Prasad V S S Sanagavarapu V. The Union of India and Another

WP/18729/2021

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 or annual returns for three consecutive years, as per Section 164(2) of the Companies Act, 2013. The petitioners argued that the application of this provision was retrospective and thus illegal, as it was applied to periods before the enactment of the Companies Act, 2013. The respondents contended that the law was applied correctly and that the petitioners had alternative remedies under the Companies Act. The court examined the legislative intent, the applicable rules, and previous judgments to conclude that the law should be applied prospectively and that the DINs should not have been deactivated.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 721643 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 12-08-2021
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)- NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, BHAGAVAN DAS DHANANJAYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Companies (Appointment and Qualification of Directors) Rules, 2014, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: S RAJEEV RATNA
• Keywords: Deactivation of DIN; Disqualification of Directors; Natural Justice; Prospective effect; Retrospective effect
• Section: 151; 164(2); 455; 248(1)(c)

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (SPecial Original Jurisdiction) THURSDAY, THE TWELFTH DAY OF AUGUST TWO THOUSAND AND TWENTY ONE PRESENT THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI WRIT PETITION NO: 18729 0F 2021 Between: Prasad V S S Occ. Business, 560067, KA. IA NO: 1 OF 2021 Sanaoavarapu, S/o Sanagavarapu Sastry, A99! a.boqt 47 years' ili,.'-Viiri sI Atsnivi-nedstone' Seeganatti' whitefield, Bangalore ,..PETITIONER AND 1 2 TheUnionoflndia,RepresentedbyitsSecretary,TheMinistrvofCoroorate niil i I',' c\" \"\", ; ;ni ;ij \"dl ; A:w ;i :'s hr.t,i dn'awi n, Raj e nd ra P rasad Road' New Delhi, Delhi 1 10001 ii\"l'i.trii ot C\"1nprni\"., (Andhra Pradesh and Telangana) 2nd Floor' -Corporate ii#;; ; : c'si F\"5i iitiia'n n ai j m N a so I e, B a n d I a s u d a,' ro \"'* ftt-ruro3n35 E ru r. PetitionunderArticle226oftheconstitutionoflndiaprayingthatinthe circumstances stated in the affidavit filed therewith, the High court may be pleased to ;;;; ,; order or direction or any other proceedings one in the nature of writ of [/lrnOrrw declaring the action of the respondents in so far as deactivating the oii\".to, ldentification Numbers 02264349 of the petitioner 1, as arbitrary, illegal, withoutjurisdiction,contrarytotheprovisionsofthe.CompaniesAct'2013and-Rule i f oi t'nu Companies (Aipointment and Qualification of Directors) Rules 2014' violative of the principles o? natural justice besides violating the Petitioner's rights grrrunLuO under Article 14 and Artiile 19 (1Xg) of the Constitution of lndia and to allow the Petitioner to continue as director in the company by u nlocking/activating the orN r.rr.o.r 02264348 of the petitioner and permit the Petitioner to get appointed as a director in new company or any company without any hassle' Petition under section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, inJ Higt'l Court may be pleased- to Stay \"p\"rrii\"\" of the d isqualrfication oi the Director ldentification Number of Mr. Prasad V S-i Sun\"g\"urrrp, iDlN. 0)2264348 of petitioner No.'1) and be pleased.to direct the i., nurJoiJ\"nt to siay the disabling and restore the Director ldentification Numbers O2Z64d4g of the petitioner 1, and e-nable him to join as a director in New Company, p\".Ji\"g disposal of the main writ petition and pass such further or other orders as ini. flo\"n'Of u'Court may Oeem tit und ptop\".. in the circumstances of the case and thus render justice. Counsel for the Petitioner : SRI S'RAJEEV RATNA Counsel for the Respondents : SRI NAMAVARAPU RAJESHWAR RAO ASSISTANT SOLICITOR GENERAL The Court made the following: ORDER HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI When the matter is taken up for hearing, learned counsel on either side faidy conceded that the issue invclved in this writ petition is squarely covered by the order dated 05.0g.2021 passed by this Court in W.P.No.1499Z of 2021. Following the order dated 05.08.2021 in W.p.No.74992 of 2027, this Writ Petition is disposed of. No costs. Pending miscellaneous peririons, if any, shall stand closed. //TRUE COPY// s D/- N ciltr{sD#I?'J[SSr[iR ('t't SECTION OFFICER ';lr,:i{i!':+:;#,Tl-',?ffi fl ffi il#;;*zil{dififfi 'fffr it'f'H},:' I Llt'fE n 3l R*1lx\"\"Is1'h?rls'l'i:?'fii3tot?l*'\"\"'soricitor Generar ioPucl 5. Two CD CoPies 6 il; spare bopy 'rf the order dated 05/08/2021 in wP Nc 14992 0f 2021) (along with a coPY c Kj. b, W.P.No.18729 of 2021 ORDER: HIGH COURT DATED:1210812021 ORDER WP.No.18729 of 2021 DISPOSING OF THE WRIT PETITION WITHOUT COSTS. 