Ramesh Baswa V. Union of India

WP/14388/2020

AI Insights

The case revolves around the disqualification of Ramesh Baswa from directorship under Section 164(2) of the Companies Act, 2013, due to alleged defaults in filing financial statements and annual returns. The petitioner challenged the disqualification, citing a lack of notice and the retrospective application of the law, which was argued to be against the principles of natural justice and legislative intent. The court examined the applicability of Section 164(2)(a) and its enforcement from 01.04.2014, finding that the disqualification was improperly applied retrospectively and without the required procedural safeguards.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 721728 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 17-09-2020
• Assessment Year: misc
• Other Referred Cases: COMMISSIONER OF INCOME TAX (CENTRAL)-L NEW DELHI v. VATIKA TOWNSHIP PRIVATE LIMITED, YASHODHARA SHROFF vs. UNION OF INDIA, GAURANG BALVANTLAL SHAH S/O BALVANTLAL SHAH vs. UNION OF INDIA, EHAGAVAN DAS DHANANIYA DAS vs. UNION OF INDIA
• Laws Referred To: Companies Act, 2013, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NAMAVARAPU RAO
• Assessee Lawyers: VANGA ANITA
• Keywords: Director disqualification; Director Identification Number; Financial Statements; Natural Justice; Writ petition
• Section: 151; 164(2); 226; 248; 252

