Naga Venkata Shivaram Nuli and Another V. Union of India And Another

WP/7759/2020

AI Insights

The case involves a writ petition filed by Naga Venkata Shivaram Nuli and Shanti Kumari Nuli against the Union of India and the Registrar of Companies, Telangana, challenging their disqualification as directors and the deactivation of their DINs. The petitioners argued that the disqualification was arbitrary, illegal, and violated principles of natural justice, as it was based on non-filing of financial statements and annual returns for periods prior to April 1, 2014, despite the Companies Act, 2013, coming into effect only from that date. The respondents conceded that the matter was covered by a previous common order but maintained that the disqualification was justified under the Act. The court, referencing a circular from the Ministry of Corporate Affairs and various precedents, found that the disqualification was applied retrospectively and thus set it aside.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 739022 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 18-07-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-1 NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH VS. UNION OF INDIA, BHAGAVAN DAS DHANANJYADAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies Appointment of Directors Rules 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: MANTHA RAJENDRA
• Keywords: Director Identification Number (DIN); Disqualification of Directors; Natural Justice; Retrospective effect; Writ of Mandamus
• Section: 248(5); 252; 164(2)(a)

Judgement Text

"PRESENT THE HONOURABLE SRI JUSTICE A. ABHISHEK REDDY WRIT PETITION NO: 7759 OF 2020 Betwee n: AND 1 2 1. Naga Venkata Shivaram Nuli, N.Venkata Narasimha Rao, Aged about 56 years, Occ. Business, 2-2-11081112, Flat No.202, Royal Exotica Apartments, Shivam Road, Opposite Tilak Nagar Petrol Bunk, Bagh Amberpet, Hyderabad- 500044. 2. Shanti Kumari Nuli, W/o Naga Venkata Shivaram Nuli, S/o N.Venkata Narasimha Rao, Aged about 50 years, Occ. Business, 2-2-110811)2, Flat No.202, Royal Exotica Apartments, Shivam Road, Opposite Tilak N6gar Petrol Bunk, Bagh Amberpet, Hyderabad- 500044. ...PETITIONERS Union of lndia, Represented by its Secretary l ilinistry of Corporate Affairs, A- Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi-110001. The Registrar of Companies, State of Telangana, 2nd floor, Corporate Bhawan, Thattiannaram, GSI post, Bandlaguda, Hyderabad- 500069. - ...RESPONDENTS Petition under Article 226 of lhe Constitution of lndia praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue an appropriate Writ, Order or Direction more particularly one in the nature of Writ of Mandamus declaring that the list of directors placed by the Ministry of Corporate Affairs (MCA) on its website i.e., www.mca.gov.in in so far as disqualification of petitioners directorship in \"SRAVANTI IIVAGING TECHNOLOGIES PRIVATE LllVlTED\" is concerned, as arbitrary, illegal and without jurisdiction and contrary to the provisions of the Companies Act, 2013 and Rule '1 'l of the Companies Appointment of Drrectors Rules 2014, violative of principles of natural justice besides being violative of the petitioners rights guaranteed under Article 14 and Article 19(1Xg) of the Constitution of lndia and consequently quash/set aside the same to the extent it deciares/treats the petitioners are disqualified in terms of Section 164(2) (a) of the Companies Act 20'13 in the interest of justice and further declaring that the petitioners are not disqualified in terms of Section l6a(2) (a) of the compar ps Act 2013 for the reason of alleged default of non filing of financial statements/annual returns and consequently direct the respondents 1 and 2 to restore the DIN number of the petitioners i.e., Sri. NAGA VENKATA SHIVARAIV NULI-DIN- 00742725 and Smt. SHANTI KUMARI NULI- DIN-02085697, and to permit the petitioners to file/submit forms/it-forms pertaining to pending financial statements and for.annual returns of the companies lA NO: 1 OF 2020 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of lhe petition, the High Court may be pleased to direct the respondents to restore the DIN numbers of the petitioners i.e., Sri. NAGA-VENKATA HIGH COURT FOR THE STATE OF TELANGANA (Special Original Jurisdiction) IVONDAY, THE EIGHTH DAY OF JL'(E TWO THOUSAND AND TWENTY ) SHIVARAM NULI- DIN- C0742725 and Smt. SHANTI KUI /AR| l'luLl- DIN-02085697 so as to enable them to submit their annual returns and financial statements of the companies in which they,rre the Directors. Counsel for the Petiticnr,rs: SRl. MANTHA RAJENDRA Counsel for the Responrlents: SRl. NAMAVARAPU RAJESHWI R RAO, ASSISTANT SOLICITOR GENE RAL The Court at the stage o'admission made the following: ORDE:R Aggrieved by the action of the 2\"d respondent - The Registrar, Olfice of the Registrar of Compa nies, in disqualifying the petitioners, as Director of the Company under Sectiorr rcaQ)@) of the Companies Act, 2013, and deactivating their Director Identihcation Number (DIN), the present writ iretition is filed. 