3 zt IUG202| * * I4 S t: H 1 a Ds.!F d o ( l @ e -s HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI COMMON ORDER Since, the issue involved in all the writ petitions is one and the same,they are heard together and are being disposed of by this common order. 2. The petitioners are the directors of the private companies, registered under the Companies Act, 2013 (18 of 2013) (for short 'the Act'). Some of the such companies are active, and some of them have been struck off from the register of companies under Section 248(1)( c ) of the Act, for not carrylng on any business operation for the specified period mentioned in the said provision, and for not making any application within the specified period, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and..who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years' Therefore, the 2nd respondent passed the impugned order under Section 164(2) of the Act, disqualifying them asdirectors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also I W.P.Nos. 11434. 11941. 12240. 13780. 14963. 14992. 15139. 15856 & 1616l of 2021 2 deactivated. Aggrieved by the same, the present writ petitions have been filed . 4. This court granted interim orders in th€ writ petitions directing the 2nd respondent to activate DINs of the petitioners' to enable them to functionother than in strike off companies' 6. Learned counsel for the petitioners, conllend that before passing the impugned order, notices have not beerl issued' giving them opportunity, and this amounts to violation cf principles of natural justice, and on this ground alone, the impu'3ned orders are liable to be set aside. 7. Learned counsel submits that Section 164(2)(a) of the Act empowers the authority to disqualify a person 1:o be a director' provided he has not filed financial statements or annttal returns of the company to which he is director, for any continuour; period of three financial yeafs. Learned counsel further submits tl^at this provision cameintoforcewitheffectfromL'4.2o|4,andpriortheretoi.e., under Section zlC(t)(g) of the Companies Act, 1t)56 (1 of 1956)' which is the analogous provision, there was no suclt requirement for the directors of the private companies' They contend that this provision under Act 18 of 2013, will have prospectLve operation and hence, if the directors of company fail to <:omply with the requirementsmentionedinthesaidprovisionsUbs(|quenttothesaid date, the authority under the Act, is within its jurisdiction to disqualify them. But in the present cases, the 2nd respondent, taking the period 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri Namavarapu Rajeswar'l Rao' learned Assistant Solicitor General for the respondents - Union of India' J prior to 1,4.20L4, i.e., giving the provision retrospective effect, disqualified the petitioners as directors, whichis illegal and arbitrary' 8. With regard to deactivation of DINs, learned counsel for the petitioners submit that the DINS, as contemplated under Rule 2(d) of the Companies (Appointment and Qualification of Directors), Rules, 2014 (for short 'the Rules), are granted for life time to the applicants under Rule 10(6) of the said Rules, and cancellation of the DIN can be made only for the grounds mentioned in clauses (a) to (f) under Rule 11 of the Rules, and the said grounds does not provide for deactivation for having become inellgible for appointment as Directors of the company under Section 164 of the Act. Learned counsel further submits that as against the deactivation, no appealis provided under the Rules, and appeal to the Tribunal under Section 252 of the Act is provided only against the dissolution of the company under Section 248 of the Act' 9. Learned counsel fufther submits that l't respondent - Government of India represented by the Ministry of Corporate Affairs, has floated ascheme 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 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 onlythe companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot 1 approach the Tribunal for restoration. They submit that since the penal provision is given retrospective operation, de hc'rs the above scheme, they are entitled to invoke the jurisdiction of th s court under Article 226 of the Constitution of India. 10. With the above contentions, learned courrsel sought to set aside the impugned orders and to allow the writ petitions. 11. On the other hand learned Assistant Solicitor General submits thatfailure to file financial statements or annual returns for any continuous period of three financial years, autorratically entail their d isq ua lification under Section 16a(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 thestatutor/ requirement under Section L64 of the Act, cannot complain o' violation of principles of natural justice, as it is a deeming provision. Learned counsel further submits that the petitioners have altentative remedy ofappeal under Section 252 of the Act, and hence writ petitions may not be entertained. 