Judgement Text

"HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD (Special Original J u risdiction) THURSDAY ,THE SEVENTEENTH DAY OF SEPTEN/BER TWO THOUSAND AND TWENTY PRESENT THE HON'BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION NO: 14388 OF 2020 Between: Ramesh Baswa, S/o. Shankaraiah Baswa Age- 48 Years, Occ- Business, R/o. Flat No.1 1 , Magnolia Towers, Serene Country Town Ship, Telecom Nagar, Serilingarnpally, Gachibowli Hyderabad, Telangana - 500032. ...PETITIONER AND 1. Union of lndia, Rep by its Secretary, Ministry of Corporate Affairs, Shastry Bhavan, Dr. Rajendra Prasad lVlarg, New Delhi 2. The Registrar, Office of Registrar of Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad - 500068 ...RESPONDENTS Petition under Article 226 of lhe Constitution of lndia praying that in the circumstances stated in the affidavil filed therewith, the High Court may be pleased to issue any writ, order of direction more particularly one in the nature of wrrt of lVandamus to permit the Petitioner to continue as a Director of the Company and/or get appoint or reappointed as a Director of any Company without any interference. Petition under Section 151 CPC praying that in the crrcumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to stay of the disqualification of directorship of the petitioner by activating the DIN No. 05341317 and digital signature of the Petitioner, in so far as the Petitioner herern is concerned, pending disposal of the above writ petition. Counsel for the Petitioner : SMT. VANGA ANITA Counsel for the Respondents: SRI NAMAVARAPU RAJESHWAR RAO, ASST. SOLICITOR GENERAL The Court made the following: ORDER lA NO: 1 OF 2020 THE HON'BLE SRI JUSTICE CHALLA KODANDA F'AM, WRIT PETITIO N No. 14388 of 2O2O ORDER: The petitioner challenges his disqualification from Directorship under Section 164(2) of the Companies Act, 2013, for the alleged default in filing financial statemen t/ Annual Returns, and consequently seek restoration of his Director ldentification Number (DIN) viz., 05341317. Learned counsel for the petitioner submits that the issue raised in lhe present Writ Petition is squarcly covered by the common order datr:d 18.07.2019 in W.P.No.5422 of 2018 and batch. Learned Standing Counsel for the 2Dd respondent - Registrar of Companies does not dispute the aloresaid submiss:on. Operative portion of the afolesaid order reads as under \"For the foregoing reasons, the impugned ordcrs in the writ petitions to the extent of disqualifying the petitioners under Section 164(2Xa) of the ,{ct and deactivation ,rf their DINs, are set aside, and the 2.d respondent is directed to activate the DINS of the petitioners, enabling them to function as Directors other than in strike off companies\" It is made clear that this order will not preclude the 2nd respondent from taking appropriate action in accordance with law for violations as envisaged under Section 16412l ot the Act, glving the said provision prospective effect from O\"J..O4.2Ol4 and for necessary action against DIN:in case of violations of Rule l1 of the Rules. It is also made clear that if the petitioners are aggrieved by the action of the respondents in striking off theii companies under Section 248 of the Act, they are at liberty to avail alternative remedy under Section 1252 of the Act. 2 All the writ petitions are accordingly allowed to the extent indicated above. \" ln view of the said Order dated 18.07.2019 and for the reasons recorded therein, this Writ Petition is also allowed in terms thereof. No co sts. Miscellaneous Petitions, if any pending, shall stand closed SD/-K.AM AJI To, ASSISTANT RE RAR //TRUE COPY' SECTIO 1. The Secretary, Union of lndia, N/inistry of Corporate Affairs, Shastry hava n, Dr. Rajendra Prasad lVarg, New Delhi 2. The Registrar, Office of Registrar of Companies, ROC, 2nd Floor, Corporate Bhavan, Near Central Water Board, GST Post, Bandlaguda, Nagole, Hyderabad - 500068 3. One CC to Smt. Vanga Anita, Advocate IOPUCI 4. One CC to Sri Namavarapu Rajeshwar Rao, Asst. Solicitor General, Advocate tOPUCI 5. Two CD Copies (Along with a copy of order dt.18l07l2O19 in W.P.No.5422 of 2018 and Batch) SM : -- HIGH COURT DATED:171A912020 ORDER WP.No.14388 of 2024 ALLOWING THE WP WITHOUT COSTS '.$\"j { 2 I SEP 2020 14: a I () lriE SIA gO G.SPA D H c fg,; '?g \")Pt /q .6 W.P.NOs.5422, 12184. 13520, 13783, 138ss. 14166. 24O51.30993. AND 40953 0F 2018, 5547, 554 669-5687. 574s, 6047, 60a7, 7069 7073.7tos.7432. 7454, 7572.7595, 7732. 776s, 776a. 7A24, 797a. a111, 8223, 8586, 8590, 9333, 9340, 9381, 9464, 9563. 9584. 9623, 9726. 9737. 10058. 10099. 11208, L1223, tL239. 11263. 11a89. 11991, 12018, 1.2036, 12040, 12069, 1210a, L2144, 12186, t21-94, L2200. L2209. L22L5. L22L7. L2243. 12260. 12262. t22aA. t2342. L2350, L24L7.72432, L2472.7249a, L2506, 12574. L259a. L262L, L2702. L2735. L2740.12845. 12850. 12865. 12866. 13013. 13618. 13730. L3749. 13779, t3788. L3839. L3A55, r3A78. 13912. 139L7. 13945. 14101. 14174. 14207,14350. L436L, 14390, 14392, 14397. 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(l)( 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 perlod, for obtaining the status of a dormant company under Section 455 of the Act. 3. The petitioners, who were directors of the struck off companies, and who are presently directors of active companies, during the relevant period in question, failed to file financial statements or annual returns for a continuous period of three years. Therefore, the 2\"d respondent passed the impugned order under Section 764(2) ot the Act, disqualifylng them as directors, and further making them ineligible to be re-appointed as directors of that company, or any other company, for a period of five years from the date on which the respective companies failed to do so. The Director Identification Numbers (DINs) of the petitioners were also deactivated. Aggrieved by the same, the present writ petitions have been filed. THE HON'BLE SRI JUSTICE A.RAJASHEKER REDDY 14409, 14582 ANO 14597 0F 2019 COMMON ORDER l 4. This court granted interim orders in the writ petitions directing the 2nd respondent to activate DINs of the petitioners, to enable them to function ()ther than in strike off companies. 5. Heard the learned counsel appearing for the petitioners in all the writ petitions, Sri K.Lakshman, learned Assistant Solicitor General appearing for the respondents - Union of India. 6. Learned counsel for the petitloners, contend that before passing the impugned order. notices have not been lssued, giving them opportunity, and this amounts to violation of principles of natural jusfice, and c,n this ground alone, the impugned orders are iiable to be set aside. 7. Learned counsel submits that Section 16a(2)(a) of the Act empowers the authority to disqualify a person to be a director, provided he has not filed financial statements or annual returns of the crompatry to which he is director, for any continuous period of three financia: years. Learned counsel further submits that thls provision came into force' with effect from 1.4.2Ot4, and prior thereto i.e,, under Section 274(L)(g) Df the Companies Act, 1956 (1 of 1956), which is the analogous provision, there was no such requirement for the directors of the private companies. They contend that this provision under Act 18 of 2013, will have prospective operation and hence, if the directors of company fail to comply with the requirements mentioned in the said provision subsequent to the said di:te, the authority under the Act, is within its jurisdiction to disqualify them. llut in the present cases, the 2nd respondent, taking the period prior to 7.4.2O14, i.e.. giving the provision retrospective effect, disqualified the petitioners as directors, which is illega I and arbitrary. B. Wlth 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 Direr:tors), 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 ln 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. 