2. With the consent of both the parties, the presr:nt writ petition disposed of at the admission stage itself. IS 3. The learned Counsel appearing for the petitioners has contended that the matter is squarely r:overed by the common order, dated 18.07.2019, passed by this Court in W.P.No.5422 of 2018 and batch. Therefore, the writ petition may be allowed in terms of the above referred common orde:-. 4. Sri N. Raj,:shwar Rao, the learned Assistani Solicitor General appearing on behalf o{ the respondents, has fairly conceded that the common order of the learned Srngle Judge passed in W.P.No.5422 ol 2018 and batch, dated 18.07.2019, cov<'rs the lis in question. 5. A reading of the common order, dated 1B.l)7.2019, passed in W.P.No.5422 of 2018 zLnd batch, reveals that this Court u'ttile dealing rvith the issue in question, has held as under: '23. In uieu of the aboue facts and circumstances and the Judgments rekfied to suDra. as the impugned orders in present wit petitiotts disqualifuing tle petitioners as Directors under Section 16a'2)(a) of the Act, haue been pctssecl consideing the period pior to 01.04..!014, the sarne cannot be sustr ined, and are liqble to be set aside to that 4:'cnt J 30. In uieru of the above facts and circumstances and the judgment reJerred to supra, the deacttuatton of the DINs of the petittoners for alleged uiolattons under Section 164 of the Act, cantTot be sustained. 31. For the foregoirLg reasons, the impugned orders in the uit petitions to the extent of disqualtfuing the petttioners under Section 164(2)(a) of the Act and deactiuation of their DINs, are set aside, and the 2^d respondent is directed to actiuate the DINs of the petitioners, enabling thent to function as Directors other thon in stike off companies. 32. It is made ctear that this order will not preclude the 2\"'t respondenl from taktng appropiate action in accordance wtth law for uiolations as enuisaged under Section 164(2) oJ the Act, giuing the said prouision prospectiue effect from 01.04.2014 and for necessary action against DIN in case of uiolations of Rule 1 1 of the Rules. 33. 1l rs olso made clear that if the petitioners are aggieued bg the action of the responden s in stnking off their companies under Section 248 of the Act, theg are at libertg to auaiL olternatiue remedy under Section 252 of the Act. 34. All the wit petitions are accordinglg alloued to the ertent indicated aboue.\" 6. In view of the above, the present writ petition is allowed in terms of the common order, dated la.O7 .2079, passed in W.P.No.5422 of 2018 and batch. The miscellaneous petitions pending, if any, shall stand closed. There shall be no order as to costs. Sd/- SRI JUSTICE A. ABHISHEK REDDY ,TRUE COPY' V e To, REGISTRA DrcrAL) t' SECTION OFFICER 1. The Secretary N,4inistry of Corporate Affairs, Union of lndia, A-Wing, Shastri Bhawan, Dr. Rajendra Prasad Road, New Delhi-1 10001 . 2. The Registrar of Companies, State of Telangana, 2nd floor, Corporate Bhawan, Thattiannaram, GSI post, Bandlagrda, Hyderabad- 500069. 3. One CC to Sri lt4antha Rajendra Advocate [OPUC] 4. One CC to Sri. Namavarapu Rajeshwar Rao, Assistant Solicitor General [OPUC] (Along with a copy of order, dated 18.07.2019 in W.P.No.5422 of 2018 and batch) 5. Two CD Copies CHR 4' .+ HIGH COURT DATED:0810612C20 o T E 1,.., , ORDER , W.P.No.7759 of 2020 DISPOSING OF HE WRIT PETITION AT THE STAGE OF ADMISSION WITHOUT COSTS aO w l- o a. -(t' : ..J .1' & '.) .-.) .J fifrt za:*:- .3 ,t t i ;i ,l i ,,t ,1\" // ,i',/ .:,- /, l2 THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY W.P.NOS.5422. 12t84, 13520. 13783. 13a55. t4166. 24()51.30993. AND 40953 0F 2018, 5547, 5582, 5669, 5687, 5785. 6047. 6087. 6t40, 6484,67s3, 6858, 6958, 6981, 7001, 7008, 7014,7046,7069, 707 3. 7 LOs, 7 432. 7 454, 7 57 2. 7 595, 7732, 77 65. 77 6f}. 7424. 7 974. 8111. 8223. 8586. 8590, 9333. 9340. 9381. 9468, 9s63. 9584, 9623. 9726.9737. LOO58. LOO99. 1L208. tr223. 1L239, tL263. 1tAA9, Lt991, t2014, 12036, 12040. 12069, L2tO8, 12144. t2La6, t2L94, 12200. 12209.122t5, L22L7. L2243. 12260, L2262. L22aA. t2342. 12350, 12417,12432, t2472, t249a, 12506, 12574, 12598, L2621. 2 2 35 12740 t2845 5 865 L2 6 1 o 1 13730. 13749,13779. L37AA. L3439, L3455, L3A7a. L39L2. L3917, 13945, 14101, 14t74, L4207,14350, L436L, 14390, L4392, t4397, 14409. 14582 ANp 14597 0F 2019 COMMON ORDER Since, the issue involved in all the writ petitions is one and the same, they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(t)( c ) of the Act, for not carrying on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a contlnuous period of three years. Therefore, the 2nd respondent passed the impugned order under Section $aQ) ot the Act, disqualifying them as directors, and further making them ineligible to be re-appolnted 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. 