252. Appeal to Tribu na I (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Secton 248, may file an appeal to the Tribunal within a period of three years from the date of the order of the Registrar an(l if the Tribunal is of the opinion that the removal of the name of the company from the register of companiesis not justified in view of the absence of any of the grounds on which the or(ter was passed by the Registrar, it may order restoration of the name of the company in the register of companies; Provided that before passing an order under tlis section, the Tribunal sha give a reasonable opportunity of making representations and of being heard to the Registr)r, L2. To consider the contention of the leatned Assistant Solicitor General with regard to alternative remedy of appeal under Section 252 of theAct, the said provision is required to re considered, and the same is extracted as under for better appreciation: 5 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 inadveftently or on basis of incorrect information Furnished by the company or its directors, which requires restoration in the register of companies, he may within a period of three years from the date of passinq of the order dissolving the company under Section 248, file an application before the Tribunal seeking restoration of name of such company. (2) A copy of the order passed by the Tribunal shall be filed by the companywith the Registrar within thirty days from the date of the order and on receipt of the order, the Registrar shall cause the name of the company to be restored in the register of companies and shall issue a fresh ce rti fica te of i nco rpora tion. (3) It a company, or any member or creditor or worker thereof feels aggrieved by the company having its name struck off from the register of companies, the Tribunal or an application made by the company, member, creditoror workman before the expiry of twentY Years from the publication in the Afficial Gazette of the notice under sub-section (5) of Section 248, if satisfied that the company was, at the time of its name being struck off, carrying on business or in operation or otherwise it is just that the name of the company be restored to the register of companies, order the name of the company to be restored to the register oF companies, and the Tribunal may, by the order, give such other directions and make such provisions 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 the company has not been struck off from the register of companies. A reading of above provision goes to show that if the company is dissolved under Section 248 of the Act, any person aggrieved by the same, can file an appeal. Thus the said provision provides the forum for redressal against the dissolution and striking off the company from the register of companies. It does not deal with the disqualification of the directors, and deactivation of their DINs. In the present case, the petitioners are only aggrieved by their d isq ua lification as directors and deactivation oF DINs, but not about striking off companies as such. Hence, Section 252 of the Act, cannot be an alternative remedy for seeking that relief, and the contention of the learned Assistant Solicitor General, in this regard, merits for rejection. 6 13. Under Section 16a(2)(a) of the Act, if 1:he Director of a company fails to file financial statements or annual returns for any continuous periodof 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 01.04.2074, and the petitioners are disqualified as directors under the said provision. A: this stage, the issue that arises for consideration is - whether th,: d isq ua lification envisaged under Section l6a(2)(a) of the Act, which provision came into force with effect from 01.04.2014, can be mad,: applicable with prospective effect, or has to be given retrospective ol)eration?in other words, the issue would be, from which financial )'ear, the default envisaged under Section 164(2)(a) of the Act. has to be calculated, to hold the director of the company liable? In this re(lard, the learned counsel brought to the notice of this Court, the General Circular No.08/14 dated 4.4.2014 issued by the Ministr)' of Corporation affairs, which clarifies the applicability of the relevarlt financial years. The relevant portion of the said circular is as under: \"A number of provisions of the Companies Ac:, 2013 including those relating to maintenance of books of.,ccount, preparation, adoption and filing of financial stateme|ts (and documents required to be attached thereto), Auditors