9. Learned counsel further submits that 1't respondent - Government of lndia represented by the Ministry of Corporate Affairs, has floated a scheme dated 29.72.201,7 viz., Condonation of Delay Scheme - 2018, wherein the directors, whose DINs have been deactivated by the 2nd respondent, allows the DINs of the Directors to be activated. However, such scheme is not applicable to the companies which are struck off under Section 2a8$) of the Act. In case of active companies, they can make application to National Company Law TribLlnal under Section 252 of the Act, seeking for restoration, and the Tribunal can order for reactivation of DIN of such directors, whose DIN are deactivated, However, under Section 252 only the companies, which are carrying on the business, can approach the Tribunal and the companies, which have no business, cannot approach the Tribunal for restoratlon. They submit that since the penal provision is given retrospective operation, de hors the above scheme, they are entitled to jnvoke the jurisdiction of this court under Article 226 of the Constitution of India. 10. With the above contentions, learned counsel sought to set aside the impugned orders and to allow the writ petitions. 11, On the other hand Iearned Assistant Solicitor General submits that failure to file financial statements or annual returns for any continuous period + of three financial years, automatically entail their disqualification under Section rcaQ)Q) of the Act and the statute does not provide for issuance of any notice. Hence, the petitioners, who have failed to comply with the sl-atutory requirement under Section 164 of the Ar:t, cannot complain of violation of principles of natural justice, as it is a deenring provision. Learned counsel further subn'rits that the petitioners have alternative remedy of appeal under Section 252 of the Act, and hence writ petitions nray not be cntertained. 12. To consider the contention of the learned Assistant Solicitor General witlr rcAard to alternative remecly of appeal under Section 252 of the Act, the said provision is required to be considered, and the same is extracted as under for better appreciation: i152. Appeal to Tribu na ll (1) Any person aggrieved by an order of the Registrar, notifying a company as dissolved under Section 248, may file an appeal to the Tribunal withjn a period of three ycars from the date of the order of the Registrar and if the T-ibunal is of thc opinron that the removal of the narne of the company from tlre register of companies is not jlrstified in view of the absence of any of the grounds on which the order was passed by the Reqistrar, rt nray order restor,rtion of the name of the company in the register of com panres; Provided that before passing an order under this section, the Tribunal shall give a reasonable opportunity of making repfesentations and of being heard to the Regrstrar, the (:ompany and all the persons (oncerned: Provided further that if the Registrar is satisfied, that tlre nan]e of the company has been struck off from the register of companie:i either inadverlently or on basrs of incorrect information furnished by the company or its,lirectors, which requires restoration in the register of companies, he may lvithin a period of three years from the date of passir'rg of the order dissolving the compan'/ under Section 248, file an application beforc the Tribunal seeking restoration ol' name of such company. (2) A copy oF the order pas:;ed by tlre Tribunal shall ire filed by tl're company wltlr tlre Reqrslrar witllrn thirty days from the date of the order and C)n receipt of the order, tlre Registrar shall cause tlre name of the company to be restored in the regrster of companies and shall issue a freslt certificate of incorporati,rn. (3) lf a company, or any member or creditor or worker thereof feels aggrieved by the company lraving its nanre struck off from ihe register of cornpanies, thc Tribunal or an application made by the company, member, credil.or or workman before the expiry of twenty years from the publication an the Official Gazette of the notice under sub-section (5) of Section 248, if setisfied that the company !./as, at the time of its name being struck off, carrying orr busirless or in operation or otherwise it is lust that the name of the con]pany be restored to the regrster of companies, order the name of thc company to be restored to the register of companies, .rnd tlre Tribunal may, by the order, give such othe' directions and make such provisions as deemed just for placing the company and all other persons in the sarne positron as nearly as rnay be as if the name of the c()mpany has not l)een struck off from the register of compani,ts. -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 164(2)(a) 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 2073, came into force wjth effect from 07.04.2014, 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 16+(2)(a) of the Act, which provision came into force with effect from 01.04.2014, can be made applicable with prospective effect, or has to be given retrospective operation? In other words, the issue would be, from which financial year, the default envisaged under Sectjon 164(2)(a) of the Act, has to be calculated, to hold the director of the company liable? In this regard, the learned counsel brought to the notice of this Court, the General Clrcular No.0B/14 dated 4.4.2014 issued by the Ministry of Corporation affairs, which clarifies the applicability of the relevant financial years. The relevant portion of the said circu la r is as under: \"A number of provisions of the Companies Act, 2013 including those relating to maintenance of books of account, preparation, adoption and filing of financial statements (and documents required to be attached thereto), Auditors reports and the Board of Directors report (Board's report) have been brought into force with 6 effect from 1't ADril, 2014. Provisions of Schedule II (useful lives to compute depreci.rtion) and Schedule III (format of financial statements) have also been brought into force from that date. The relevant Rules pertaining to these provisions have also l)een notified, placed on the website of the Ministry and have crlme into forcc from thc same date. The 14inistry has received requests for clarification with regard to the relevant financlsl y,g315 /ith effect from whiclr such provisions of tl're ne!, Act relating to mdrntenance of books of account, preparation, adoption and filing of financial statenrents (an(l attaclrments thereto), auditors report and Uoard's report will be a pl)lrc.r ble. Althou(]h the position in this behaif is quite clear, to nrake things absolutely clear it is llereby notifred that the financial statements (and docLrments; required to be attached tlrereto), auditors report and Board's report in rcrspect oF financial years tl'rat commenced earlier than 1't April slrall be governed by the relevant provisions/sclredules/rules of the Companies Act, 1956 3nd that in rcspect of frnancial years comn]encing on or after lstApril, 2014, the provisions of the new Act slr