2 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DlNs of the petitioners, to enable them to function other than in str ike off companies. 5. Hearc the learned counsel appearing for th: petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solic tor General appearing for the respond€nts - 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. Learled counsel submits that Section 164(2)(a) of the Act empowers the a rthority to disqualify a person to be . director, provided he has not filed finirncial statements or annual returns of the company to which he is director, f,)r any continuous period of three fin.ncial years. Learned counsel further:;ubmits that this provision came into force with effect from 7.4.20L4, and p'ior thereto i.e., under Section 27a(l)(g) of the Companies Act, 1956 (1 of t956), which is the analogous provisior, there was no such requirement for the directors of the private companie:;. They contend that this provision urlder Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply r.r'ith the requirements mentioned in th,: said provision subsequent to the sa,d date, the authority under the Act, is within its jurisdiction to disqualify thern. But in the present cases, the 2nd re:;pondent, taking the period prior to t.4.2074, i.e., giving the provision retrospectlve effect, disqualified the petitioners as directors, which is illegal and arbltrary. B. With regard to deactivation of DINs, lea-ned counsel for the petitioners- subrr it that the DINs, as contemplated urrder Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for 9. Learned counsel further submits that 1st respondent - Government of India represented by the Ministry of Corporate Affairs, has floated a scheme daled 29.12.20L7 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 companles which are struck off under Section 248(5) of the Act. In case of active companies, they can make application to National Company Law Tribunal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated. However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no buslness, cannot approach the Tribunal for restoration. They submit that since the penal provlsion 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 aslde 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 short'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancetlation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become ineligible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appeal is provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act. l of three financiirl years, automatically entail their rjisqualification under Section 76aQ)G ) of the Act and the statute does not provide for issuance of any notice. Hen --e, the petitioners, who have failed to comply with the statutory requirement under Section 164 of the Act, cannot complain of violation of princirles of natural justice, as lt is a deemirg provision. Learned counsel further ;ubmits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ l)etitions may not be entertained. 12. To crnsider the contention of the learned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of the Act, the said provlsion is required to be considere(|, and the same is extracted as under for better appreciation: 252. Ap )eal to Tribunal (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved und:r Section 248, may file an appeal to the Tribuna within a period of three years fron the date of the order of the Registrar and if the Tribunal is of the opinion that the -emoval 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 R(,9istrar, it may order restoration of the name o1 the company in the register of compirnies; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making representations and o' being heard to the Registrar, the co npany and all the persons concerned: Provided further that if the Registrar is satisfied, th.t the name of the company has ber:n struck off from the register of companies either inadvertently or on basis of incorrect information furnished by the company or its directors, which requires restoraton in the register of companies, he may within a period of three years from the cate of passing ofthe order dissolving the conpany under Section 248, file an application before the Tribunal seeking restorati(n of name of such com pa ny. (2) A cot)y of the order passed by the Tribunal shall be frled by the company with the Registra. within thirty days from the date of the order . nd on receipt of the order, the Regis.rar shall cause the name of the company to be restored in the register of comp. nies and shall issue a fresh certificate of incorporation. (3) If ir company, or any member or creditor oT v/oTkeT thereof feels aggrieved