reports and the Board of Directors repoft (Board's reporl) have been brought into force with effect from lst April, 2014. Provisions of Schedule Il (useful lives to compute depreciation) and Schedule III (fcrmat of financial statements) have also been brought into fotce from that date. The relevant Rules peftaining to these pr)visions have also been notified, placed on the website of the Ministry and have come into force from the same date. The Ministry has received requests for clarificat,on with regard to the relevant financial years with effect fron which such provisions of the new Act relating to maintet ance of books of account, preparation, adoption and filing of inancial statements (and attachments thereto), auditors report and Boardb report will be applicable. Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the rinancial statements (and documents required to be nttached thereto), auditors report and Board's repoft in retpect of 1 financial yearsthat commenced earlier than 1st April shall be governed by the relevant provisions/schedules/rules of the Companies Act, 1956 and that in respect of financial years commencing on or after 1s'April, 2014, the provisions of the new Act shall applY,\" A reading of the above circular makes it clear the financial statements and the documents required to be attached thereto, auditors report and Board's report in respect of financial years that commenced earlier than 01.04.2OL4, shall be governed by the provisions under the Companies Act, 1956 and in respect of financial year's commencing on or after 01.04.2014, the provisions of the new Act shall apply. 14. At this stage it is required to be noticed that the analogous provision to Section 16a(2)(a) of the Act 18 of 2013, is Section 274(1)(9) of Act 1 of 1956. The said provision under Act 1 of 1956 is extracted as under for ready reference: section 274(t) A person shall not be capable of being appointed director of acompanY, 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 thefirst 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 in clause (B). A reading of the above provision under Act 1 of 1956, makes it clear that if a person capable of being appointed director of a company and such person is already a director of a public company, which has not filed annual accounts and annual returns for any continuous three financial years commencing on 8 and after the first day of April 1999, shall not be eligible to be appointed as a director of any other public company fcr a period of five years from thedate 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 anrtual returns, is placed on the directors of a'public company'. There is no provision under the Act 1of 1956, which places similar oblillations on the directors of a 'private company'. Therefore, non- filing of annual accounts and annual returns by the directors of the prvate company, will not disqualify them as directors under the provis ons of Act lof 1956. 15. Under Section 164(2) of the new legislalion i.e., Act 18 of 20t3, no such distinction between a 'private t:ompany' or a 'public company' is made and as per the said provision goes to show that no person who is orhas been a director of a 'company', fails to file financial statements or annual returns for any continuous period of three financial years, will not be eligible for appointment as a director of a company. As already noted above, thr: said provision, came into force with effect from 01.04,2014. 16. Coming to the facts on hand, the 2nd respondent has disqualified the petitioners under Section 164(2)(a) 3f the Act 18 of 2013, for not filing financial statements or annual re:urns, for period prior to OL.O4,2Ol4. The action of the 2nd respondent runs contrary to the circular issued by the Ministry of the Corporate Affairs, and he has given the provisions of Act 18 of2013, retrospectiv€ effect, which is impermlssible. 17. The Apex Court in COMMISSIONER OF INCOME TAX (CENTRAL)- NEW DELHI v. VATIKA TOWNSHIP PRMTE LIMITEDI has dealt with the general principles concerning retrospectivity. The relevantportion of the judgment is thus: 27. A legislatian, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. 28. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non fiction or even in a judgment of a court of law. There is a technique required to draft a legislatijn as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'Interpretation of Statutes'. Vis-d-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arises by presumptions as to the intent of the maker thereof. 30.The obvious basis of the principle against retrospectivity is the principle of'fairness', which must be the basis of every legal rule as was observed in the decision repofted in L Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [{1994) 1 Ac 486]. