#;.il,:##'\",1:.?:.',;.i,,#::il',:.,,J;?:H.,fJi:i;,#Tfl iJi,fJ A reading of the above provision makes it clear that it provides disq u a lification on happening of an event i.e., if a person who is or has been a director of a company has not fired financiar statements or annuar returns for any continuous period of three financiar years, sha, be inerigibre to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company fairs to do t3 provision does not provide for issuance of any prior notice or A learned singre Judge of the High court of Karnataka in yashodara Union of India (1 supra), as well as the learned single tudge of the so. The hearing. Shroff v. Hig h Court of Ba lva ntla I Shah Gujarat at Ahmedabad vs. Union of lndia (2 in Gaurang Balvantlal Shah s/o supra), after a na lyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section rcae)@) of the Act applies by operation of law on the basrs of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-d isq ua lification and thls is not in violation of the principles of natural justice and hence, is not u/tra vlres Article 14 of the Constitution. I concur with the said reasoning. 25. Thus, from the above, it is clear that Section 164(2Xa) 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 d isq ua lification even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16+(2)(a) of the Act. t4 26 The next grievance of the petitioners is with regard to deactivation of their DINs. The contention of the learned counsel for the petitioners ts 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 164(2)(a) of the Act, DiN cannot be cancelled' 27. Rule 10 of the Rules provide for allotment of DIN and under sub Rule 10, it is allotted for life time Rule 11 provides for or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: rule (6) of cancellation 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 documentiry proof attached !'vlth the applicatlon received from any person, cancel or deactivate the DIN in case - (a) 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 manneT oT by fraudulent means; of the death of the concerned individual; the concerned individual has been declared as a person of unsound mind by a competent Court; if the concerned individual has been adludicated an lnsolvent; 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 Government may deactivate such DIN; 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. (b) (c) (d) (e) (0 (i) Provided that before deactivation of any DiN in such case, the Central Govern ment shalL verify e-records. 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 l5 Section 16ae)@) of the secrion t64 or theo*, ,r;r':.rI, ,]\";1\"::r'.::il:; accordance with Ruie 11 of the Rules. tion under except in 29. Learned Single Judge cited 2 supra, held as under: of the Gujarat High Court in the decision \"29. This takes the Court to the next question as to whether the respondents could have deactivated rhe DrNs.oF r-e petrrione.-as ;:;:r;;;1\".\" or rr-e rmpJgned ::f,. j;ti;',;:'ili'-,loii1'o. o\" uop:oo,. ut\"- ro\"-'\"'\". ,tll! rerevant p-ovii oog srra, oe a ppo,.,ie;';,\" ; d .'\".i:: \"? i':\".t\"\".j;:\", 111,,r U::S::i;i *,f t: Drrector ldentifrcatron Number under Section iSq. -l\"\"atta'153 requires every indrvrdual intending to be appointed as Director oil''iornpunv to make an application for a,otment or DIN to_the Centrar Governmeni in-iu.n form and manner as may be prescribed. Section 154 states that tne Certrat CoJernment shalt within one.month from the receipt of the apptication unoel. seciion-is3 a ot a DIN to an app,icant in such manner as may be prescribed, Section tSS prohibits any individual, who has already been allotted a DIN under Seciton fS+ from applying for or obtaining or possessing another DIN. Rules 9 and 10 of the said Rures 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 varid for the rife time of the appricant and sha[ not be aflotted 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 Regional 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 Clause (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 cancel ation or deactivation of DIN of the Director of the \"struck off company\" or of the Director having become ineligible under Section 164 of the sald Act, The reason appears to be that once an individual, who is intending to be the Drrector 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, f one of the companles in whlch he was Director, s \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions Contained in the Rule 11, which specifcally 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 I st of Directors of \"struck off\" companies under Section 248, also was not lega y tenable. Of course, 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 iudgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act, cannot be sustained. 16 3l.Fortheforegoingreasons/theimpugnedordersintheWrit petitions to the extent of disqualifying the petitioners under Section 164(2)(a) of the Act and deactivation of their DINs' are set asider 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.ItismadeclearthatthisorderWillnotprecludethe2nd 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 writ petitions are accordingly allowed to the extent indicated 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 "