by tle company having its name struck off fr.)m the register of companies, the lribunal or an application made by the company, member, creditor or workman bef(ire the expiry of twenty years from the publi(ation in the Official Gazette of the r otice under sub-section (5) of Section 248, f satisfied that the company was, al the time oF its name being struck off, carry -g on business or in operation or othorwise it is just that the name of the compan, be restored to the register of compa nies, order the name of the company to be resaored to the req ster of companies, ard the Tribunal may, by the order, give such r)ther directions and make such provil ions as deemed just for placing the company and all other persons in the same position as nearly as may be as if the name of tfe company has not been struck off frlm the register of companies. 5 A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their disqualification as directors and deactivation oF DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 13. Under Section l6qQ)G) of the Act, if the Director of a company fails to file financial statements or annual returns for any continuous period of three financial years, he shall not be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so. The said provision under the Act 1B of 2O 3, came into force with effect from O1.O4.2074, and the petitioners are disqualified as directors under the said provision. At this stage, the issue that arises for consideration is - whether the disqualification envisaged under Section 16a(2)(a) of the Act, which provision came into force with effect from O1.04.2OL4, 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 16aQ)@) 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 4.4,2O14 issued by the lvlinistry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circu la r is as u nder: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparatlon, 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 () effect from 1st April, 2014. Provisions of Schedule II .useful lives to compute depreciation and Schedule III (format of financial statements) have also been brought nto force from that date. The relevant Rules pertaining to these provisions have also b€en notified, placed on the website of the Mini:;try and have come into force from tf e same date. The Minis:ry has received requests for clarification witf regard to the relevant financiai yea-s with effect from which such provisions of the new Act relating to maintenance of books of account, preparation, adoption and filing of financial statements (and attachments thereto), auditors report an(l Board's report will be applica ble. Although the position in this behalf is quite clear, to makr) things absolutely clear it is hereby roti'ied that the financial statements (and dcruments required to be attached the eto), auditors report and Board's report in respect of financial years that commerced earlier than 1't April shall be gov€r.ned by the relevant prov sions/sclredules/rules of the Companies Act, 1956 :rnd that in respect of financial ),eari commencing on or after 7't April,2074, the p-ovisions of the new Act shall a pply. \" A reading of tl-e 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 elrlier than 01.04.2014, shail be governed by the provisions under the Comp,:nies Act, 1956 and in respect of finan:ial years commencing on or after OI.Ct4.20L4, the provisions of the new Act s hall apply. 14. At rhis stage it is required to be notice d that the analogous provision to Section l6aQ)@) of the Act 18 of 2013, is Section 27a(1)(9) of Act 1 of 1956. The said provision under Act 1 of 195(, is extracted as under for ready reference: Section 27 A person shall not be capable of being appointed director of a compa ny, if - (9) such per;on is already a director of a public company wr ch, - (A) has not filed the annual accounts and arnual returns for any continuous three financial years commenc ng on and after the first day of April, 1999; or (B) Provlded that srch person shall not be eligible to be appointe(j as a director of any other public cornpany for a period of five years from the date on which such public company, in wl-ich he i5 a director, failed to file annual accounts and annual returns under sub-clau:,e (A) or has failed to repay its deposits or rlterest or redeem its debentures on ( ue late or pay dividend referred to in clause (B). A reading of tne rbove provision under Act 1 of 1956, nrakes it clear that if a person capable of being appointed director of a company and such person is already a directo- of a public company, which has not filed annual accounts and annual returrs for any continuous three financial years commencing on 1 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company for a period of five years from the date on which such public company, in which he is a director, failed to file annual accounts and annual returns. So the statutory requirement of filing annual accounts and annual returns, is placed on the directors of a 'public company'. There is no provision under the Act 1of 1956, which places similar obligations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the private company, will not disqualify them as directors under the provisions of Act 1 of 1956. 