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note that cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position v'tas conceded by the counsel for the t (zo ts) t scct 9 29. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumednot to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in the law of today and ln force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks fotward not backward. As was observed in Phillips vs. Eyre [(1870) LR 6 QB 1], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not.to change the character of past transactions carried on upon the faith of the then existing law. 10 parties. In any case, we shall refer to few judgments containinq this dicta, a little later. 31. We would also like 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. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and whereto 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 af 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 wholq even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here. 32. 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 prospectivity. 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 operation. Thus, the rule against retrospective operatian is a fundamental rule of law that no statute shall be canstrued to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Doematically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 43. There is yet another very interesting piece of evidence that clarifies that provision beyond any pale of doubt viz., the understanding of CBDT itself regarding this provision. It is contained in CBDT Circular No.8 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, variaus amendments to the Income tax Act are discussed amply demonstrating as to which amendments are clarificatory/retrospective in operation and which a me nd m en ts a re pros pectiv e. For example, Explanation to section 158-BB is stated to be clarificatory in nature. Likewise, 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 prospecttve i.e., will take effect from 1.6.2002.\" 11 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, asalready noted above, the Ministry of Corporation affairs has issued thecircular No.08/2014 dated 4.4.2014 clarifying that financial statements commencing after 01'04.2014, shall be governed by Act 18 of 2013 i.e., new Act and in respect of financial years commencing earlier to 07.04.2014, 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 164(2)(a) of the Act 18 of 2013, by considering the period prior to 01.04.2014, the same is contrary to the circular, and also contrary to the law laid down by Apex Court in the above referred judgment. 19. If the said provision is given prospective effect, as per the circulardated 4.4.2074 and the law laid down by the Apex Court, as stated in the writ affidavits, the first financial year would be from O7-04-2OL4 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 t2 of the company, and as per the first proviso to Se:tion 96(1) of the Act, annual general meeting for the year ending 3-..03.2017, can be held within six months from the closing of finarcial year i.e., by 30.09.2017. Further, the time limit for filing annual returns under Section 92(4) of the Act, is 60 days from annual goneral meeting, or the last date on which annual general meeting ought to have been held with normal fee, and within 270 days with adrlitional fee as per theproviso 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 30.11.20L7, and the balance !;heet was to be filed on 30.10.2017 withnormal fee and with addij:ional fee, the last date for filing annual returns is 27.07.2018, In other words, the disq u a lification could get triggered only on or after' 27.O7.2078. But the period considered by the 2nd respondent in the present writ petitions for clothing the petitioners with disqualification, pertains prior to OL.O4.2014. Therefore, when the omission, which is now pointed out, was not envisaged as a ground for disqualification prior to 7.4.20L4t the petitioners cannot be disqualified o11 the said ground. This analogy is traceable to Article 20(1) of the Corstitution of India, which statesthat \"No person shall be convicted of any offence except for violation of a lawin force at the time of the com,nission of the act charged as an offence, nor be subjected to a penatty greater than that which might have been inflicted under the la N 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 I3 INDIA2 considering Section $ae)G) 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. he observations of the learned Judge, pertaining to private companies, which are relevant for the present purpose, are extractedas under: 208. In view of the aforesaid discussion, I have arrived at the fol lowi ng concl usions : (a) It is held that Section 16a(2)(a) of the Act is not uttra virus Article 14 of the Constitution. The said provision is not manifestly arbitrary and also does not falt within the scope of the doctrine of propottionatity. Neither does the said provisionviolate Article 19(1)(g) oi the Constitiiiin- as it is made in the interest of general public and a reasonable restriction on the exercise of ihe said right. The object and purpose oF the said provision is to stipu'late the consequence of a disqualification on account ii tie circumstances stated therein and the same is in ordei to achieve probity, accountability, and transparency in corporate governance. (b) That Articte (sic) Section 164(2) of the Act applies by operation of law on the basisof the circumstances stateld therein, the said provision does not envisage any niarij, neither pre-disqualification nor post_disqualifiiation aid this is not in viotation of the principles of naturat justici, is not ultra vires Article 14 of the Constitution. (c) That Section 164(2) of the Act does not have retrospective operation and is therefore, neither unreasonable nor arbitrary, in view of the interpretation placed on the sami. (d)... (e) Insofar _as the private cotnpanies are concerned, disqualification on account of the circumstances staiiib u-nder -Section 16a(2)(a) of the Act has been brought ini force for the first time under the Act and the conseiuencis of disqualification could not have been imposed oi directors of private companies by takinq into coisiaeratii,n any period prior to 01.04.2014 for the purpose of reckoning continuous period of three financial years undir 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 prioi 'to tni enforcement of the Act, a disqualification based on thi circumstances under Section j64(Z) of the Act was evelr envisaged under the 1956 Act vis-d-vis directors of private companies. Such a disqualification could visit a director of only a pubtic company under Section 274(1)(g) of 1gi6 Act and never a director of a private comfiiny. Sucn disqualification of the petitioners who are airectois of private companies is hence quashed, o (g) Consequently, where the disqualification under Section 164(2) of the Act is based on a continuous period of three financial years commencing from 01.04.2014, *neriii financial statements or annual returns have not been fiied by a public or private companyt the directors of such a 2 w.P.No.529l I of20l7 and batch d ated t2.O6.2ltg t4 company stand disqualified and the consequences of the said disqualification would apply to them under the l ct. 2L. A learned Single of the H,gh Court rf 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 sut)ra), and held that Section 164(2) of the Act of 2013, which had ccme into force with effect from 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 statem(rnts or annual returns for any continuous period of three f nancial years would bethe default to be counted from the financial year 2014-15 on ly and not 2013-14. 22. A learned single Judge of the High Courl: of Madras in BHAGAVAN DAS DHANANJAYA DAS vs. I'NION OF, INDIAA also expressed similar view. The relevant portion is as under': 29. In finel (a) When the New Act 2013 came into effect from 1.4,2014, the second respondent he.ein has wrongly given retrospective effect and erroneously disqualified the petitioner - directors from 1.1.2016 itself before the deadline commenced wrongly fixing the first financial year from 1,4,2013 to 31.3.2014. (b) By virtue of the new Section 164(2)(ir) of the 2013 Act using the expression 'for any ccntinuous period of three financial year\" and in the light of section 2(41) defining \"financial year\" as wel, as their own General circular No,08/14 dated 4,4,2)14, the first financial year would be from 1.4,.2014 to 31,i,2015, the second financial year would be from 1.4.2015 to 31.3.2016 and the third finan,:ial year would be from 1.4.2016 to 31,3.2017, whereas the second respondent clearly admitted in paras 15 and 22 of the counter affidavit that the default of filing statutory returns for the finalyears commences from 3Special Civil Application No.22435 of20l? ald batch dared 18.12.2018 a W.P.No.25455 of 2017 and batch date d 21.07.20t8 l5 2013-14, 2014-15 and 2015-16 i.e, one year before the Act 2013 came into force. This is the basic incurable legal infirmity that vitiates the entire impugned proceedings. 23. In view of the above facts and circumstances and the judgments referred to supra, as the impugned orders in present writ petitions disqualifying the petitioners as directors under Section 164(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. 