15. Under Section l6a(2) of the new legislation i.e., Act 18 of 2013, no such distinction between a 'private company' or a 'public company' is made and as per the said provision goes to show that no person who is or has been a director of a'company', fails to file financial statements or annual returns for any continuous period of three flnancial years, will not be eligible for appointment as a director of a company. As already noted above, the said provision, came into force with effect from Ot.O4.2074. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petltioners under Section 16a(2)(a) of the Act 18 of 2013, for not filing financial statements or annual returns, for period prior to 01.04.2014. The action of the 2\"d respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of 2013, retrospective effect, which is impermissible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)-L NEw DELHI v. VATIKA TOWNSHIP PRIVATE LIMITEDT has dealt with the general principles concerning retrospectiv ity. The relevant portion of the judgment is thus: 27. A leqislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, (1015)rsc( l S conceptually i is a great deal more than an ordinary prose. There is a special peculiarity in t1e mode of verbal communication by a legislatirn. A legislation is not just a series o statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique requir(rd to draft a legislation as wel as to understand a legislation. Former technique ; known as legislative drafting and irtter one is to be found in the various princip(:s of'lnterpretation of Statutes'. Vis-;-vis ordinary prose, a legislation differs in :s provenance, lay-out and features a; also in the implication as to its meaning that ,lr ses by presumptions as to the inten: of the maker thereof. 28. Of th€ various rules guiding how a legislation has lo be nterpreted, one established rul-. is that unless a contrary intention appears, a eg slatron is presumed not to be nterrded to have a retrospective operation. The ilea behind the rule is that a current aw should govern current activities. Law passed today cannot apply to the events (,f the past. If we do something today, we do : keeprng in the law of today and rn f(irce and not tomorTow's backward adjustment ,lf it. Our belief in the nature of the llw s founded on the bed rock that €very hunran being is entitled to arrange his aff3irs by relying on the existing law and should not find that hls plans have been retrrspectively upset. This principle of law is kno ,/n as lex prospicit non respict : law aoks forward not backward, As was observe: in Phillips vs. Eyre [(1870) LR 6 ()B 1], a retrospective legislation is contrary t:, the !leneral principe that legislation by which the conduct of mankind is to be regulated when introduced for the first tinre to deal with future acts ought not to chang€ the character of past transactions ca'ried on upon the faith of the then existing law 29. The ob/ious basis of the principle against retrospect /ty is the principle of 'fairness', n/hich nrust be the basis of every legal rule as was observed in the decision repoied in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [{1994) 1Ac 486]. Thus, legislations, rich modified accrued rights or which impose obligations or impose new duties or ;ttach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a r( trospective effect; unless the legislation is for purpose of supplying an obvious om ssion in a former legislation or to explain a f(,rmer legislation. We need not note that cornucopia of case law available on the sub- ect because aforesaid legal position c ear y emerges from the various decisions and l:hls legal position was conceded by the counsel for the parties, In any case, v/e shall refer to few judgments containing this dicta, a little later. 30. We wol ld also like to point out, for the sake of comp :teness, that where a benefit is conferred by a legislataon, the rule against a retrost)ective construction is different. If a egislation confers a benefit on some persons lrut without inflicting a corresponding ( etriment on some other peTson or on the public generally, and where to confer such benefit appears to have been the legislat,)rs object, then the presumption w)uld be that such a legislation, giving it a purposive construction, would warrant i: to be given a retrospective effect. This exactl / is the justification to treat procedurel provisions as retrospective. In Government of India & Ors. v, Indian Tobacco Association, f(2005) 7 SCC 3961, the doctrine .f fairness was held to be relevant factrr to construe a statute conferring a benefit, in the context of it to be given a retrost,ect ve operation. The same doctrine of fairness, to hold that a statute was ret-ospective in nature, was applied in the case rf Vijay v. State of Maharashtra & lrs., [(2006) 6 SCC 289]. It was held that w rere a law is enacted for the benefit of community as a whole, even in the absen,re of a provision the statute may b( held to be retrospective in nature. However, we are (slc not) confronted rvith any such situation here. 31. In su,rh cases, retrospectivity is attached to benefit the persons in contradistinctior to the provision imposing some burden o' liability where the presumption attached towards prospectivity. In the instant ca:;e, the proviso added to Section 113 )f the Act is not beneficial to the assessee. On the contrary, it is a provision which 1s onerous to the assessee. Therefore, in a c.se like this, we have to proceed witl the normal rule of presumption against ret-ospective operation. Thus, the rule lgainst retrospective operation is a fundamental rule of law that no statute shall te construed to have a retrospective oper. t on unless such a construction apl)ears very clearly in the terms of the Act, or ariies by necessary and distinct implicat on. Dogmatically framed, the rule is no more than a presumption, and thus could t e displaced by out weighing factors. 43. There i5 yet another very interesting piece of evidence that clarifjes that provision beyonl any pale of doubt viz., the understanding of :BDT itself regarding this provision, t is contained in CBDT Circular No.8 of 2002 dated 27.8.2002, with the subject \"Finance Act, 2002 - Explanatory Notes on provison reating to Direct Taxes\". This cir:ular has been issued after the passing of the F nance Act, 2002, by which amendm€nt to section 113 was made. In this circular, various amendments to the Income t,rx Act are discussed amply demonstrating as to which amendments are clarificatory/ retrospective in operation and which amendmilnts are prospective. I For example, Explanation to section 158-BB is stated to be clarificatory an nature. Lakewise, it is mentioned that amendments in Section 145 whereby provisions of that section are made applicable to block assessments is made clarificatory and would take effect retrospectively from 1't day of July, 1995, When it comes to amendment to Section 113 of the Act, this very circular provides that the said amendment along with the amendments in Section 158-BE, would be prospective i. e., will take effect from f .6.2002.\" 18. Thus, the Apex Court in the above judgment, has made it clear that unless a contrary intention appears, a legislation has to be presumed to have prospective effect. A reading of Section 164 of the Act does not show that the legislation has any intention, to make the said provision applicable to past transactions. Further, the Apex Court in the above judgment at paragraph No.43, found that the circular issued by the authority after passing of the legislation, clarifying the position with regard to applicability of the provisions, has to be construed as an important piece of evidence, as it would clarify the provision beyond any pale of doubt. In the present case, as already noted above, the Ministry of Corporation affairs has issued the circular No.08/2014 dated 4.4.2074 clarifying that financial statements commencing after 01.04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 01.04.2014, shall be governed by Act 1 of 1956. At the cost of repetition, since in the present cases, as the 2\"d respondent / competent authority, has disqualified the petitioners as directors under Section 16a(2)(a) of the Act 18 of 2013, by considering the period prior to O1.O4.2014, 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 circular dated 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 01-04-2014 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 genera meeting for the year ending 31.03,2117, can be held within six monthri from the closing of financial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under l;ection 92(4) of the Act, is 60 days from annual general meeting, or the last date on which annual general nreeting ought to have been held with rrormal fee, and within 270 days with additional fee as per the proviso to Sect on 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.LL.2017, anl the balance sheet was to be filec on 30.10.2017 with normal fee and with additional fee, the last date for liling annual returns is 27.07.2078. In other words, the disqualification coulc get triggered only on or after 27.07.2)lB, But the period considered by the 2\"d respondent in the present writ p ltitions for clothing the petitioners with disqualification, pertains prior to