24. As far as the contention regarding issuance of prior notice before disqualifying the petitioners as directors is concerned, Section 16a(2)(a) is required to be noticed, and the same is extracted as under for ready reference: 164. Disqualification for appointment of director: (2) No person who is or has been a director of a company which- (a) has not filed financial statements or annual 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 d isq ua lification on happening of an event i.e., if a person who is or has beena 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 l6 date on which the said company fails to do so. The provision does not provide for issuance of any prior notice or hearing' A learned single Judge of the High Court of Karnataka in Yar;hodara Shroff v' Union of India (1 supra), as well as the learned sirgle 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 tne circumstances stated therein, the saidprovision does not envisaJe any hearing, neither pre-d isq ua lification norpost-disqualification and this is not in violation of the principles of natural justice and hence, ls not ultra vlres Article 14 of the Constitution. I concur with the said reasoning' 25. Thus, from the above, it is clear that :;ection 16a(2)(a) of the Act is a deeming provision and the d isq ua lif ication envisaged under the said provision comes into force automatir:ally by operation of law on default and Legislature did not provide for issuance of any prior notice, but the respondents notified disq ua lific:tion even before it incurred, and deactivated DINs, which is illegirl arbitrary and against provisions contained in Section 164(2)(a) rrf theAct. 26. The next grievance of the petitioners is with regard to deactivationof their DiNs. The contention of the learned counsel for the petitioners is that except for the grounds mentioned under Rule 11 (a) to (f) of the Rules, the DINS cannot be cancelled or deactivated, and the violation mentioned under Se<:tion 164(2)(a) of the Act, is not one of the grounds mentioned under clauses (a) to (f) of Rule 11, and hence for the alleged violation under Section 16a(2)(a) of the Act, DIN cannot be cancelled. t7 27. Rule 10 of the Rules provide for allotment of DIN and under sub rule (6) of Rule 10, it is allotted for life time. Rule 11 provides for cancellation or deactivation. Rule 11, which is relevant for the present purpose, is extracted as under for ready reference: 7r. Cancellation or surrender or deactivation of DIN: The Central Government or Regional Director (Northern Region), Noida or any officer authorized by the Regional Director may, upon being satisfied on verification of particulars or documentary proof attached with the application received from any person, cancel ordeactivate the DIN in case - (b) the DIN was obtained in a wrongful manner or by fraudulent means; (c) of the death oF the concerned individual; (d) the concerned individual has been declared as a person of unsound mind by a competent Court; (e) if the concerned individual has been adjudicated an insolvent; Provided that before cancellation or deactivation of OIN pursuant to clause (b),an opportunity of being heard shall be given to the concerned individual; (D on an application made in Form DIR-S by the DIN holder to surrender his or her DIN along with declaration that he has never been appointed as director inany company and the said DIN has never been used for filing of any document with any authority, the Central Government may deactivate such DIN; Provided that before deactivation of any DIN in such case, the Centra I Govern m en t sh a I I v e ri fy e- records. Explanation: for the purposes of clause (b) - (c) 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 misrepresentation; 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. 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 u nder i (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 val id ly retai ned nu mber; ( ii) 18 Section 164(2)(a) of the Act. Therefore, for the alleged violation under Section L64 of the Act, DINS canno: be cancelled or deactivated, except in accordance with Rule 11 of the Rules. 29. Learned Single Judge of the Gujar:t High Court in the decision cited 2 supra, held as under: 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 publicatian of the impugned list of Directors of \"struck off\" companies under Section 248, also was not legally tenable. Of courset as per Rule 12 of the said Rules, the individual who has been allotted the DIN, in the event of any change inhis particulars stated in form DIR -3 has to intimate such change to the Central Governtnent within the prescribed time in Form DIR-6, however, if that s not done, the DIN could not be cancelled or deactivated. Th. cancellation ar deactivation of the DIN could be resorted to bt the concerned \"29. This takes the Court to the next questiott as to whether the respondents could have deactivated the DINS )f the petitioner as a