O1.O4.2014. Therefore. when the orrission, which is now pointed out, wtrs not envisaged as a ground for disqualification prior to L4.20L4, the petitioners cannot be disqualified on t re said ground. This analogy is traceirble to Article 20(1) of the Constitution of India, which states that \"/Vo person shttll be convicted of any offence exc€S,tt f67 violation of a law in force at the t me of the commission of the act charqed as an offence, nor be subjected to a penalty greater than that which miqht have been inflicted under the lant itr force at the time of the commissior, of the offence\". ln view of the sarre, the ground on which the petitioners were disqualified, cannot stand to egal scrutiny, and the same is liable to be set aside. 20. A l:arned Single Judge of the High C rurt of Karnataka in YASHODHARA SHROFF vs. IINION OF ItlDIA2 considering Section 16a(2)(,r) of the Act and other provisions of the Act, and various judgments, passed an elaborate order and held that ther said provision has no retrospective op{lration. The observations of the learne d Judge, pertaining to 2 W.P.No.529 t l of 2017 and batch datcd 12.06.2019 11 private companies, which are relevant for the present purpose, are extracted as under: (b) That Article fslc) Section 164(2) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-disqualification and this is not in violation of the principles of natural justice, is nol ultra vlres 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 sa me. (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 f6a(2) o'f the Act was ever envisaged under the 1956 Act vis-;-vis directors of private companies. Such a disqualification could visit a director of only a public company under Section 27a(l)(g) of 1956 Act and neve. a director of a private company. Such disqualification of the petitioners who are directors of private companies is hence quashed, (0 (g) Consequently, where the disqualification under Section 164(2) ot the Act is based on a continuous period of three financial years commencing from 01.04.2014, wherein financial statements or annual returns have not been filed by a public or private company, the directors of such a company stand disqualified and the consequences of the said disqualification would apply to them under the Act. 21. A learned Single of the High Court of Gujarat at Ahmedabad in GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH VS. UNION OF INDIA3 expressed similar view as that of the leaned single Judge of High Court of Karnataka (1 supra), and held that Section l6aQ) ot the Act of 2013, which had come into force with effect frcm 7.4.2074 would have prospective, and not retrospective effect and that the defaults contemplated under Section 16a(2)(a) with regard to non-filing of financial statements or I r,'special CivilApplicarion No.22435 of 201'7 and batch dated 18.12.2018 208. In view of the aforesaid discussion, I have arrived at the following conclusions: (a) It is held that Section t6a(2)(a) of the Act is not u/tra ylrus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not fall within the scope of the doctrine of proport onality. Neither does the said provision violate Article 19(1)(g) of the Constltution 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 qoverna nce. l2 annual returns for any continuous period of three financia years would be the default to tre counted from the financial year 2014-15 only and not 2073-14. 22, A earned single Judge of the High Court of lladras ln BHAGAVAN DAS DHANANJ, YA DAS vs. UNION OF INDIA4 .riso expressed similar view. The relev; nt portion is as under: 29. In fine, (a) Vhen the New Act 2013 came into effrrct from 1.4.2014, the :econd respondent herein has wrongly gi',/en retrospective effect zrnd erroneously disqualified the petitic ner - directors from :.1.2016 itself before the deadline commenced wrongly fixing the f irst financial year from 7.4.2OL3 to 31.3.2r-)14. (b) tly virtue of the new Section 164(2)(a) of the 2013 Act using the (,xpression'for any continuous period of tilree financial year\" and i1 the light of section 2(41) defining \"financial year\" as well as their (,wn General circular No.08/14 dated 4.4..U014, the first financial lear would be from 1.4.2014 to 31.3.2015, the second financial l ear would be from 1.4.2015 to 31.3.201( and the third financial )ear would be from 1.4.2076 to 31.3.2017, whereas the second respondent clearly admitted in paras 75 and 22 of the counter ;ffidavit that the default of filing statutory returns for the flnal )ears commences from 2073-14, 2014-7: and 2015-16 i.e, one lear before the Act 2013 came into force. This is the basic ircurable legal infirmity that vitiates the entire impugned f roceed in g s. 23. In view of the above facts and circumstance:s and the judgments referred to sup-a, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(2)(a) of the