consequence of the impugnedlist? In this regrrd, it would be appropriate to refer to the relevant provisions clntained in the Act and the said Rules. Section 153(3) provides that no person shall be appointed as a Director of a company, unless he has been allotted the Director ldentification Numbet under Section 154. Section 153 requires every individual ittending to be appointed as Director of a Company to make at application for allotment of DIN to the Central Government in such form and manneras may be prescribed. Section 154 states lhat the Central Government shall within one month from the receipt of the application under Section 153 allot a DIN to an aoplicant in such manner as may be prescribed. Section 155 prohibits any individual, who has already been allotted a DIAt under Section 154 from applying for or obtaining or possessinq another DIN. Rules 9 and 10 of the said Rules of 2014 prescrib? the procedure for making application for allotment and for the zllotment ofDIN, and further provide that the DIN allotted by the Central Government under the said Rules would be valid for the life time of the applicant and shall not be allotted toany otl er person. 30, Rule 11 provides for cancellation ot surrender or deactivation of DIN. Accordingly, the Central 3overnment or Regional Director or any authorized officerof R?gional Director may, on being satisfied on verification of particulars of documentary proof attached with an application fi om any person, cancel or deactivate the DIN on any of the grounds mentioned in Clause (a) to (D thereof. The said Rult 11 does not contemplate any suo motu powers either wtth the Central Government or with the authorized officer or Reg,onal Director to cancel or deactivate the DIN allotted to the Dire:tor, nor any of the clauses mentioned in the said Rules contemplittes cancellation or deactivation of DIN of the Director of the \"struL:k off company\" or of the Director having become ineligible under Section 164of the said Act. The reason appears to be that ance an individual, who is intending to be the Director of a particttlar company ts 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 companie:; also. Hence, if oneof the companies in which he was Director, is \"struck off\", his DIN could not be cancelled or deactivated as that would run counter to the provisions contained in the f:ule 11, which specifically provides for the circumstances undet which the DIN couldbe cancelled or deactivated. l9 Rules.\" 30. Learned Assistant Solicitor General appearing for respondents had contended that section 403 (2) of the Act provides that \"where a company fails or commits any default to submit' file' register, or record any document, fact or information under sub- section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default\" and he has further contended that as amendment has come into Section 403 with effect from07-05-20ls,theamendedsectionhasremovedtheprescribed 270 days' limitation within which the annual filings can be done excluding the time limit already provided under Sections 92' 96 and 137 of the Act and as per Section 403 of the Act levies rupees one hundred on each day from the date of default till the date of compliance of the mandatory provisions of law' 31. This Court having considered the said submissions is of the considered view that the new amending law also contemplates levying of Rs.100/- per each day of default and which permlts the regularizing the delay of the petitioners' Therefore, this Court is not inclinedtoaccepttheSaidcontentionofthelearnedAssistantSolicitor General for the respondents' 32. In view of the above facts and circumstances and the judgment referred to supra, the deactivation of the DINs of the petitioners for alleged violations under Section 164 of the Act' cannot be susta ined. respondents only as per the provisions contained in the said 20 33. For the foregoing reasons, the impugned rlrders in the writpetitions to the extent of disqualifying the petitioners under Section 16a(2)(a) of the Act and deactivation ol their DINS, are set aside, and the 2nd respondent is directed to activrte the DiNs of the petitioners, enabling them to function as Directors lther than in strike off companies. 34. It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 164(2) of the Act, giving the said provision prospective effect from 01.O4.2074 and tor necessary action against DIN in case of violations of Rule 11 of the lules. 35. 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 ofthe Act, they are at lil)erty to avail alternative remedy under Section 252 of the Act. 36. All the writ petitions are accordingly a lowed to the extent indicated above. ?-7 l\"liscellaneous petitions pending if an1' shall stand closed. JUSTICE ABHINAND KU]VIAR SHAVILI Dt.05-08-2021 kvr { "