Act, have been passr:d considering the period prior to 01..04.2014, the same cannot be sustaired, and are liable to be set aside to th;rt 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 roticed, and the same is extracted as under for ready reference: 164. Disq ualification for appointment of director: o w.P.No.25455 of l0l- ancl batch datecl 27.07.2018 l3 (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual returns for any continuous period of three financial years; or (b) . . . Shall be eligible to be re-appointed as a director of that company or appointed in other companies for a period of five years from the date on which the said company fails to do so. A reading of the above provision makes it clear that it provides disqualification on happening of an event 1.e., if a person who is or has been a director of a company has not filed financial statements or annual returns for any continuous period of three financial years, shall be ineligible to be re- appointed as a director of that company or appointed in any other company for a period of five years from the date on which the said company falls to do so. The provision does not provide for issuance of any prlor notice or hearing. A learned single Judge of the High Court of Karnataka in Yashodara Shroff v. Union of India (1 supra), as well as the learned single Judge of the High Court of Gujarat at Ahmedabad in Gaurang Balvantlal Shah s/o Balvantlal Shah vs. Union of India (2 supra), after analyzing various provisions of the Act and Rules framed thereunder, and by relying on various judgments of the Apex Court, held that Section 164(2)(a) of the Act applies by operation of law on the basis of the circumstances stated therein, the said provision does not envisage any hearing, neither pre-disqualification nor post-dlsqualiflcation and this ls not in violation of the principles of natural justice and hence, is nol ultra ylres Article 14 of the Constitution. I concur with the said rea so n in g. 25. Thus, from the above, it is clear that Section 76a(2)(a) of the Act is a deeming provision and the disqualification 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 dlsqualiflcation even before it incurred, and deactivated DINs, which is illegal arbitrary and against provisions contained in Section 16a(2)(a) of the Act. (a) (e) (b) (c) (d) 1.1 26, The next grievance of the petitioners is with re,lard to deactivation of their DINs. Th,-. contention of the learned counsel Fc,r the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINs cannot be cancelled or deactivated, and the ,/iolation mentioned under Section 6+(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alle ged violation under Section 16a(2)(a) ()f the Act, DIN cannot be cancelled. 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Ru e 10, it is allotted for life time. Ru e 11 provides for cancellation or de,rctivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 11. Can€ellation or surrender or deactivation of D:lN: The Central Government or Re I oral Director (Northern Region), Noida or an,, off cer authorized by the Regional D rec:oT may, upon being satisfied on verificatr(:n of particulars or documentary proo'attached with the application received from arl person, cancel or deactivate the DIN in case - the DIN s found to be duplicated in respect of the sanre person provided the datir related to both the DIN shall be merged with the validly retained number the DIN was obtained in a wrongful manner or by fraud rlent means; ofthe d:ath ofthe concerned individual; the con,rerned individual has been declared as a persc r of unsound mind by a cornpetent Court; if the ccncerned individual has been adjudicated an ins()lvent; Provided that )efore cancellation or deactivation of DIN pursLrant to clause (b), an opportunity of t eing heard shall be given to the concerned indi,/idual; on an alplication made in Form DIR-5 by the DIN hold-.r to surrender his or her DIN along vith declaration that he has never been appo rted as director in any company and :he said DIN has never been used for filing of .rny document with any authority, :he :entral Government may deactivate such DIN; Provided tlat before deactivation of any DIN in such case, the Central Government shall verify e-records. Explanatlor): for the purposes of clause (b) - The terxs \"wronqful manner\" means if the DIN is obtained on the strength of docunents which are not legally valid or incomplete documents are furnished or on srppression of material information or on tle basis of wrong certification or by rlak ng misleading or false informat on or by mi:irepresentation; (ii) the term \"frz udulent means\" means if the DIN is obtained r'i th an intent to ,leceive any other peTSon oT any authority inclu: ing the Central (lovernment. 28. Clauses (a) to (f) of Rule 11, extracted abov:, provldes for the circumstances und